As filed with the Securities and Exchange Commission on July 2, 2021.
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Clarios International Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 3714 | 86-3573574 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
5757 N Green Bay Avenue
Florist Tower Milwaukee, Wisconsin, 53209 (414) 214-6500
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrants Principal Executive Offices)
Claudio Morfe Florist Tower |
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)
Copies to:
Michael Kaplan Derek Dostal |
David Lopez Helena Grannis Cleary Gottlieb Steen & Hamilton LLP One Liberty Plaza New York, New York 10006 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
| ||||
Title Of Each Class Of Securities To Be Registered |
Proposed Maximum Aggregate Offering Price(1)(2) |
Amount Of Registration Fee(3) | ||
Common Stock, par value $0.01 per share |
$100,000,000 | $10,910 | ||
Series A Mandatory Convertible Preferred Stock, par value $0.01 per share(4)(5) |
$100,000,000 | $10,910 | ||
Common Stock, par value $0.01 per share(6) |
$ | $ | ||
Total |
$ | $ | ||
| ||||
|
(1) | Includes shares of common stock and shares of Mandatory Convertible Preferred Stock which the underwriters have the right to purchase to cover over-allotments. |
(2) | Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. |
(3) | To be paid in connection with the initial filing of the registration statement. |
(4) | This registration statement also registers an estimated shares of our common stock that are issuable upon conversion of the Series A Mandatory Convertible Preferred Stock registered hereby at the initial maximum conversion rate of shares of common stock per share of Mandatory Convertible Preferred Stock, based on the assumed initial public offering price of $ per share of common stock, which is the midpoint of the estimated offering price range shown on the cover of the common stock prospectus which forms a part of this registration statement. Under Rule 457(i), there is no additional filing fee payable with respect to the shares of common stock issuable upon conversion of the Mandatory Convertible Preferred Stock because no additional consideration will be received in connection with the exercise of the conversion privilege. The number of shares of our common stock issuable upon such conversion will vary based on the public offering price of the common stock registered hereby. |
(5) | The number of shares of our common stock issuable upon conversion of the Series A Mandatory Convertible Preferred Stock is subject to anti-dilution adjustments upon the occurrence of certain events described herein. Pursuant to Rule 416 under the Securities Act, the number of shares of our common stock to be registered includes an indeterminable number of shares of common stock that may become issuable upon conversion of the Series A Mandatory Convertible Preferred Stock as a result of such anti-dilution adjustments. |
(6) | This registration statement also registers shares of common stock that may be issued as dividends on the Series A Mandatory Convertible Preferred Stock in accordance with the terms thereof. |
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
This registration statement contains a prospectus relating to an offering of shares of our common stock (for purposes of this Explanatory Note, the Common Stock Prospectus), together with separate prospectus pages relating to an offering of our Series A Mandatory Convertible Preferred Stock (for purposes of this Explanatory Note, the Mandatory Convertible Preferred Stock Prospectus). The complete Common Stock Prospectus follows immediately. Following the Common Stock Prospectus are the following alternative pages for the Mandatory Convertible Preferred Stock Prospectus:
| front and back cover pages, which will replace the front and back cover pages of the Common Stock Prospectus; |
| pages for the SummaryThe Offering section, which will replace the SummaryThe Offering section of the Common Stock Prospectus; |
| pages for the Description of Mandatory Convertible Preferred Stock section, which will replace the Mandatory Convertible Preferred Stock Offering section of the Common Stock Prospectus; |
| pages for the Material U.S. Federal Income Tax Considerations section, which will replace the Material U.S. Federal Tax Consequences for Non-U.S. Holders of Common Stock section of the Common Stock Prospectus; and |
| pages for the Underwriting section, which will replace the Underwriting section of the Common Stock Prospectus. |
The following disclosures or references contained within the Common Stock Prospectus will be replaced or removed in the Mandatory Convertible Preferred Stock Prospectus:
| references to Mandatory Convertible Preferred Stock Offering will be replaced with references to Description of Mandatory Convertible Preferred Stock in the Mandatory Convertible Preferred Stock Prospectus; |
| references to this offering contained in SummaryRedemption of Existing Senior Preferred Stock, SummarySummary Historical Financial and Other Data, Use of Proceeds, Dividend Policy, Capitalization, Dilution, Managements Discussion and Analysis of Financial Condition and Results of Operations, Management, Principal and Selling Stockholders, Certain Relationships and Related Party Transactions, Description of Capital Stock and Shares Eligible for Future Sale (except under the heading Lock-up Agreements) will be replaced with references to the Concurrent Offering in the Mandatory Convertible Preferred Stock Prospectus; |
| references to the Concurrent Offering contained in SummarySummary Historical Financial and Other Data, Use of Proceeds, Certain Relationships and Related Party Transactions, Description of Capital Stock and Shares Eligible for Future Sale will be replaced with references to this offering in the Mandatory Convertible Preferred Stock Prospectus; |
| references to the concurrent issuance of shares of the Mandatory Convertible Preferred Stock will be replaced with references to issuance of up to shares of the Mandatory Convertible Preferred Stock in this offering in the Mandatory Convertible Preferred Stock Prospectus; |
| references to common stock or our common stock under the first paragraph under Summary, SummaryRisks Related to Our Business and Our Industry, Regulation and Our Offering, in the first paragraph under Risk Factors, Legal Matters and Where You Can Find More Information will be replaced with the Mandatory Convertible Preferred Stock in the Mandatory Convertible Preferred Stock Prospectus; |
| the disclosure under SummaryConcurrent Offering will be replaced in its entirety with Concurrently with this offering, we are offering, by means of a separate prospectus, shares of our common stock (and up to an additional shares of our common stock that the underwriters in the Concurrent Offering have the option to purchase from us to cover over-allotments). We estimate that the net proceeds to us from the sale of shares of our common stock in the Concurrent |
Offering will be approximately $ (or approximately $ if the underwriters in the Concurrent Offering exercise their over-allotment option to purchase additional shares of our common stock in full), assuming an initial public offering price of $ per share (which is the midpoint of the estimated offering price range shown on the cover page of the prospectus relating to the Concurrent Offering), in each case after deducting estimated expenses and underwriting discounts and commissions. The closing of this offering is conditioned upon the closing of the Concurrent Offering, but the closing of the Concurrent Offering is not conditioned upon the closing of this offering, and there can be no assurance that the Concurrent Offering will be completed on the terms described in the prospectus relating to the Concurrent Offering or at all. in the Mandatory Convertible Preferred Stock Prospectus; |
| references to midpoint of the estimated offering price range shown on the cover page of this prospectus will be replaced with midpoint of the estimated offering price range shown on the cover page of the prospectus relating to the Concurrent Offering in the Mandatory Convertible Preferred Stock Prospectus; |
| references to assuming the number of shares offered by us, shown on the cover page of this prospectus will be replaced with assuming the number of shares of common stock offered by us, shown on the cover page of the prospectus relating to the Concurrent Offering in the Mandatory Convertible Preferred Stock Prospectus; and |
| the reference to , if completed, and the reference to of that offering will be removed from the third paragraph under the Use of Proceeds section in the Mandatory Convertible Preferred Stock Prospectus. |
All words and phrases similar to those specified above that appear throughout the Common Stock Prospectus will be revised accordingly to make appropriate references in the Mandatory Convertible Preferred Stock Prospectus.
Each of the complete Common Stock Prospectus and Mandatory Convertible Preferred Stock Prospectus will be filed with the Securities and Exchange Commission in accordance with Rule 424 under the Securities Act of 1933, as amended. The closing of the offering of common stock is not conditioned upon the closing of the offering of Series A Mandatory Convertible Preferred Stock, but the closing of the offering of Series A Mandatory Convertible Preferred Stock is conditioned upon the closing of the offering of common stock.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion, Dated , 2021
Preliminary Prospectus
Shares
Clarios International Inc.
Common Stock
$ per share
Clarios International Inc. is offering shares of its common stock.
This is our initial public offering and no public market exists for our common stock. We anticipate that the initial public offering price will be between $ and $ per share.
We have applied to list our common stock on the New York Stock Exchange (NYSE) under the symbol BTRY.
Concurrently with this offering, we are also making a public offering (the Concurrent Offering) of shares of our % Series A Mandatory Convertible Preferred Stock, par value $0.01 per share (the Mandatory Convertible Preferred Stock). The Concurrent Offering is being made by means of a separate prospectus and not by means of this prospectus. We have granted the underwriters of that offering an option for a period of 30 days to purchase up to an additional shares of the Mandatory Convertible Preferred Stock, to cover overallotments. We cannot assure you that the Concurrent Offering will be completed or, if completed, on what terms it will be completed. The closing of this offering is not conditioned upon the closing of the Concurrent Offering, but the closing of the Concurrent Offering is conditioned upon the closing of this offering.
After the completion of this offering, certain entities affiliated with Brookfield Asset Management Inc. (Brookfield) and Caisse de dépôt et placement du Québec (collectively, the Sponsor Group) will continue to own a majority of the voting power of shares eligible to vote in the election of our directors, representing approximately % of the combined voting power of our outstanding common stock assuming no exercise of the underwriters option to purchase additional shares of common stock. As a result, we will be a controlled company within the meaning of the corporate governance standards of the NYSE. See ManagementControlled Company Exception and Principal Stockholders. Following the completion of the offering, public investors will own approximately %, representing approximately % of the combined voting power, of our outstanding shares of common stock assuming no exercise of the underwriters option to purchase additional shares of common stock.
Investing in our common stock involves risks. See Risk Factors beginning on page 26.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Share | Total | |||||||
Initial public offering price |
$ | $ | ||||||
Underwriting discounts and commissions |
$ | $ | ||||||
Proceeds to us before expenses(1) |
$ | $ |
(1) | See Underwriting for a description of compensation to be paid to the underwriters. |
We have granted the underwriters an option for a period of 30 days to purchase up to an additional shares of common stock to cover over-allotments, if any. See Underwriting.
The underwriters expect to deliver the shares to purchasers on or about , 2021.
BofA Securities | J.P. Morgan |
Barclays | BMO Capital Markets | Credit Suisse |
Deutsche Bank Securities | Goldman Sachs & Co. LLC |
Citigroup | HSBC | RBC Capital Markets |
Scotiabank | TD Securities |
CIBC Capital Markets | Guggenheim Securities |
Credit Agricole CIB | ING | National Bank of Canada Financial Inc. |
Natixis | Santander | Siebert Williams Shank |
The date of this prospectus is , 2021
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Material U.S. Federal Tax Considerations for Non-U.S. Holders of Common Stock |
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F-1 |
In this prospectus, Clarios, the Company, our company, we, us and our refer to (i) Clarios International Inc., together with its consolidated subsidiaries after giving effect to the consummation of the acquisition by the Sponsor Group of the power solutions business (the Power Solutions Business) of Johnson Controls International PLC (JCI) (the Acquisition) on April 30, 2019 (the Acquisition Date) or (ii) to the Power Solutions Business prior to the Acquisition Date.
We and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may provide you. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.
Market and Industry Data
This prospectus includes industry and market data that we obtained from periodic industry publications, third-party studies and surveys, as well as from filings of public companies in our industry and internal company surveys. These sources include government and industry sources. Industry publications and surveys generally
i |
state that the information contained therein has been obtained from sources believed to be reliable. Although we believe the industry and market data to be reliable as of the date of this prospectus, this information could prove to be inaccurate. Industry and market data could be wrong because of the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. In addition, we do not know all of the assumptions regarding general economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited herein.
Trademarks and Trade Names
We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business. Other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this prospectus are listed without the ® and symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.
Basis of Presentation and Other Information
Prior to the consummation of the Acquisition, Clarios Global LP had no operations and did not have material assets. As a result of the Acquisition, a new basis of accounting was created on May 1, 2019. The audited combined financial statements as of and for the year ended September 30, 2018 and as of and for the seven month period ended April 30, 2019, which are included elsewhere in this prospectus, are those of the Power Solutions Business and are referred to herein as Predecessor combined financial information. The historical financial statements and data included herein after such date are those of Clarios Global LP. In connection with this offering, we are undergoing a reorganization pursuant to which Clarios Global LP will become a wholly owned indirect subsidiary of Clarios International Inc., which is a newly created holding company that will not have any material operations or assets other than the ownership, directly or indirectly, of the equity interests of Clarios Global LP. See Unaudited Pro Forma Financial Information for additional information.
The consolidated results of operations and cash flows of the Company beginning on May 1, 2019 and the consolidated financial position of the Company as of balance sheet dates subsequent to April 30, 2019 are referred to therein as Successor consolidated financial information. In this prospectus, financial statements refer to the Predecessor combined financial statements and the Successor consolidated financial statements for the respective periods presented. Combined financial and operating data for the year ended September 30, 2019 represents combined results of the Predecessor for the seven months ended April 30, 2019 and the Successor for the five months ended September 30, 2019. This combination does not comply with accounting principles generally accepted in the United States of America (U.S. GAAP) or with the rules for pro forma presentation.
The Predecessor and Successor financial information presented herein is not comparable primarily due to the fact that the Successor financial information reflects:
| The application of acquisition accounting as of May 1, 2019, as further described in Note 2, Acquisitions to the audited consolidated financial statements for the year ended September 30, 2020, which requires the acquirer to reflect the fair value of the net assets acquired in a business combination as of the date of acquisition which often exceeds the net assets carrying value on the acquired businesss financial statements. As a result of applying acquisition accounting, the carrying value of the Successors net assets exceeds the carrying value of the Predecessors net assets on the consolidated statement of financial position. The most significant implications to the consolidated statements of income (loss) for the Successor periods due to the application of acquisition accounting are increased depreciation and amortization expense; |
ii |
| Additional debt and interest expense associated with debt financing arrangements entered into in connection with the Acquisition, as further described in Note 8, Debt and Financing Arrangements, to the audited consolidated financial statements for the year ended September 30, 2020; and |
| Certain pass-through entities for purposes of Canadian and U.S. income taxation and, therefore, no income taxes are reflected in the Successor financial statements for those entities. |
For the Predecessor periods, these financial statements included elsewhere in this prospectus were prepared on a combined carve-out basis derived from the consolidated financial statements and accounting records of JCI as if the Company had been operating as a stand-alone company. These financial statements have been prepared in accordance with U.S. GAAP. Management believes the assumptions underlying the financial statements, including the assumptions regarding allocating general corporate expenses from JCI, are reasonable and applied consistently for the periods presented. Nevertheless, the financial statements may not include all actual expenses that would have been incurred by the Company and may not reflect the combined results of operations and cash flows had it been a stand-alone company during the Predecessor periods presented. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. For additional information, see Note 1, Basis of Presentation, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus.
iii |
This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before deciding to invest in our common stock. You should read this entire prospectus carefully, including the Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations sections and our consolidated and combined financial statements and pro forma financial statements and the notes related to those financial statements included elsewhere in this prospectus, before investing in our common stock.
Our Company
Clarios is one of the worlds largest suppliers of energy storage solutions. We design and manufacture advanced, low-voltage battery technologies for global mobility and industrial applications, offering reliability, safety and comfort to everyday lives. Our batteries power cars, commercial vehicles, motorcycles, marine vehicles, powersports vehicles and industrial products. In our core low-voltage mobility battery markets, we are the only global manufacturer and are significantly larger than our nearest competitor by revenue. We believe we are unique in terms of our global capabilities, with the number one market position in both the Americas and Europe, Middle East and Africa (EMEA), and the number three market position in Asia. The majority of demand for our products comes from the aftermarket channel (aftermarket), driven by consumer replacements. We sell more than 140 million batteries annually that are distributed to original equipment manufacturer (OEM) and aftermarket customers in over 140 countries. Our scale, global footprint and vertical integration allow us to operate with a best-in-class cost structure, lead the industry in technological innovation and deliver greater value to customers and consumers. We have established one of the worlds most successful examples of a circular economy. We design, manufacture, transport, recycle and recover the materials in vehicle batteries using a closed-loop system. Our batteries are designed so that up to 99% of the materials can be responsibly recovered, recycled and repurposed directly into new batteries.
Our batteries provide reliable, essential, low-voltage power to a full range of propulsion technologies and will remain critical with the transition of the global transportation network from internal combustion engines (ICE) to hybrid and electric vehicles (EV). Our batteries support a range of functions critical to vehicle performance ranging from the more traditional roles of engine starting and ignition and supporting key-off loads, to more demanding emerging functions such as start-stop, advanced driver assistance systems (ADAS), over-the-air software updates and autonomous driving. Importantly, our batteries provide the fail-safe power required to support electric and autonomous vehicles (AV). Our advanced products are well-positioned to enable the increasing electrical load requirements seen in nearly all vehicles entering the market today, and especially the technologies of start-stop, EV and AV, which require more robust, advanced energy solutions. We believe the battery mix shift towards higher-margin advanced products represents a significant opportunity for Clarios as we deliver a compelling value proposition to our consumers by combining advanced technology solutions for mission critical systems with a lower cost solution than competing technologies.
Our product portfolio includes starting, lighting and ignition batteries (SLI) and advanced battery technologies (Advanced Batteries), which include enhanced flooded batteries (EFB) and absorbent glass mat batteries (AGM). We believe our products have differentiating factors, such as PowerFrame, which reduces lead usage and bolsters corrosion resistance, our patented EFB design and our certified non-spillable AGM battery technology. We also develop and manufacture low-voltage lithium-ion battery technologies for select markets. We distribute our products primarily through the aftermarket and OEM channels. We sell our products through a number of well-recognized global and regional brands such as VARTA®, LTH®, Heliar®, OPTIMA®, Delkor® and MAC®. Principally outside of North America we go to market with these owned brands which, based on consumer awareness studies, are consistently #1 or #2 in nearly every major market in which we participate. We also provide private label brands to our aftermarket customers including DieHard, Interstate, Duralast, Bosch and EverStart.
1
For the twelve months ended September 30, 2020, approximately 80% of our unit volume and an even larger share of our gross profit was generated through the replacement aftermarket channel. In the automotive market, our batteries have an average life of three to six years and the battery is replaced, on average, two to four times over a vehicles useful life, depending on the battery technology, application, driving habits and geography. Given aftermarket customers require not only a high-quality product but also outstanding service and support, we deliver value far beyond the supply of batteries. We have developed deep channel partnerships and have longstanding relationships with large domestic and international aftermarket customers such as Interstate, AutoZone, Bosch, Advance Auto Parts, Walmart and LKQ, serving as a critical partner in one of their largest and most important sales categories. We operate an entire logistics network for battery delivery (in some cases, direct to store) and for the return of spent batteries to be recycled, often through our owned recycling network. We benefit from our scale and technology developed with OEMs, which allow us to deliver a high level of expertise to the replacement channel, including training, technical and system expertise and category management. Our scale also allows us to fulfill store level demand in a timely fashion and at competitive cost. These differentiators are increasingly important as the complexity of monitoring and installing Advanced Batteries continues to rise. Additionally, we continue to innovate around aftermarket distribution through point of sale and digital channels, particularly in China.
The remaining roughly 20% of our unit volume is generated through the OEM channel, which is comprised of sales to major car, commercial vehicle, motorcycle, marine, powersports vehicle and industrial manufacturers globally. Our capabilities and expertise have also positioned us as the partner of choice for our OEM customers, including Ford Motor Company, General Motors Company, Volkswagen, Tesla, Inc., BYD Auto Co., Ltd, Li Auto Inc., The Daimler Motor Company Limited, BMW, PACCAR Inc., Polaris, Toyota Motor Corporation and Caterpillar Inc. Our OEM business is driven by global demand for new vehicles and equipment but serves as a key driver of our future aftermarket replacement business. Our focus is to be sourced as first fit with both leading traditional OEMs and emerging EV OEMs globally, which in turn bolsters our replacement business in the aftermarket channel. Our customers look to us to provide low-voltage systems integration expertise and drive technological innovation. We work closely with OEMs during development of future platform launches, designing energy storage technologies that will cost-effectively help them meet increasing environmental, safety and vehicle electrification requirements. Our leading global position in the OEM channel allows us to collaborate with a wide range of customers in bringing to market new technologies that can support and accelerate advancements in powertrain technology and autonomy. In addition, our global footprint allows us to serve OEMs with the same product in multiple regions with localized production, which simplifies their procurement processes on global vehicle platforms. No customer accounted for more than 10% of total volume for the twelve months ended September 30, 2020.
Our global scale and market position allow us to be a driving force in shaping environmental policy within our industry. We seek to be a leader in sustainability principles in both strategy and day-to-day operations by pursuing sustainable growth opportunities and investments in our business, reducing waste and ensuring the reuse of materials through a closed-loop recycling system. Our investments in sustainable operations create value for all stakeholders in our business. They are both a source of pride for our employees and a competitive advantage allowing us to deliver higher production volumes, limit commodity supply risk and price exposure, and generate higher margins, all while minimizing impacts on the environment. By collaborating closely with our customers to manage used batteries responsibly, we seek to help our customers meet their sustainability goals. As our recycling services translate directly to value to our customers, we deepen our relationships, position ourselves as
2
a supplier of choice and establish our company as a future-focused leader. We have helped to shape environmental policy around the world, working with local regulatory bodies in regions where we operate to improve applicable regulatory standards, resulting in significant improvements over the past two decades within our industry. We continue to invest in reducing lead air emissions from, and employee lead-blood levels at, our facilities worldwide. We believe that our efforts to exceed industry-leading environmental and safety standards globally have been a key driver of our success.
Our business has a long history of organic growth. In the future, we believe we will benefit from top-line and bottom-line growth through an expanding global car parc and favorable mix shift to Advanced Batteries driven by replacement batteries for the large number of start-stop vehicles already on the road. We also expect our business to benefit from increasing power demands in electrified and autonomous vehicles, increased penetration in high-growth regions around the world, particularly in China, expansion to adjacent end markets and successful execution of significant cost-saving and margin enhancement initiatives already underway. Our strong cash flow provides the opportunity to redeploy capital and explore acquisition opportunities. The strength and resilience of our business model is exhibited in our track record of solid financial performance. For the fiscal year ended September 30, 2020, our business generated $7,602 million in revenue and sold 143 million batteries and for the fiscal year ended September 30, 2019, our business generated $8,528 million in revenue and sold 153 million batteries. As of March 31, 2021, we had approximately $10.3 billion of long-term debt outstanding, including deferred financing costs and finance leases, and $550 million of cash and cash equivalents. The following chart reflects certain operating data for the year ended September 30, 2020.
Industry Transformation
In the broader transportation industry, three major forces are contributing to a meaningful acceleration in the electrical power consumption requirements of todays vehicles: policy and regulatory changes focused on the environment; increasing consumer demands focused on comfort, safety, and convenience; and economic considerations that govern technology choices. The increased electrical power consumption in vehicles has driven a shift toward more capable, higher-margin Advanced Batteries that can help vehicles meet regulatory standards and consumer expectations in a cost-effective way. We sit at the forefront of this industry transformation and enable these shifts with our leading Advanced Battery portfolio and best-in-class product development expertise. As the low-voltage solution provider of choice for OEMs, we inform their system architecture requirements and help define the future of our industry.
Governments and global regulatory bodies are placing an increased emphasis on environmental, material and safety practices. In light of policy changes, OEMs have continued to focus on improving fuel efficiency and reducing greenhouse gas emissions in order to meet increasingly stringent regulatory requirements in various
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markets. Advanced Battery technologies have been critical to enabling the industrys response to satisfy these new requirements from powering critical systems in start-stop vehicles to ensuring reliable performance and functional safety in battery electric vehicles (BEVs).
Consumers are also seeking additional comfort, connectivity and safety features in their vehicles, increasing vehicle electrical loads significantly. Based on our estimates and analysis, computing and electrical requirements have grown meaningfully in the last decade. The number of electrical devices in vehicles is expected to triple from 2009 to 2025 and potential peak power requirements have increased approximately 50% over the last ten years. We expect these increasing power demands to further accelerate, particularly with the advent and advancement of partially and fully autonomous vehicles.
As electrical power consumption requirements have increased, there has consequently been significant demand for innovation in battery technology. These trends are driving the sales mix of batteries towards Advanced Battery technologies as start-stop powertrains are further developed and additional safety and autonomous features are built into all cars. As the role of autonomous functions continues to move from sensing and indication to control of the vehicle, reliable power management in the vehicle becomes increasingly critical. This technological shift places additional requirements on the low-voltage battery to ensure there is sufficient power available for safe vehicle operation, particularly in the event of a failure or loss of the primary power source. This challenge has increasingly been addressed by using multiple low-voltage batteries to provide redundancy and meet the relevant automotive functional safety standards, with increased reliance on Advanced Batteries.
The increasing electrification of vehicles has driven a rapid shift towards Advanced Batteries to support next-generation vehicles, those powered by something other than a traditional ICE powertrain without electrification technology. Next-generation vehiclesthose with start-stop, mild hybrid, full hybrid, plug-in hybrid or fully electric technologiesnow account for approximately 20% of the global car parc and will reach more than 50% by 2030, according to IHS Markit. In a BEV, batteries are categorized as either high-voltage or low-voltage. A high-voltage lithium-ion propulsion battery typically replaces the internal combustion engine and provides power to generate the torque needed for directional movement. However, all EVs, including BEVs, require a low-voltage battery to work in tandem with the high-voltage battery to provide critical functionality during all stages of use when the vehicle is driving, when the engine or high-voltage battery is off and when an emergency occurs. While the vehicle is in motion, the battery supports peak power demands that exceed the direct current to direct current (DC/DC) converters capabilities, such as power steering and seat heaters.
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While the vehicle is at rest, the low-voltage battery provides power to engage the primary high-voltage battery, both during charging and to initiate driving. The low-voltage battery also supports key-off functions such as theft-protection, entertainment and connected-vehicle technologies such as over-the-air updates. Perhaps most importantly, when a failure occurs resulting in a loss of power from the high-voltage battery or DC/DC converter, the low-voltage battery supplies power to safety-critical systems, providing a crucial layer of redundancy necessary to ensure the vehicle can be safely navigated.
OEMs face evolving pressures of both environmental regulation and consumer expectations, and they look to us as key advisors in shaping their strategies for next-generation power supply architectures. The choices around battery technology, sizing and utilization are key factors for them in finding the right balance of performance, quality and cost. We are uniquely positioned to provide that support due to our broad, global relationships with nearly all OEMs, our engagement with other key Tier 1 suppliers, our vehicle and systems evaluation capabilities and our knowledge of all applicable battery technologies. As a trusted partner to our customers, we help shape the specification and operating strategy of the battery.
Advanced Battery technologies like AGM and EFB remain the preferred next-generation low-voltage solution by OEM customers and are currently specified into all powertrain configurations, including mild-hybrids, plug-in hybrids and BEVs. We believe the cost of our Advanced Batteries is approximately a quarter of that of low-voltage lithium-ion today. In low-voltage applications, AGM batteries provide a preferable alternative to lithium-ion, as they are able to handle the key-off and peak loads in electric vehicles, are inherently safe and have a superior cost structure. Based on IHS Markit projected electric vehicle platforms and production volumes through 2025, the vast majority of new vehicles will utilize lead battery technology for their low-voltage requirements. The superior performance of our products and our industry-leading AGM capacity position us well to capture additional market share in next-generation vehicle battery demand.
Overall, we anticipate the battery market to grow in line with the expansion of the global car parc and global GDP growth. IHS Markit estimates the current global car parc to consist of approximately 1.3 billion vehicles in 2020, growing to 1.6 billion vehicles in 2030. A significant amount of the global car parcs growth is expected to come from China, a region in which we continue to experience strong market penetration and have a runway for meaningful growth.
Source: IHS Markit
Next-generation vehicles now account for approximately 61% of all new car sales and are expected to reach approximately 86% of new car sales by 2030, according to IHS Markit. This shift in OEM volumes, and the growing Advanced Battery replacement demand as the next-generation car parc grows, is expected to more than double demand for AGM batteries by 2030. Given increasing low-voltage system needs, we expect the replacement rate of two to four times over the life of a vehicle to remain consistent going forward. Advanced
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Batteries are approximately twice as profitable as an SLI battery, providing a meaningful tailwind for growth. Our installed manufacturing capacity positions us well to capitalize on meaningful growth. Our operations comprise more than 50% of installed AGM capacity globally, with leading market positions in the Americas, EMEA and Asia. Our leading position in AGM is a result of leveraging our significant scale to research and develop new technologies in a way and at a pace that our competitors find difficult to match. In comparison to flooded technologies, AGM is more difficult to manufacture due to key differentiating characteristics, such as plate compression and electrolyte saturation level. As a result, there is a wide variation in performance and quality across the global supply base. Innovations such as our proprietary continuous plate-making technology, our high-precision battery assembly process and our unique approach to filling and forming batteries have enabled a level of consistency and quality in our AGM products that significantly outperforms those of our competitors. Developing these technologies is both costly and complex. Our significant financial resources and deep bench of research professionals have helped us to become the market leader in manufacturing and developing AGM batteries globally.
The manufacture and distribution of products in our industry is a heavily regulated activity. Stringent environmental, material and safety regulations drive significant requirements for both battery manufacturers and automotive OEMs with respect to handling and manufacturing lead-based products. Industry regulators heavily scrutinize the construction of new battery manufacturing facilities. As such, we leverage our existing manufacturing footprint to maximize the efficiency of our existing plants, increasing our throughput and improving our favorable cost base. Used, spent batteries and their handling are also subject to regulation. The recovery of these batteries entails complex logistics networks and deep supply chain integration with players in the battery recycling industry, requiring scale and end-to-end solutions which are difficult to replicate. Permits to build greenfield battery recycling facilities are increasingly difficult to obtain. These facilities benefit from significant economies of scale, requiring a large capital commitment up front and significant commercial risk. Lastly, in terms of our go-to-market strategy, there are significant restrictions imposed on the shipment of flooded batteries direct-to-consumer. This regulatory restriction requires that competitors in our industry must develop their own distribution channels and commercial relationships, such as the ones we have developed with OEMs and our aftermarket customers over a long period of time.
Our Competitive Strengths
We are the global market leader in Advanced Battery technologies with unmatched scale and geographic reach
We are the largest and only global supplier of low-voltage mobility energy storage solutions. On a global basis, we are significantly larger than our second largest competitor by sales and have meaningful operations in every geographic region and sales of our products into over 140 countries. Within our reporting segments, we
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have a number one market position in both the Americas and EMEA and a number three position in Asia. In both the Americas and EMEA, our sales are far greater than our nearest competitor.
We sell our products to almost every major OEM in the world and work with emerging electric vehicle companies to support their low-voltage needs. Many of our global OEM customers design common global vehicle architectures. Our global supply chain provides us an advantage through our ability to support their common battery requirements across all regions. In the aftermarket, we go to market through private label brands, most notably in North America, and through our leading global first-line brands. We provide private label brands to many aftermarket customers, including DieHard through Advance Auto Parts; Duralast through AutoZone; and Bosch® in many markets globally. Our portfolio of leading global first-line brands includes the worlds most recognized battery brands, based on aided brand awareness and consumer preference studies in regions where we operate. These include OPTIMA®, VARTA®, LTH®, Heliar®, Delkor® and MAC®. In addition, we partner with our partially owned joint venture Interstate Batteries on manufacturing and distribution throughout North America. We believe consumers trust our brands to deliver best-in-class electrical and cycling performance and look for features offered by our batteries as the safest solution to power their vehicles.
We have a replacement-driven business model with meaningful scale that is focused on the attractive and recurring mobility aftermarket
Through stable, recurring demand for our products, combined with leading manufacturing capabilities, we consistently generate strong cash flows. Our significant aftermarket exposure, approximately 80% of total unit volumes in fiscal year 2020, provides a resilient and consistently growing base to our business. On average, automotive batteries are replaced two to four times in a vehicles life and purchases cannot be delayed due to the critical nature of the product. The importance of our products and our high-touch level of service have positioned us as a key supplier to large aftermarket retailers in one of their most significant product categories. We also benefit in this category through a first fit advantage given our relationships with leading OEMs that positions us well for the aftermarket replacement. Additionally, our aftermarket customers rely upon our expertise and extensive OEM relationships to understand how the car parc is evolving over time and provide direction in positioning themselves for the future. The insight and knowledge we are able to share fosters stickiness and loyalty with these customers.
The scale of our business enhances our competitiveness in the attractive and higher-margin aftermarket channel. Margins in the aftermarket are significantly higher than the OEM channel on similar products and our substantial aftermarket presence insulates the exposure of our earnings to more cyclical new vehicle sales. Given the complex logistics and high service levels required by our aftermarket retail and distribution customers, we believe the size and scale of our closed-loop, vertically integrated product distribution and recycling network is unique and difficult to replicate. Further, the size and footprint of our operations in the geographies where we compete enable us to optimize the distribution of our products to minimize logistics costs associated with an inherently heavy product that is difficult to ship.
We benefit from the secular tailwinds driving a mix-shift toward higher priced Advanced Batteries with rapid growth in the aftermarket
New car sales and the evolution of the existing car parc towards next-generation vehicles are expected to accelerate OEMs and consumers need for Advanced Batteries. Our extensive capabilities, backed by our 130+ year history in battery manufacturing, enable us to deliver innovative solutions to meet these demands. Our history of innovation and commitment to advancing our product and manufacturing technology is demonstrated by our more than 1,680 patents granted and more than 520 patents currently pending. As a result, we are at the forefront of technological development and are well-positioned to capture the growing mix-shift to Advanced Batteries. Our product development strategy is based on understanding OEM application needs and partnering
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with them to select the optimal low-voltage battery for each application. We maintain commercial relationships with almost all major OEMs and have active dialogue with them on both commercial and technological matters. Our team has developed a robust Advanced Battery pipeline to address future levels of autonomy and electrified powertrains and is well-positioned to be the leading low-voltage battery supplier to the next-generation of vehicles. We expect these new products to enhance our share of business with OEMs and to be higher-margin contributors to our bottom line.
Increasing electrical loads are driving OEMs to specify Advanced Batteries in a growing number of new vehicle platforms. We expect Advanced Batteries to be approximately half of low-voltage batteries sold by 2035, as more vehicles with first fit Advanced Batteries enter the typical aftermarket replacement cycle. Based on our extensive OEM relationships we believe we are well-positioned to capture the aftermarket growth occurring as a result of the mix shift to next-generation vehicles. Our OEM relationships benefit our aftermarket position in several ways. First, Original Equipment Service (OES) providers generally replace batteries on a like-for-like basis with the OEM specification. Second, our engagement and depth of relationship with most of the worlds OEMs provide us a differentiated amount of insight into the future of the car parc and how low-voltage battery needs will change over time. Our aftermarket retail customers depend on us for this expertise as we work collaboratively with them to define their product roadmaps, understand the evolving landscape and the tools needed to support it, and derive win-win solutions for our businesses. With our leading existing AGM manufacturing capacity, we believe we are well-positioned to fulfill this demand as volumes naturally accrue in the aftermarket.
We anticipate this shift in product mix to significantly enhance our financial profile. Currently, Advanced Batteries are approximately twice as profitable as SLI batteries. In particular, we expect that the continued penetration of AGM products into the higher-margin aftermarket will significantly enhance our profitability. While Advanced Battery volumes comprised 20% of our total unit sales in 2020, in the aftermarket they accounted for only 9%. We expect a wave of aftermarket Advanced Battery replacements in the coming years as these new batteries already sold through the OEM channel approach their first natural replacement cycle, particularly in the Americas. This would result in a higher penetration of Advanced Battery sales in the aftermarket in the future.
We have a strong and expanding position in China and are strategically positioned for growth in the highly profitable AGM product in that market
The Chinese automotive industry is large and attractive with more than 254 million vehicles in operation, according to IHS Markit. Over the past five years, the Chinese car parc has grown from 156 million to 254 million vehicles, representing a 10.3% compound annual growth rate (CAGR), making it the fastest
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growing car parc in the world. We have a strong, competitive position with a more than 40% market share in BEVs and expect significant growth within the region given the proliferation of next-generation new vehicle sales and the relatively low age of the current car parc. These factors each contribute to growth in the aftermarket, driving favorable volume and product mix for our business. Approximately half of our sales in China are Advanced Batteries and we expect significant growth in Advanced Batteries throughout the region. Our existing AGM capacity currently comprises approximately 70% of total AGM capacity within the country. In order to keep up with the growth in the region, we have three state-of-the-art manufacturing facilities, including our latest facility that is coming online this year. We believe our installed capacity positions us to meet expected demand and to take advantage of significant growth in the worlds fastest growing car parc. We have seen our revenue increase significantly in China driven by increased sales of Advanced Batteries into both the OEM and aftermarket channels. We expect to continue this growth driven by both the expansion of the Chinese car parc and by increasing our market share in China.
Our scale and operational excellence provide us with a best-in-class cost structure
Our scale and vertical integration help us maintain a low-cost profile. Our technology leadership position drives a mix benefit for our business from higher-margin Advanced Batteries. These factors combined drive a meaningfully higher margin profile for our business relative to our competitors. We believe our cost structure benefits from superior design, scaled manufacturing plants, optimized footprint in low-cost countries, automation, plant efficiencies and purchasing synergies. The size of these advantages depends on the region and competitor, but we believe each is durable and together provide a strong base to continue to build our leadership position.
As an example of the benefits of our vertically integrated model, in fiscal year 2020, our Mexico recycling facilities were able to operate at a cost basis 70% less than the cost of our average third-party tolling contract when evaluated on a per-ton basis. Our recycling infrastructure, with facilities in Mexico, Colombia and Germany, and long-term tolling agreements with third-party recyclers, ensures a diversified supply of lead, thereby limiting our commodity exposure and supply risk. In our long-term tolling agreements, we provide independent recyclers used batteries collected through our expansive distribution network for processing and recycling. We then collect finished lead from those recyclers for a per-ton fee, providing us stable access to lead through the closed-loop recycling ecosystem.
Note: 8,000 batteries recycled per hour figure includes batteries recycled through our third-party tolling partners.
Our management team, together with external advisors and Brookfield, Caisse de dépôt et placement du Québec (CDPQ) and others (together, our Sponsor), identified over $400 million of cost-saving opportunities
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in connection with and from the date they acquired Clarios from Johnson Controls (the Acquisition). Approximately 50% of these initiatives are in the areas of manufacturing and recycling efficiencies. For example, we believe we can achieve significant cost-savings by reducing bottlenecks and increasing throughput in our plants in the United States, bringing them more in line with the performance of our plants in other countries. The remaining cost savings consist of opportunities within procurement; selling, general and administrative; and logistics, with minimal financial commitment required to achieve these cost savings initiatives. These initiatives include optimizing shipping routes and external services, consolidating spending and accelerating our transformation to a lean, regionally-focused organizational structure with increased accountability at the local level. To date, we believe we have achieved approximately $175 million of annualized cost savings since the Acquisition. We continue to pursue the remaining $225 million in incremental cost savings against our original $400 million plan, which we expect to realize over the next two to four yearsand intend to continue to identify new opportunities to further improve our global operations.
Our commitment to setting high Environment, Social and Governance (ESG) standards is core to both our business philosophy and operations and has created competitive differentiation
Our Clarios Sustainability Blueprint is our roadmap as we build a better, safer, stronger company. The Blueprints five pillars guide our ESG efforts: Value, Operational Excellence, Life-Cycle Stewardship, Transparency and Advocacy. Through these efforts, we work to unlock our capabilities in battery innovation, design, materials sourcing, manufacturing, distribution, circular economy and recycling. We believe that our efforts to exceed industry-leading environmental and safety standards globally have been a key driver of our success. Through our business practices, we have demonstrated a dedication to sustainability by continued improvement in our emissions performance. Core to our operations are the closed-loop recycling program and circular supply chain. Lead is one of the worlds most recycled materials with conventional batteries being the most recycled consumer product globally (up to 99% of the materials in batteries can be recovered, recycled and reused to make new batteries). The closed-loop encompasses more than the physical process of recycling. We manage all aspects of the supply chain including the delivery and collection of batteries. The holistic management of the entire program establishes a significant competitive advantage in that it provides an overall raw material cost advantage, ensures sustainability of supply, helps insulate the business from lead price fluctuations and strengthens ties with aftermarket customers. Furthermore, we believe our commitment to safe and sustainable practices helps mitigate potential environmental risks and associated compliance costs. We endeavor to pursue key growth opportunities at the intersection of sustainability and leading technology, including enabling the global car parcs electrification with Advanced Batteries, our involvement in expanding the recycling of lithium-ion batteries and our general pursuit of identifying solutions to improve fuel economy and reduce greenhouse gas emissions. In addition to these commercial goals, to help set global standards we founded the Responsible Battery Coalition, led the creation of the World Economic Forums Global Battery Alliance and have developed a unique public/private partnership with UNICEF and Pure EarthProtecting Every Childs Potential. These efforts are an extension of our Sustainability Blueprint and help us to continue advancing our industrys commitment to sustainable practices.
We have a strong financial profile and track record of growth that position us for sustained earnings power
We efficiently convert our revenue into cash flows while deploying capital to support ongoing operations and future growth. We continuously invest in our operations and technology which we believe helps us maintain our industry-leading operating excellence and product leadership. Since 2010, our company has undergone a significant investment cycle to support future growth, including building additional capacity for Advanced Battery technologies globally and market growth in China. Our past investments in China, including three state-of-the-art manufacturing facilities, position us to enjoy significant growth in the worlds fastest growing car parc.
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Notes:
(1) | All periods presented for Clarios fiscal year-end basis ending September 30 |
(2) | 2019 and later periods reflect the adoption of ASC606, Revenue from Contracts with Customers |
(3) | Clarios fiscal 2019 is composed of two periods the Predecessor period, from October 1, 2019 to April 30, 2019 and the Successor period, from May 1, 2019 to September 30, 2019 |
(4) | 2018 and earlier periods reflect historical revenues of the Power Solutions Business |
We have also demonstrated resiliency through our history with steady performance and market share gains during downturns. During the Financial Crisis in 2008 and 2009, our global aftermarket volumes were stable despite sharp declines in new vehicle sales in many of the markets in which we participate. More recently in 2020, the automotive aftermarket proved resilient in the face of the coronavirus (COVID-19) pandemic. Following temporary lockdowns and restrictions on mobility in March and April 2020 in North America and EMEA, aftermarket volumes outperformed prior year periods given pent-up replacement demand in May, June and July.
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Our Growth Strategies
Increasing demand for Advanced Battery technologies as a result of greater electrical loads, electric vehicle adoption and the rise of autonomous driving will drive significant growth
Next-generation vehicles today account for over 60% of all new car production but only 20% of the global car parc. By 2030, next-generation vehicles are expected to reach 86% penetration of new car sales and over 50% of the car parc, according to IHS Markit. We have been at the forefront of this technological shift since the beginning, and, in the case of OEMs, our AGM technology represents an integral part of such customers medium-term and long-term technology planning for next-generation platforms. We expect to experience a favorable mix shift in our revenue and profitability as electrification penetration accelerates with advanced technologies carrying a higher price point and approximately twice the profitability relative to a traditional SLI battery. While our current AGM technology already provides better electrical performance versus legacy technologies, including better functional safety, cycling ability and cold start technology, we intend to continue to drive innovation through our OEM and R&D partnerships on future platform development. We have several launches planned for our next-generation AGM technology in the coming years.
We have select emerging market growth opportunities underpinned by our strong positioning in China and other rapidly expanding car parcs
We have traditionally expanded globally into emerging markets in a phased and gradual approach. While each emerging market requires a unique approach, we typically begin by serving regional aftermarkets through exports of products with flagship brands like Optima and Varta. We also serve markets in conjunction with our global OEM customers, who often request our support for global vehicle platforms in additional regions. We then gradually establish distribution and retail relationships, introduce or strengthen brands, and look to embed closed loop structures. In some cases, we also elect to establish joint ventures and ultimately a fully localized footprint and commercial model. Today we see opportunities to execute this growth model in diverse and dynamic markets across Asia and Africa, as examples. We are particularly excited by the potential to leverage our current and in-development advanced battery technologies as a platform for growth.
We are well-positioned to benefit from strong growth in emerging markets through our wholly owned and joint venture operations. China is the worlds fastest growing car parc with 254 million vehicles in operation and is experiencing a significant mix shift to Advanced Batteries. We have the largest AGM installed capacity in Chinaa market in which local manufacturing capabilities and expertise are critical. Given the newer age of the car parc, the rapidly expanding aftermarket channel represents an accelerating growth opportunity in China as the parc ages. Our recent investments in building out capacity, distribution infrastructure and regional management in China position us well to capitalize with both OEM and aftermarket customers.
Profitable growth in any regional aftermarket demands a network of strong and solvent distributors able to provide effective coverage to a diverse range of workshops and battery retailers. This is especially critical in China given its rate of expansion, size and relative immaturity of the automotive aftermarket. Our approach to build out this network relies heavily on the experience, playbook and learnings of our business in Mexico, where we guided a fragmented collection of many undersized family businesses into a small set of professionalized operations, constantly expanding our reach within and beyond the auto segment. This approach, coupled with an aggressive digital strategy to simplify and drive supply chain efficiency, provides Clarios with a working blueprint to grow in the China aftermarket. E-commerce is a critical component of this digital strategy and our VARTA® brand is currently the #1 online brand in China.
We also see additional opportunities to grow in other emerging markets, including through our wholly owned significant operations in Korea and in Latin America. Today, our products reach customers in over 140 countries. Our products are used in rapidly expanding emerging car parcs globally, including those across all of Asia, the Middle East, Africa, Central and South America and Eastern Europe.
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We have a long history of expanding our market share globally through joint ventures and distribution partnerships. As one such example, we are particularly excited about the long-term growth fundamentals of India. Indias car parc today is expected to grow at a CAGR of 5% through 2030 according to IHS Markit. We have operated in India for nearly 25 years through our interest in publicly traded Amara Raja Batteries Limited (ARBL). As of March 31, 2021, our 24% interest in ARBL had a market value of approximately $478 million. We sold a 10% stake in May 2021 and currently hold a 14% interest in ARBLs public shares. This remaining investment will be reclassified prospectively as an investment in marketable common stock within current assets on our balance sheet.
Given the attractive opportunity we see in-country, we will continue to approach the India market with an import to localized manufacturing strategy anchored to the timing of the advanced battery mix shift opportunity. Our business plan may contemplate expansions of advanced battery imports from other of our manufacturing regions, acquisitions and additional investment as the mix shift toward advanced batteries evolves. We believe our long operating history in India uniquely positions us to benefit from rapid long-term growth in the market.
We will continue to expand our business in developed markets through further engagement with both new and existing OEM and aftermarket customers
We continue to strengthen our relationships with our strong core base of over 3,200 aftermarket and OEM customers. We see substantial ability for further market penetration as we expand share across our existing customer base. We have consistently grown share in the developed aftermarket as demand increasingly shifts towards higher quality and more advanced batteries. We expect our leading cost structure, scale, capitalization and production to meet these quality standards and rising environmental standards to drive consolidation over time. In addition, we are well-positioned to serve the growing number of new entrants in our core sectors, including new electric vehicle OEMs and aftermarket customers. In 2020, ten new light vehicle and commercial vehicle OEMs entered the public equity markets in the U.S. alone, with an additional entrant in EMEA. Despite low current volumes, we have focused on growing relationships with the majority of these players. By embedding early with these auto market participants as the low-voltage battery solution provider of choice, we face an opportunity to grow in tandem with these emerging manufacturers as they scale. The new entrants are collectively expected to grow revenue at a CAGR of 111% from 2021 to 2024 according to broker consensus and industry estimates. We also see growing opportunities in emerging aftermarket service business models that act as service hubs for emerging OEMs and the expanding mobility platform sector. By growing capabilities through partnerships and the emerging online-to-offline e-commerce model, we have achieved outsized growth in China and aim to leverage these strategies to further our leadership in developed markets. In EMEA, we have the opportunity to grow through introducing battery software as a diagnostic and point of sale marketing influence tools as well as other digital strategies. We expect to capitalize on these and other secular changes in the aftermarket as next-generation vehicles become a larger portion of the aftermarket.
We have the opportunity to extend our offerings to adjacent markets
As the largest supplier of low-voltage energy product storage solutions for the global mobility industry, we have consistently delivered innovation within our core offering. We have developed our technologies through in-house R&D capabilities, strategic partnerships and acquisitions of innovative concepts, which we are able to commercialize and scale quickly across our global manufacturing footprint. This experience has provided us with a perspective on the interplay of advanced technology and the economic considerations that drive their adoption. We believe our unique position allows us to leverage our capabilities and technology to extend into other applications and adjacencies, beyond traditional mobility. Just as increasing electrical loads impact core mobility markets, they are expected to impact off-highway equipment markets that also face a secular shift towards autonomy and electrification. Beyond vehicles, we also see growth opportunities across the telecommunications, uninterruptable power and various energy storage sub sectors, among others. We already serve a collection of diversified applications, including marine, military and powersports, among others. Our product offerings in
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these markets serve both mobile and stationary applications, and we have begun to evaluate technology and products in a range of new stationary applications, such as providing safe, high-power technology for data centers and electric vehicle charging. We believe the market for these products is expected to grow to $6.1 billion by 2025. Many of these markets are either going through technology disruption or are in early stages of development, allowing us to leverage our scale and know-how. We also see the potential to utilize our existing capabilities in low-voltage system integration, in addition to our manufacturing and recycling footprint, to provide cost-effective solutions.
We are continuously identifying inorganic growth opportunities to expand our core business and leverage our technology and capabilities into new markets
Monitoring strategic assets within our core markets for opportunistic acquisitions and inorganic growth has become a higher priority under our new ownership. Our scale and technology capabilities provide unmatched synergy potential with acquisition targets and allows us to differentiate from other potential buyers. We have leading market positions in nearly every market globally, though emerging markets are more fragmented today than developed markets. Consistent with our organic growth strategy, we may also pursue acquisitions in emerging markets across Asia, the Middle East, Africa and Latin America. Our footprint today is partially a product of inorganic growth and this remains a core part of our strategy going forward.
Beyond our core markets, we see the potential to leverage our existing recycling network and knowhow into electric vehicle high-voltage lithium-ion battery recycling. We are working with the U.S. Department of Energy (DOE) and industry partners to leverage our closed-loop and logistics expertise and develop and apply innovative technologies to lithium-ion recycling in connection with low-voltage and high-voltage lithium-ion batteries. Through this work, Clarios was selected as a winner of the U.S. Department of Energy Office of Energy Efficiency and Renewable Energys Lithium-Ion Battery Recycling Prize competition. We see a future where we will recycle additional types of batteries for our customers, OEMs and aftermarket retailers. Despite the significant market opportunity, very few lithium-ion automotive batteries are currently available to be recycled and this initiative will take time to grow to scale as the market develops. However, we are planning for the long-term to ensure all batteries regardless of chemistry are responsibly recycled as well as working with local governments in their goal to secure domestic supply chains of critical minerals for the future.
In addition, we are beginning to explore strategies to leverage our expertise across battery management systems and may pursue partnerships, joint ventures or acquisitions to supplement our growth strategy. We have a history of acquiring, integrating and growing businesses as part of our broader organization and a track record of enhancing our scale and growth through joint ventures, including both equity investments and consolidated entities.
Risk Factors Summary
Before you invest in our stock, you should carefully consider all the information in this prospectus, including matters set forth under the heading Risk Factors. Some of the more significant challenges and risks relating to an investment in our common stock include those associated with the following:
| the impact of COVID-19 and its collateral consequences, including production slowdowns, extended disruption of economic activity in our business and lower economic expectations; |
| automotive vehicle production levels, mix and schedules; |
| the technological evolution of the battery and automotive industries; |
| competitiveness of the automotive battery market; |
| commodity prices; |
| our ability to respond to rapid technological changes; |
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| our ability to timely develop competitive new products and product enhancements in a changing environment and the acceptance of such products and product enhancements by customers; |
| the potential impact of financial, economic, political and other risks related to conducting business internationally, including disruption of markets, changes in import and export laws, environmental, health and safety laws and regulations, currency restrictions and currency exchange rate fluctuations; |
| risks associated with operating in regulated industries, including our ability to comply with, and liabilities related to, applicable laws, including environmental, health and safety laws and regulations and competition laws, as well as our ability to successfully adapt to any changes in such laws and regulations; |
| the availability and market prices of raw materials and component products; |
| legislation restricting the use of certain hazardous substances in our products; |
| our reliance on third parties for important products and services; |
| the risks associated with our acquisition strategy and integrating acquisitions; |
| the risks associated with future acquisitions and new investments; |
| the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity; and |
| our ability to service our substantial indebtedness. |
Before you invest in our common stock, you should carefully consider all the information in this prospectus, including matters set forth under the heading Risk Factors.
Recent Developments
Set forth below are preliminary estimates of selected unaudited financial and other information for the nine months ended June 30, 2021 and actual unaudited financial results for the nine months ended June 30, 2020. Our unaudited interim consolidated financial statements for the nine months ended June 30, 2021 are not yet available. The following information reflects our preliminary estimates based on currently available information and is subject to change.
Nine months ended June 30, | ||||||||
2021 | 2020 | |||||||
(in millions) | ||||||||
Net sales |
$ | $ | ||||||
Loss before income taxes |
$ | $ | ||||||
Total Adjusted EBITDA |
$ | $ |
| For the nine months ended June 30, 2021, we expect to report net sales of $ , representing growth in the amount of % over the nine months ended June 30, 2020. Net sales growth was driven primarily by . |
| For the nine months ended June 30, 2021, we expect to report a loss before income taxes of $ , as compared to loss before income taxes of $ for the nine months ended June 30, 2020. This expected loss before income taxes is primarily due to . |
| For the nine months ended June 30, 2021, we expect to report Total Adjusted EBITDA of $ , representing an increase of $ as compared to the nine months ended June 30, 2020. Total Adjusted EBITDA is a non-U.S. GAAP financial measure. See below for a reconciliation of expected loss before income taxes to Total Adjusted EBITDA for the nine months ended June 30, 2021 and the actual results for the nine months ended June 30, 2020. For further information about the limitations of |
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the use of Total Adjusted EBITDA, see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidityTotal Adjusted EBITDA and Indenture EBITDA. |
The following table reconciles expected loss before income taxes to Total Adjusted EBITDA for the nine months ended June 30, 2021, and reconciles actual loss before income taxes to Total Adjusted EBITDA for the nine months ended June 30, 2020:
Nine months ended June 30, | ||||||||
2021 | 2020 | |||||||
(in millions) | ||||||||
Loss before income taxes |
$ | $ | ||||||
Net financing charges |
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Restructuring and impairment costs |
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Intangible asset amortization |
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Depreciation |
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Deal and stand up costs (1) |
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Impacts of purchase accounting (2) |
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Core valuation change (3) |
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Factoring fees (4) |
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Other items (5) |
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Total Adjusted EBITDA |
$ | $ | ||||||
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(1) | Expenses related to the Acquisition and costs to establish standalone business functions. |
(2) | The amortization of the step-up in value of our equity method investments resulted in a reduction in equity income. |
(3) | Represents the non-cash change in value of battery cores primarily due to the change in the value of lead. |
(4) | Includes costs associated with ongoing receivable factoring programs. To mitigate long collection terms for accounts receivable from certain aftermarket customers, the Company actively engages in receivable factoring programs, through which accounts receivable are sold to third-party intermediaries in exchange for a fee based on LIBOR plus a spread. |
(5) | Consists of other items including: . |
The data presented above reflects our preliminary estimates for the nine months ended June 30, 2021 based solely upon information available to us as of the date of this prospectus and is not a comprehensive statement of our financial or other results for the nine months ended June 30, 2021. This data has been prepared by, and is the responsibility of, our management. We currently expect that our final results will be consistent with the estimates set forth above, but such estimates are preliminary and our final results could differ from these estimates due to the completion of our financial closing procedures, final adjustments and other developments that may arise between now and the time such unaudited interim consolidated financial statements for the nine months ended June 30, 2021 are issued. For example, during the course of the preparation of the respective financial statements and related notes, additional items that would require adjustments to be made to the preliminary estimated financial information presented above may be identified. There can be no assurance that these estimates will be realized, and estimates are subject to risks and uncertainties, many of which are not within our control. See Risk Factors, Special Note Regarding Forward-Looking Statements and Managements Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding these risks and uncertainties, including other factors that could cause our preliminary estimates to differ from the actual financial results that we will report for the nine months ended June 30, 2021.
In May 2021, the Company made $50 million in voluntary principal payments on the USD Term Loan. In June 2021, the Company redeemed $100 million principal amount of the 2026 USD Secured Notes and
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$50 million principal amount of the 2025 Secured Notes at a redemption price of 103 plus accrued interest. In June 2021, the Company also made $180 million in voluntary principal payments on the USD Term Loan.
Our Corporate Structure
The following diagram depicts our organizational structure immediately following the consummation of the Transactions (as defined herein) and this offering, based on an assumed initial public offering price of $ per share (the midpoint of the estimated price range set forth on the cover page of this prospectus) and assuming the underwriters do not exercise their over-allotment option. This chart is provided for illustrative purposes only and does not purport to represent all legal entities within our organizational structure.
Corporate Information
We were incorporated in Delaware on April 14, 2021. Our principal executive offices are located at 5757 N Green Bay Avenue, Florist Tower, Milwaukee, Wisconsin, 53209 and our telephone number is (414) 214-6500. Our website is https://www.clarios.com. Our website and the information contained therein or connected thereto is not incorporated into this prospectus or the registration statement of which it forms a part.
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Concurrent Mandatory Convertible Preferred Stock Offering
Concurrently with this offering, we are offering, by means of a separate prospectus, shares of the Mandatory Convertible Preferred Stock (and up to an additional shares of the Mandatory Convertible Preferred Stock that the underwriters in the concurrent offering have the option to purchase from us, exercisable within 30 days from the date of the prospectus for the concurrent offering, to cover over-allotments). We estimate that the net proceeds to us from the sale of shares of the Mandatory Convertible Preferred Stock in the concurrent offering, if completed, will be approximately $ (or approximately $ if the underwriters in the concurrent offering exercise their over-allotment option to purchase additional shares of the Mandatory Convertible Preferred Stock in full), in each case after deducting estimated expenses and underwriting discounts and commissions. At any time prior to the mandatory conversion date, holders of Mandatory Convertible Preferred Stock may elect to convert each share of the Mandatory Convertible Preferred Stock into shares of our common stock at the minimum conversion rate of shares of our common stock per share of the Mandatory Convertible Preferred Stock, subject to anti-dilution adjustments. In addition, unless converted earlier, each share of the Mandatory Convertible Preferred Stock will automatically and mandatorily convert on the mandatory conversion date into between and shares of our common stock, subject to certain anti-dilution and other adjustments. Any of these issuances may dilute your ownership interest in us. The closing of this offering is not conditioned upon the closing of the concurrent offering, but the closing of the concurrent offering is conditioned upon the closing of this offering, and there can be no assurance that the concurrent offering will be completed on the terms described herein or at all. For additional information, see Mandatory Convertible Preferred Stock Offering.
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THE OFFERING
This summary highlights information presented in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before investing in our common shares. You should carefully read this entire prospectus before investing in our common shares including Risk Factors and our consolidated and combined financial statements.
Common stock offered |
shares (or shares if the underwriters exercise their option to purchase additional shares of common stock in full). |
Common stock to be outstanding after this offering |
shares (or shares if the underwriters exercise their option to purchase additional shares of common stock in full). |
Use of proceeds |
We estimate that the net proceeds to us from this offering will be approximately $ million, or approximately $ million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses. |
Each $1.00 increase (decrease) in the public offering price per share would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions, by $ million (assuming no exercise of the underwriters over-allotment option). |
We estimate that the net proceeds to us from the Concurrent Offering, if completed, will be approximately $ million, or approximately $ million if the underwriters of that offering exercise their over-allotment option to purchase additional shares of the Mandatory Convertible Preferred Stock in full, after deducting estimated underwriting discounts and commissions and estimated offering expenses. |
We intend to use the net proceeds to us from this offering and the Concurrent Offering, if it is completed, to (i) redeem approximately $ of the 2026 USD Secured Notes (as defined herein), (ii) redeem approximately $ of the 2025 Secured Notes (as defined herein), (iii) redeem approximately $ million of the Unsecured Notes (as defined herein) and (iv) repay approximately $ of outstanding indebtedness under the USD Term Loan (as defined herein). See Use of Proceeds. |
Controlled company |
Upon the closing of this offering, entities affiliated with the Sponsor Group will continue to beneficially own more than 50% of the voting power for the election of members of our board of directors and we will be a controlled company under NYSE rules. As a controlled company, we qualify for, and intend to rely on, exemptions from certain corporate governance requirements of the NYSE. See |
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ManagementControlled Company Exception. Following the completion of this offering, our insiders and affiliates will own approximately % and our public investors will own approximately % of our outstanding shares of common stock assuming no exercise of the underwriters option to purchase additional shares of common stock. |
Listing |
We have applied to list our common stock on the NYSE under the trading symbol BTRY. |
Concurrent Mandatory Convertible Preferred Stock Offering: |
Concurrently with this offering, we are offering, by means of a separate prospectus, shares of the Mandatory Convertible Preferred Stock, and we have granted the underwriters of that offering a 30-day option to purchase up to an additional shares of the Mandatory Convertible Preferred Stock, to cover over-allotments. |
We cannot assure you that the Concurrent Offering will be completed or, if completed, on what terms it will be completed. The closing of this offering is not conditioned upon the closing of the Concurrent Offering, but the closing of the Concurrent Offering is conditioned upon the closing of this offering. See the section of this prospectus entitled Mandatory Convertible Preferred Stock Offering for a summary of the terms of the Mandatory Convertible Preferred Stock and a further description of the Concurrent Offering. |
The number of shares of common stock that will be outstanding after this offering is based on shares common stock outstanding as of , 2021, and excludes:
| shares of common stock reserved for issuance under our 2021 Long-Term Incentive Plan, as more fully described in Executive CompensationNarrative Description to the Summary Compensation Table and Grants of Plan-Based Awards Table2021 Long-Term Incentive Plan, and the cash-settled restricted stock units we expect to grant under this plan in connection with this offering to certain non-employee directors, with a value at grant of $145,000 (or $312,500 for the chair of our board of directors) based on the initial public offering price per share of common stock, as more fully described in Executive CompensationCompensation of our Directors; and |
| shares of our common stock (or shares if the underwriters in the Concurrent Offering exercise their over-allotment option in full) issuable upon conversion of the Mandatory Convertible Preferred Stock being offered in the Concurrent Offering, in each case assuming mandatory conversion based on an applicable market value of our common stock equal to the assumed initial public offering price of $ per share of common stock, which is the midpoint of the estimated offering price range shown on the cover page of this prospectus, subject to anti-dilution, make-whole and other adjustments or any shares of our common stock that may be issued in payment of a dividend, fundamental change dividend make-whole amount or accumulated dividend amount. |
In addition, unless we specifically state otherwise, the information in this prospectus assumes:
| the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering; |
| no exercise of the underwriters option to purchase up to an additional shares of common stock in this offering; |
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| the completion of the concurrent offering of shares of the Mandatory Convertible Preferred Stock and assuming no exercise by the underwriters of that offering of their over-allotment option to purchase additional shares of Mandatory Convertible Preferred Stock; and |
| an assumed initial public offering price of $ per share of common stock (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus). |
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SUMMARY HISTORICAL CONSOLIDATED AND COMBINED AND
UNAUDITED PRO FORMA FINANCIAL AND OTHER DATA
The following summary consolidated and combined and unaudited pro forma financial data of Clarios should be read in conjunction with, and are qualified by reference to, Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated and combined financial statements and pro forma financial statements and the notes related to those financial statements included elsewhere in this prospectus. The summary historical financial and operating data presented below for the year ended September 30, 2018 and the seven month period ended April 30, 2019 (Predecessor) represent the Power Solutions Business as it was historically managed and operated by JCI. The historical combined financial and operating data may not be indicative of the consolidated financial position, results of operations and cash flows of the Company in the future or if it had operated independently of JCI. The summary historical financial and operating data presented below for the six months ended March 31, 2021 and 2020, the year ended September 30, 2020 and the five month period ended September 30, 2019 (Successor) represent the Company after the Acquisition.
We derived the combined statement of income data and statement of cash flow data of the Predecessor for the year ended September 30, 2018 and the seven month period ended April 30, 2019 from the audited combined carve-out financial statements of the Company included elsewhere in this prospectus. We derived the consolidated statement of income data and statement of cash flow data of the Successor for the year ended September 30, 2020 and the five month period ended September 30, 2019 from the audited consolidated financial statements of the Company included elsewhere in this prospectus. We derived the consolidated statements of income data and statement of cash flows data for the six months ended March 31, 2021 and 2020, and the statement of financial position data as of March 31, 2021, from the unaudited consolidated financial statements of the Company included elsewhere in this prospectus. Although the seven month period ended April 30, 2019 relates to the Predecessor and the five month period ended September 30, 2019 relates to the Successor, to assist with period-to-period comparison we have combined these periods as a sum of the amounts without any other adjustments and refer to the combined period as the combined year ended September 30, 2019. This combination does not comply with U.S. GAAP or with the rules for pro forma presentation.
The summary unaudited pro forma consolidated financial information presented below has been derived from our unaudited pro forma consolidated financial statements included elsewhere in this prospectus. The summary unaudited pro forma consolidated statement of income (loss) data for the year ended September 30, 2020 have been prepared to give pro forma effect to (i) the Transactions (as defined herein) and (ii) this offering and the receipt and use of the net proceeds therefrom, as if each of the foregoing transactions had been completed as of October 1, 2019. The summary unaudited pro forma condensed consolidated financial data is presented for informational purposes only and should not be considered indicative of actual results of operations that would have been achieved had the Transactions been consummated on the date indicated and do not purport to be indicative of statements of financial position or results of operations as of any future date or for any future period.
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The following information should be read together with the information under the headings Unaudited Pro Forma Financial Information, Capitalization and Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated and combined financial statements of the Company and related notes included elsewhere in this prospectus.
Pro Forma | Historical | |||||||||||||||||||||||||||||||||||
Six Months Ended March 31, 2021 |
Year Ended September 30, 2020 |
Six Months Ended March 31, 2021 |
Six Months Ended March 31, 2020 |
Year Ended September 30, 2020 |
Year Ended September 30, 2019 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
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(in millions) | ||||||||||||||||||||||||||||||||||||
Successor | Successor | Successor | Successor | Successor | Combined | Successor | Predecessor | Predecessor | ||||||||||||||||||||||||||||
Statement of Income Data: |
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Net sales |
$ | 4,499 | $ | 7,602 | $ | 4,499 | $ | 3,915 | $ | 7,602 | $ | 8,528 | $ | 3,535 | $ | 4,993 | $ | 8,000 | ||||||||||||||||||
Cost of sales |
3,581 | 6,405 | 3,581 | 3,247 | 6,405 | 7,273 | 3,214 | 4,059 | 6,293 | |||||||||||||||||||||||||||
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Gross Profit |
918 | 1,197 | 918 | 668 | 1,197 | 1,255 | 321 | 934 | 1,707 | |||||||||||||||||||||||||||
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Operating expenses: |
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Selling, general and administrative expenses |
(455 | ) | (936 | ) | (455 | ) | (462 | ) | (936 | ) | (818 | ) | (459 | ) | (359 | ) | (474 | ) | ||||||||||||||||||
Equity income |
45 | 48 | 45 | 28 | 48 | 47 | 17 | 30 | 58 | |||||||||||||||||||||||||||
Restructuring and impairment costs |
(253 | ) | (11 | ) | (253 | ) | | (11 | ) | | | | (11 | ) | ||||||||||||||||||||||
Net financing charges |
(297 | ) | (587 | ) | (366 | ) | (339 | ) | (717 | ) | (297 | ) | (274 | ) | (23 | ) | (40 | ) | ||||||||||||||||||
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Income (loss) before income taxes |
(42 | ) | (289 | ) | (111 | ) | (105 | ) | (419 | ) | 187 | (395 | ) | 582 | 1,240 | |||||||||||||||||||||
Income tax provision (benefit) |
28 | (93 | ) | 137 | (19 | ) | (17 | ) | 147 | (31 | ) | 178 | 601 | |||||||||||||||||||||||
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Net Income (loss) |
(70 | ) | (196 | ) | (248 | ) | (86 | ) | (402 | ) | 40 | (364 | ) | 404 | 639 | |||||||||||||||||||||
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Income (loss) attributable to noncontrolling interests |
1 | (3 | ) | (1 | ) | (1 | ) | (3 | ) | 15 | (8 | ) | 23 | 47 | ||||||||||||||||||||||
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Net income (loss) attributable to the Company |
(71 | ) | (193 | ) | (249 | ) | (85 | ) | (399 | ) | 25 | (356 | ) | 381 | 592 | |||||||||||||||||||||
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation |
93 | (146 | ) | (176 | ) | (149 | ) | (61 | ) | (88 | ) | (154 | ) | |||||||||||||||||||||||
Realized and unrealized gains (losses) on derivatives |
60 | (74 | ) | (71 | ) | (48 | ) | (52 | ) | 4 | (21 | ) | ||||||||||||||||||||||||
Realized and unrealized losses on marketable securities |
| | | | | | (4 | ) | ||||||||||||||||||||||||||||
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Pro Forma | Historical | |||||||||||||||||||||||||||||||||||
Six Months Ended March 31, 2021 |
Year Ended September 30, 2020 |
Six Months Ended March 31, 2021 |
Six Months Ended March 31, 2020 |
Year Ended September 30, 2020 |
Year Ended September 30, 2019 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
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Successor | Successor | Successor | Successor | Successor | Combined | Successor | Predecessor | Predecessor | ||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax |
153 | (220 | ) | (247 | ) | (197 | ) | (113 | ) | (84 | ) | (179 | ) | |||||||||||||||||||||||
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Total comprehensive income (loss) |
(95 | ) | (306 | ) | (649 | ) | (157 | ) | (477 | ) | 320 | 460 | ||||||||||||||||||||||||
Comprehensive income (loss) attributable to noncontrolling interests |
1 | 3 | 1 | | (20 | ) | 20 | 38 | ||||||||||||||||||||||||||||
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Comprehensive income (loss) attributable to the Company |
$ | (96 | ) | $ | (309 | ) | $ | (650 | ) | $ | (157 | ) | $ | (457 | ) | $ | 300 | $ | 422 | |||||||||||||||||
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Six Months Ended March 31, 2021 |
Six Months Ended March 31, 2020 |
Year Ended September 30, 2020 |
Year Ended September 30, 2019 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
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(in millions) | ||||||||||||||||||||||||||||
Successor | Successor | Successor | Combined | Successor | Predecessor | Predecessor | ||||||||||||||||||||||
Selected Statement of Cash Flows Data: |
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Net cash provided by (used in): |
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Operating activities |
$ | 321 | $ | 50 | $ | 617 | $ | 727 | $ | 510 | $ | 217 | $ | 745 | ||||||||||||||
Investing activities |
(161 | ) | (166 | ) | (202 | ) | (13,084 | ) | (12,915 | ) | (169 | ) | (359 | ) | ||||||||||||||
Financing activities |
(296 | ) | 111 | (74 | ) | 12,742 | 12,792 | (50 | ) | (389 | ) |
As of March 31, 2021 | ||||||||
Actual | Pro Forma |
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Selected Statement of Financial Position Data: |
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Cash and cash equivalents |
$ | 550 | $ | 550 | ||||
Total assets |
15,250 | 15,506 | ||||||
Total liabilities |
13,519 | 12,502 | ||||||
Total equity |
1,731 | 3,004 |
(1) | The pro forma consolidated statement of financial position data gives effect to the Transactions, as if they occurred on March 31, 2021. |
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Other Financial Data
Other Financial Data
Six Months Ended March 31, 2021 |
Six Months Ended March 31, 2020 |
Year Ended September 30, 2020 |
Year Ended September 30, 2019 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
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(in millions) | ||||||||||||||||||||||||||||
Successor | Successor | Successor | Combined | Successor | Predecessor | Predecessor | ||||||||||||||||||||||
Adjusted EBITDA: |
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Americas |
$ | 556 | $ | 505 | $ | 924 | $ | 1,013 | $ | 432 | $ | 581 | $ | 1,059 | ||||||||||||||
EMEA |
279 | 173 | 324 | 408 | 163 | 245 | 469 | |||||||||||||||||||||
Asia |
104 | 57 | 112 | 123 | 38 | 85 | 142 | |||||||||||||||||||||
Corporate expenses |
(62 | ) | (47 | ) | (100 | ) | (89 | ) | (39 | ) | (50 | ) | (85 | ) | ||||||||||||||
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Total Adjusted EBITDA(1) |
$ | 877 | $ | 688 | $ | 1,260 | $ | 1,455 | $ | 594 | $ | 861 | $ | 1,585 | ||||||||||||||
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(1) | See Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidityTotal Adjusted EBITDA and Indenture EBITDA for a reconciliation of Total Adjusted EBITDA to net income (loss) for the periods presented. |
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Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and all of the other information set forth in this prospectus before deciding to invest in shares of our common stock. If any of the following risks actually occurs, our business, financial condition or results of operations would likely suffer. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment. The risks discussed below are not the only risks we face. Additional risks or uncertainties not currently known to us, or that we currently deem immaterial may also have a material adverse effect on our business, financial condition, prospects, results of operations or cash flows.
Risks Relating to Our Business and Industry
Our business has been and continues to be negatively impacted by the COVID-19 pandemic.
In December 2019 a novel strain of coronavirus SARS-CoV-2, causing a disease referred to as COVID-19, was reported in Wuhan, China. The coronavirus has since spread to, and infections have been found in, the vast majority of countries around the world, including the United States and throughout EMEA. In March 2020, the World Health Organization recognized the COVID-19 outbreak as a pandemic based on the global spread of the disease, the severity of illnesses it causes and its effects on society. In response to the COVID-19 outbreak, the governments of many countries, states and cities have taken preventative or protective actions, such as imposing restrictions on travel and business operations, and advising or requiring individuals to limit or forego their time outside of their homes. The continuing surges of COVID-19 cases, along with new strains and variants being discovered and challenges associated with the roll out and availability of vaccines have resulted in the reimposition of certain restrictions in certain states and countries and may lead to other restrictions being implemented in response to efforts to reduce the spread of COVID-19. Accordingly, the COVID-19 outbreak has severely restricted the level of economic activity in many countries, continues to adversely impact global economic activity and has contributed to significant volatility in financial markets.
The Companys operating performance is subject to global economic and market conditions, including their impacts on the aftermarket retail channel and global automotive industry. During the six months ended March 31, 2021, the COVID-19 outbreak impacted the Companys operational and financial performance, primarily due to higher transportation rates and operational inefficiencies as we adjusted production levels to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. During the year ended September 30, 2020, the COVID-19 outbreak impacted the Companys operational and financial performance, primarily due to lower sales volumes to our OEM customers, many of whom have experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. We also experienced operational inefficiencies as we adjusted production levels to align with changing market demand and, in response to regulatory requirements, implemented enhanced safety measures to protect the health of our employees. Further, we experienced, and may continue to experience, disruptions or delays in supply chain and elevated transportation costs in order to maintain the supply of materials and delivery of our products.
Because of the impacts COVID-19 had on the Companys operations during the six months ended March 31, 2021 and the year ended September 30, 2020, the Company assessed certain accounting matters that require consideration of forecasted financial information using the information reasonably available to the Company, which does not include the unknown future impacts of COVID-19. Such accounting matters include, but are not limited to, its allowance for doubtful accounts, the carrying value of the Companys goodwill, intangible assets and other long-lived assets and valuation allowances on deferred tax assets. As a result of these assessments, there were no impairments or material increases in allowance for doubtful accounts or valuation allowances that impacted the Companys consolidated financial statements. Although the Companys operations have resumed, there is no guarantee that COVID-19 will not require additional assessments in the future and these assessments will not result in material impacts to the consolidated financial statements in future reporting
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periods. Events and changes in circumstances arising after the date hereof, including those resulting from the impacts of COVID-19, could affect future periods and managements planning for future periods.
The extent of the future impact of the COVID-19 outbreak on the Companys operational and financial performance will depend on certain developments, including the duration, intensity and continued spread of the outbreak, the impact and effectiveness of vaccination efforts, the emergence of new strains of the virus and any future resurgences of COVID-19 or variant strains, regulatory and private sector responses, which may be precautionary, and the impact to the Companys customers, workforce and vendors, all of which are uncertain and cannot be predicted. As COVID-19 vaccines are becoming available and being distributed and as operations begin to return to pre-pandemic levels, new potential legal liabilities may be created regarding workplace safety and employee rights. The Companys financial condition and results could also be impacted by significant changes in commodity prices, foreign currency exchange rates and interest rates that may result from volatility in the economic and financial markets as a result of the COVID-19 pandemic. Changing market conditions may also affect the estimates and assumptions made by management. Such estimates and assumptions affect, among other things, the Companys goodwill, long-lived asset and indefinite-lived intangible asset valuations, equity investment valuations, valuation of deferred and income tax contingencies, measurement of compensation cost for certain cash bonus plans, and pension plan assumptions.
An extended period of global supply chain and economic disruption as a result of the COVID-19 pandemic could have a material negative impact on our business, results of operations, access to sources of liquidity and financial condition, though the full extent and duration is uncertain. To the extent that the COVID-19 pandemic adversely impacts our business, results of operations, liquidity or financial condition, it may also have the effect of increasing many of the other risks described in this Risk Factors section.
A large portion of our profit is derived from a relatively small number of major customers. Decreased demand from our customers in the aftermarket retail channel and automotive industry, or the loss of any significant customer, may in the future adversely affect our results of operations.
Our North American aftermarket channel within our Americas segment is our largest market and is concentrated among four major transportation services customers. There can be no assurance that we will be able to retain these customers or that, if we were to lose one or more of these customers, we would be able to replace such customers with customers that generate a comparable amount of net sales. A number of factors could cause us to lose business or revenue from a customer, and some of these factors are not predictable and are beyond our control. For example, a customer may demand price reductions, engage in business with a competitor or reduce previously forecasted demand. Consequently, the loss of one of our major customers could have a materially adverse impact on our business, results of operations and financial condition.
Our financial performance also depends, in part, on conditions in the automotive industry. The automotive industry is highly cyclical and, in addition to general economic conditions, also depends on other factors, such as consumer confidence and consumer preferences. Lower global automotive sales could result in our OEM customers significantly lowering vehicle production schedules, which could adversely affect our earnings and cash flow. Sales to OEMs accounted for approximately 20% of our total unit sales during the year ended September 30, 2020. Declines in the North American, European and Asian automotive production levels as a result of COVID-19 has reduced, and additional declines and pricing pressure from OEMs could further reduce, our sales and our profitability, and therefore adversely affect our results of operations. Decreased volumes to our OEM customers, many of whom experienced or continue to experience temporary shut-downs or reductions in business adversely impacted our results of operations in the year ended September 30, 2020. See Managements Discussion and Analysis of Financial Condition and Results of Operations. Products produced by OEMs are subject to market acceptance and products that are perceived to be less desirable (whether in terms of price, quality, styling, safety, overall value, fuel efficiency, or other attributes) can exacerbate this risk. With increased consumer interconnectedness through the internet, social media and other media, mere allegations relating to quality, safety, fuel efficiency, corporate social responsibility or other key attributes can negatively impact the
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reputation or market acceptance of the products produced by OEMs on which our financial performance partially depends, even where such allegations prove to be inaccurate or unfounded or do not relate to the performance of our products. Further, advancements in technology, regulatory changes and other factors that are difficult to predict may significantly affect the demand for our products, including as a result of the vehicle industry moving to autonomous vehicles and other mobility services. Finally, if any OEMs reach a point where they cannot fund their operations, we may incur write-offs of accounts receivable, incur impairment charges or require additional restructuring actions beyond our current restructuring plans, which, if significant, would have a material adverse effect on our business and results of operations.
If we do not respond appropriately, the technological evolution of the battery and automotive industries could adversely affect our business.
We expect that the automotive industry, and as a result the battery industry, will experience significant and continued change in the coming years. In order to remain competitive, we must remain responsive to developments in the automotive industry. As technology continues to develop and the automotive industry changes, we face substantial pressure to remain competitive. Industry participants are seeking to disrupt the traditional business model of the industry through the introduction of new technologies, products, services, business models and methods of travel that focus on minimizing the environmental impact of automobiles. For example, there has been a shift in recent years from traditional gas-powered vehicles to a higher proportion of electric alternatives. Although we have made substantial investments in battery technologies and we believe our business is well-positioned to remain competitive, there can be no assurance that we will be able to keep pace with the rate of technological change, or that others will not acquire similar or superior technologies sooner than we do or that we will acquire technologies on an exclusive basis or at a significant price advantage. If we do not continue to innovate and develop or acquire new and compelling products that capitalize upon new technologies in response to OEM and consumer preferences, our business, results of operations and financial condition may be materially adversely affected.
Volatility in commodity prices may adversely affect our results of operations.
Lead is a major component of lead-acid batteries and the price of lead has been highly volatile. In the past, lead tollers have been able to exert significant price pressure due to shocks in lead supply. See Our reliance on certain significant suppliers subjects us to numerous risks, including possible interruptions in supply, which could adversely affect our business. We attempt to manage the impact of changing lead prices through the recycling of used batteries returned to us by our aftermarket customers, commercial terms and commodity hedging programs. Our ability to mitigate the impact of lead price changes can be impacted by many factors, including customer negotiations, inventory level fluctuations and sales volume/mix changes, any of which could have an adverse effect on our results of operations.
Increases in other commodity costs can negatively impact our profitability if we are not able to recover commodity cost increases through price increases to our customers on new orders. In cases where commodity price risk cannot be naturally offset or hedged through supply based fixed price contracts, we use commodity hedge contracts to minimize overall price risk associated with our anticipated commodity purchases. Unfavorability in our hedging programs during a period of declining commodity prices could result in lower margins as we reduce prices to match the market on a fixed commodity cost level. Additionally, to the extent we do not or are unable to hedge certain commodities and commodity prices substantially increase, such increases will have an adverse effect on our results of operations.
Our liquidity is affected by the seasonality of our business, and warm winters and cool summers adversely affect our results of operations.
We sell a disproportionate share of our automotive aftermarket batteries during the fall and early winter. Resellers buy automotive batteries during these periods so that they will have sufficient inventory for cold
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weather periods. This seasonality increases our working capital requirements and makes our business more sensitive to fluctuations in the availability of liquidity. Unusually cold winters or hot summers may accelerate battery failure and increase demand for automotive replacement batteries. Mild winters and cool summers may have the opposite effect. As a result, if our sales are reduced by an unusually warm winter or cool summer, it may not be possible to recover these sales in later periods. Further, if our sales are adversely affected by the weather, we cannot make offsetting cost reductions to protect our liquidity and gross margins in the short-term because a large portion of our manufacturing and distribution costs are fixed. These circumstances could result in a material adverse effect on our business, financial condition and results of operations.
Our future growth is dependent upon our ability to develop or acquire new technologies that achieve market acceptance with acceptable margins.
Our future success depends on our ability to develop or acquire and manufacture and make competitive, increasingly complex products and services to market quickly and cost-effectively. Our ability to develop or acquire new products and services requires the investment of significant resources. For example, in recent years we have made significant capital investments to expand our product offerings to include AGM and EFB technologies, which power vehicles that automatically shut down and restart the internal combustion engine to reduce the amount of time the engine spends idling, thereby reducing fuel consumption and emissions (start-stop vehicles), as well as investing in lithium-ion battery technology for certain hybrid and electric vehicles. These acquisitions and development efforts divert resources from other potential investments in our business and they may not lead to the development of new technologies, products or services on a timely basis. Moreover, as we introduce new products, we may be unable to detect and correct defects in the design of a product or in its application to a specified use, which could result in loss of sales or delays in market acceptance. Even after introduction, new or enhanced products may not satisfy customer preferences and product failures may cause customers to reject our products. As a result, these products may not achieve market acceptance and our brand image could suffer. In addition, the markets for our products and services may not develop or grow as we anticipate. As a result, the failure of our technology, products or services to gain market acceptance, the potential for product defects, product quality issues or the obsolescence of our products and services could significantly reduce our revenues, increase our operating costs or otherwise materially and adversely affect our business, financial condition, results of operations and cash flows.
Risks associated with our non-U.S. operations could adversely affect our business, financial condition and results of operations.
We have significant operations in a number of countries outside the U.S., some of which are located in emerging markets. Long-term economic uncertainty in some of the regions of the world in which we operate, such as Asia, South America, EMEA and emerging markets generally, could result in the disruption of markets and negatively affect cash flows from our operations to cover our capital needs and debt service requirements.
In addition, as a result of our global presence, a significant portion of our revenues and expenses is denominated in currencies other than the U.S. dollar. We are therefore subject to non-U.S. currency risks and non-U.S. exchange exposure. While we employ financial instruments to hedge some of our transactional foreign exchange exposure, these activities do not insulate us completely from those exposures. Exchange rates can be volatile and a substantial weakening of foreign currencies against the U.S. dollar could reduce our profitability in various locations outside of the U.S. and adversely impact the comparability of results from period to period.
There are other risks that are inherent in our non-U.S. operations, including the potential for changes in socio-economic conditions, laws and regulations, including, among others, competition, import, export, labor and environmental, health and safety laws and regulations, and monetary and fiscal policies, protectionist measures that may prohibit acquisitions or joint ventures, or impact trade volumes, unsettled political conditions; government-imposed plant or other operational shutdowns, backlash from foreign labor organizations related to our restructuring actions, corruption; natural and man-made disasters, hazards and losses, violence, civil and labor unrest, and possible terrorist attacks.
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These and other factors may have a material adverse effect on our non-U.S. operations and therefore on our business and results of operations.
Our operations in China subject us to increased risks, including risks related to evolving economic, political and social conditions.
Our business is subject to risks inherent in doing business internationally. In particular, we face risks relating to our business in China, as the volume growth in our business has been driven by increasing volume in our Asia segment. Approximately 6.0% of our net sales were from our Asia segment for the year ended September 30, 2020. The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, the level of development, the growth rate, the control of foreign exchange and the allocation of resources. The Chinese government exercises significant control over Chinas economic growth through the allocation of resources, control of the incurrence and payment of foreign currency-denominated obligations, setting of monetary policy and provision of preferential treatment to particular industries or companies. In recent years, the Chinese government has been reforming its economic and political systems, and we expect this to continue. Although we believe that these reforms have had a positive effect on our ability to do business in China, we cannot assure you that these reforms will continue or that the Chinese government will not take actions that impair our platform in China. In addition, recent international unrest involving mounting trade tension between China and the United States presents additional risks and uncertainties. If our ability to do business in China is adversely impacted, our business, results of operation and financial condition could be materially adversely affected.
General economic, credit and capital market conditions could adversely affect our financial performance, our ability to grow or sustain our business and our ability to access the capital markets.
We compete around the world in various geographic regions and global economic conditions affect our business. Any future financial distress in the industries and/or markets where we compete could negatively affect our revenues and financial performance in future periods, result in future restructuring charges, and adversely impact our ability to grow or sustain our business.
The capital and credit markets provide us with liquidity to operate and grow our business beyond the liquidity that operating cash flows provide. A worldwide economic downturn and/or disruption of the capital and credit markets could reduce our access to capital necessary for our operations and executing our strategic plan. If our access to capital were to become significantly constrained, or if costs of capital increased significantly due to lowered credit ratings, prevailing industry conditions, the volatility of the capital markets or other factors; then our financial condition, results of operations and cash flows could be adversely affected.
Our businesses operate in regulated industries and are subject to a variety of complex and continually changing laws and regulations.
Our operations and employees are subject to various U.S. federal, state and local licensing laws, codes and standards and regulations and similar foreign laws, codes, standards and regulations. Changes in laws or regulations could require us to change the way we operate or to utilize resources to maintain compliance, which could increase costs or otherwise disrupt operations. In addition, failure to comply with any applicable U.S. or foreign laws or regulations could result in substantial fines, damages or revocation of our operating permits and licenses. Competition, antitrust or other regulatory investigations can continue for several years, be costly to defend and can result in substantial fines and private damages in jurisdictions around the world. We have in the past been subject to and cooperated with such investigations. If we are subject to such an investigation, the fact that we may decide to cooperate with regulators or settle with private plaintiffs standing alone may not improve our risk profile or reduce our potential liability as a result of such investigation. In addition, any obstruction of any investigation, including any noncompliance with any confidentiality agreements in connection with any such investigation, could result in additional liability and materially impact our business. Moreover, if laws and
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regulations were to change or if we or our products failed to comply with the laws described above or other applicable U.S. or foreign laws or regulations, our business, financial condition and results of operations could be adversely affected.
Due to the international scope of our operations, the system of laws and regulations to which we are subject is complex and includes regulations issued by the U.S. Customs and Border Protection, the U.S. Department of Commerces Bureau of Industry and Security, the U.S. Treasury Departments Office of Foreign Assets Control and various non-U.S. governmental agencies, including applicable export controls, anti-trust, customs, data privacy restrictions, currency exchange control and transfer pricing regulations, laws regulating the foreign ownership of assets and laws governing certain materials that may be in our products. No assurances can be made that we will continue to be found to be operating in compliance with, or be able to detect violations of, any such laws or regulations. For example, some foreign data privacy regulations are more stringent than those in the U.S. and continue to evolve. Further, existing free trade laws and regulations, such as the United States-Mexico-Canada Agreement, or any successor agreement, provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we manufacture products or from where we import products or raw materials (either directly or through our suppliers) could have an impact on our competitive position, business and financial results.
We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted.
Failure to comply with evolving data privacy and data security laws and regulations could lead to government enforcement actions (which could include civil or criminal penalties), private litigation or adverse publicity and could have a material adverse effect on our business.
Privacy and data security have become significant issues in the United States, Europe and in many other jurisdictions where we conduct our operations. Our collection, processing, distribution and storage of personal information is subject to a variety of laws and regulations both in the United States and abroad, which could limit the way we market and provide our products and services. Compliance with these privacy and data security requirements is rigorous and time-intensive and may increase our cost of doing business and, despite these efforts, there is a risk that we fail to comply and may become subject to government enforcement actions, fines and penalties, litigation and reputational harm, which could materially and adversely affect our business, financial condition and results of operations. In addition, the regulatory framework for the handling of personal and confidential information is rapidly evolving and is likely to remain uncertain for the foreseeable future as new privacy laws are being enacted globally and existing laws are being updated and strengthened.
For example, in May 2018, the General Data Protection Regulation (GDPR) superseded prior European Union data protection legislation, and it imposes more stringent European Union data protection requirements and provides for greater penalties for noncompliance. Under the GDPR, fines of up to 20 million euro or up to 4% of the annual global turnover of the infringer, whichever is greater, could be imposed. The GDPR is wide-ranging in scope and imposes numerous additional requirements on companies that process personal data, including imposing special requirements in respect of the processing of personal data, requiring the consent of individuals to whom the personal data relates is obtained in certain circumstances, requiring additional disclosures to individuals regarding data processing activities, requiring that safeguards are implemented to protect the security and confidentiality of personal data, creating mandatory data breach notification requirements in certain circumstances and requiring that certain measures (including contractual requirements) are put in place when engaging third-party processors. The GDPR also provides individuals with various rights in respect of their personal data, including rights of access, erasure, portability, rectification, restriction, and objection.
Further, the United Kingdoms vote in favor of exiting the European Union, often referred to as Brexit, and ongoing developments in the United Kingdom have created uncertainty with regard to data protection regulation
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in the United Kingdom. As of January 1, 2021, and the expiry of transitional arrangements agreed to between the United Kingdom and the European Union, data processing in the United Kingdom is governed by a United Kingdom version of the GDPR (combining the GDPR and the Data Protection Act 2018), exposing us to two parallel regimes, each of which potentially authorizes similar fines and other potentially divergent enforcement actions for certain violations. Pursuant to the Trade and Cooperation Agreement, which went into effect on January 1, 2021, the United Kingdom and the European Union agreed to a specified period during which the United Kingdom will be treated like a European Union member state in relation to transfers of personal data to the United Kingdom for four months from January 1, 2021. This period may be extended by two further months. Unless the European Commission makes an adequacy finding in respect of the United Kingdom before the expiration of such specified period, the United Kingdom will become an inadequate third country under the GDPR and transfers of data from the European Economic Area to the United Kingdom will require a transfer mechanism, such as the standard contractual clauses. Furthermore, following the expiration of the specified period, there will be increasing scope for divergence in application, interpretation and enforcement of the data protection law as between the United Kingdom and the European Union.
Other jurisdictions outside the European Union are similarly introducing or enhancing privacy and data security laws, rules and regulations, which could increase our compliance costs and the risks associated with noncompliance. For example, California recently enacted the California Consumer Privacy Act (the CCPA), which creates new individual privacy rights for California consumers (as defined in the law) and places increased privacy and security obligations on companies handling personal information of consumers or households. The CCPA, which went into effect on January 1, 2020, requires covered companies to provide new disclosure to consumers about such companies data collection, use and sharing practices, provide methods for such consumers to access and delete their personal information, with exceptions, as well as allowing consumers to opt-out of certain sales or transfers of their personal information. The CCPA provides for civil penalties for violations and further provides consumers with a new private right of action in the event of a data breach involving certain sensitive information as a result of the business failure to implement reasonable security measures. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. The California Attorney Generals enforcement authority under the CCPA became effective July 1, 2020, and it remains unclear how various provisions of the CCPA will be interpreted and enforced. As currently written, the CCPA impacts certain of our business activities and exemplifies the vulnerability of our business to the evolving regulatory environment related to personal information. A ballot initiative from privacy rights advocates intended to augment and expand the CCPA called the California Privacy Rights Act (CPRA) was passed in November 2020 and will take effect in January 2023 (with a look back to January 2022). The CPRA significantly modifies the CCPA, including by imposing additional obligations on covered companies and expanding consumers rights with respect to certain sensitive personal information, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply. The CPRA also creates a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. In addition, all 50 states have laws including obligations to provide notification of security breaches of computer databases that contain personal information to affected individuals, state officers and others. Aspects of the CCPA, the CPRA and other laws and regulations relating to data protection, privacy and information security, as well as their enforcement, remain unclear and we may be required to modify our practices in an effort to comply with them.
We cannot yet fully determine the impact these or future laws, rules and regulations concerning data privacy and security may have on our business or operations. These laws, rules and regulations may be inconsistent from one jurisdiction to another, subject to differing interpretations and may be interpreted to conflict with our practices. Additionally, we may be bound by contractual requirements applicable to our collection, use, processing and disclosure of various types of data, including personal information, and may be bound by, or voluntarily comply with, self-regulatory or other industry standards relating to these matters. Compliance with U.S. and international privacy and data security laws and regulations could require us to take on more onerous obligations in our contracts and restrict our ability to collect, use and disclose data. Because the interpretation and application of data protection laws, regulations, standards and other obligations are still uncertain, and often
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contradictory and in flux, it is possible that the scope and requirements of these laws may be interpreted and applied in a manner that is inconsistent with our practices and our efforts to comply with the evolving data protection rules may be unsuccessful. Failure to comply with U.S. and international privacy and data security laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), private litigation or adverse publicity and could negatively affect our results of operations and business. Claims that we have violated individuals privacy rights, failed to comply with privacy and data security laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time consuming to defend and could result in adverse publicity that could increase our operation costs, impact our financial performance and adversely affect enrollments.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010 and similar anti-bribery laws around the world.
The U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010 and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. Recent years have seen a substantial increase in anti-bribery law enforcement activity, with more frequent and aggressive investigations and enforcement proceedings by both U.S. and non-U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that are recognized as having governmental and commercial corruption and local customs and practices that can be inconsistent with anti-bribery laws. We cannot assure you that our internal control policies and procedures will always protect us from reckless or criminal acts committed by our employees or third-party intermediaries. In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, or if we are subject to allegations of any such violations, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may result in criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on our reputation, business, financial condition, results of operations and cash flows. In addition, we could be subject to commercial impacts such as lost revenue from customers who decline to do business with us as a result of such compliance matters, or we could be subject to lawsuits brought by private litigants, each of which could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows.
Our business may be adversely affected if we are unable to adequately establish, maintain, protect and enforce our intellectual property and proprietary rights or prevent third parties from making unauthorized use of such rights.
Our intellectual property is an essential asset of our business. Failure to adequately protect our intellectual property rights could result in our competitors offering similar products and services, potentially resulting in the loss of our competitive advantage and a decrease in our revenue, which would adversely affect our business prospects, financial condition and results of operations. Our success depends in part on our ability to protect our proprietary rights and intellectual property. We rely on a combination of intellectual property rights, such as trademarks, trade secrets (including know-how), patents and copyrights, in addition to confidentiality provisions and licensing arrangements to establish, maintain, protect and enforce our proprietary rights. For example, we rely on trademark protection to protect our rights to various marks as well as distinctive logos and other marks associated with our products and services. We also rely on agreements under which we contract to own, or license rights to use, intellectual property developed by employees, contractors and other third parties. In addition, while we generally enter into confidentiality agreements with our employees and third parties to protect our trade secrets, know-how, business strategy and other proprietary information, such confidentiality agreements could be breached or otherwise may not provide meaningful protection for our trade secrets and know-how related to the design, manufacture or operation of our products. Similarly, while we seek to enter into agreements with all of our employees who develop intellectual property during their employment to assign the
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rights in such intellectual property to us, we may fail to enter into such agreements with all relevant employees, such agreements may be breached or may not be self-executing, and we may be subject to claims that such employees misappropriated relevant rights from their previous employers. Accordingly, we cannot guarantee that the steps we have taken to protect our intellectual property will be adequate to prevent infringement of our rights or misappropriation of our technology, trade secrets or know-how, that we have secured, or will be able to secure, appropriate permissions or protections for all of the intellectual property rights we use or claim rights to, or that third parties will not terminate our license rights. For example, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in some of the countries in which we operate. Furthermore, intellectual property laws and our procedures and restrictions provide only limited protection and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated.
If we fail to protect our intellectual property rights adequately, we may lose an important advantage in the markets in which we compete. Our efforts to protect these rights may be insufficient or ineffective, and any of our intellectual property rights may be challenged, which could result in them being narrowed in scope or declared invalid or unenforceable. Other parties may also independently develop technologies, products and services that are substantially similar or superior to ours. We also may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. If it became necessary for us to resort to litigation to protect our intellectual property rights, any proceedings could be burdensome and costly, and we may not prevail. Further, adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets and manufacturing expertise. Finally, for those products in our portfolio that rely on patent protection, once a patent has expired, the product is generally open to competition. Products under patent protection usually generate significantly higher revenues than those not protected by patents. If we fail to successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our business, financial condition, results of operations and cash flows.
From time to time, we are party to intellectual property-related litigations and proceedings that are expensive and time consuming to defend, and, if resolved adversely, could materially adversely impact our business, financial condition and results of operations.
Our commercial success depends in part on avoiding infringement, misappropriation or other violations of the intellectual property and proprietary rights of third parties and other intellectual property-related disputes. Some third-party intellectual property rights may prove to be extremely broad, and it may not be possible for us to conduct our operations in such a way as to avoid violating those intellectual property rights. As we face increasing competition, the possibility of intellectual property rights claims against us grows. Such claims and litigation may involve patent holding companies or other adverse intellectual property rights holders who have no relevant product revenue, and, therefore, our own issued and pending patents and other intellectual property rights may provide little or no deterrence to these rights holders in bringing intellectual property rights claims against us. There may be intellectual property rights held by others, including issued or pending patents and registered trademarks, that cover significant aspects of our technologies, products or services, and we cannot assure that we are not infringing or violating, and have not infringed or violated, any third-party intellectual property rights, or that we will not be held to have done so or be accused of doing so in the future. In addition, we are party to a number of complex intellectual property agreements with our licensing partners and certain provisions in such agreements may be susceptible to multiple interpretations. Any disputes with our licensing partners with respect to such agreements could narrow what we believe to be the scope of our rights to the relevant intellectual property or increase our obligations under such agreements, either of which could have a material adverse effect on our business, financial condition, results of operations and cash flows
We are, from time to time, subject to claims of intellectual property infringement by third parties, including practicing entities and non-practicing entities. Regardless of the merit of such claims, any claim that we have violated intellectual property or other proprietary rights of third parties, whether or not it results in litigation, is settled out of court or is determined in our favor, could be expensive and time-consuming, and could divert the
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time and attention of management and technical personnel from our business. The litigation process is subject to inherent uncertainties, and we may not prevail in litigation matters regardless of the merits of our position. Further, our liability insurance may not cover potential claims of this type adequately or at all. Intellectual property lawsuits or claims may become extremely disruptive if plaintiffs were to succeed in blocking the trade of our products and services. Furthermore, an adverse outcome of a dispute may result in an injunction and could require us to pay substantial monetary damages, including treble damages and attorneys fees, if we are found to have willfully infringed a partys intellectual property rights. Any settlement or adverse judgment resulting from such a claim could (i) require us to enter into a licensing agreement to continue using the technology, content or other intellectual property that is the subject of the claim; (ii) restrict or prohibit our use of such technology, content or other intellectual property; (iii) require us to expend significant resources to alter the design and operation of our systems and technology or the content of our courses; and (iv) require us to indemnify third parties. Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royalty payments and other expenditures. We may also be required to develop alternative non-infringing technology, which could require significant time and expense. There also can be no assurance that we would be able to develop or license suitable alternative technology, content or other intellectual property to permit us to continue offering the affected technology, content or services to our partners. If we cannot develop or license technology for any allegedly infringing aspect of our business, we would be forced to limit our battery technologies, products and services and may be unable to compete effectively. Any of these events could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are subject to requirements and liabilities relating to environmental, health and safety laws and regulations and environmental remediation matters, including those related to the manufacturing and recycling of lead-acid batteries, which could adversely affect our business, financial condition, results of operation and reputation.
We are subject to numerous federal, foreign, international, state and local environmental, health and safety laws and regulations governing, among other matters, emissions to air, water and land, solid and hazardous waste storage, treatment, recycling, disposal and transportation, chemical exposure, worker and public health and safety, and remediation of the presence or releases of hazardous materials, including as they pertain to decommissioning our facilities, lead/lead compounds and sulfuric acid, the primary materials used in the manufacture of lead-acid batteries, and to solvents and metal compounds used in the manufacture or repair of lithium-ion batteries. There are significant capital, operating and other costs associated with compliance with or liability under environmental, health and safety laws and regulations. We have been subject to allegations, litigation, notices of violation, consent decrees and orders with governmental authorities, and failures to comply, particularly to the extent such noncompliance is determined to be part of a continuing pattern of noncompliance, with respect to such laws and regulations, including obtaining and complying with any permits required to conduct our operations, could subject us to civil or criminal liability, monetary damages, reputational damages, fines and/or a cessation or interruption of operations or an increase in costs to continue such operations in the future. Certain environmental laws, including the U.S. Superfund law and state equivalents, make us potentially liable on a strict, joint and several basis for the investigation and remediation of contamination at, or originating from, facilities that are currently or formerly owned or operated by us and third-party sites to which we send or have sent materials for disposal or materials for recycling, along with related natural resources damages. Such liability may not be limited to the cleanup of contamination, particularly when such contamination is present in residential areas. We are and have been involved in investigation and remediation activities at our current and former, and third-party sites. We cannot provide any assurance that we will not incur liability relating to the investigation or remediation of contamination or natural resources damages in the future, including contamination we did not cause, which could adversely affect our business, financial condition, results of operation and reputation. As an example, in December 2020, we were named in a lawsuit filed by the state of California seeking relief associated with environmental contamination generated by a former Exide lead recycling facility in Vernon, California to which we had sent lead bearing battery scrap and spent lead-acid batteries for the purpose of recycling, reimbursement of costs incurred to date by the plaintiff related to its
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investigation and clean up and potentially the costs of future investigation and remediation. We are currently unable to reasonably estimate the potential loss or range of potential losses as a result of this lawsuit.
Environmental, health and safety laws and regulations may also become more stringent in the future, which could increase costs of compliance, require us to manufacture with alternative technologies and materials or otherwise make material changes to our operations, resulting in significant increases to the cost of production. For example, we benefit from an exemption for lead-acid batteries from the European Unions End-of-Life Vehicle Directive (Directive 2000/53/EC). If the European Union removes the exemption or declines to grant extensions of the exemption, and therefore makes it unlawful to use lead-acid batteries in light-duty vehicles, our business, financial condition and results of operations may be adversely affected. Similarly, there is a possibility that lead/lead compounds for use in lead-acid batteries and/or components of lithium-ion batteries could be added to the EUs Registration, Evaluation, Authorisation, and Restriction of Chemicals (REACH) authorization list, the U.S.s Toxic Substances Control Act (TSCA) high priority list, and/or the California Safer Consumer Products Priority Product list, which, in any of these cases, could result in litigation, cause us to incur significant costs in order to comply and adversely affect our business, financial condition and results of operations. In addition, costs, including capital and operating costs, relating to compliance with existing, modified or new environmental, health and safety laws and regulations can be material, and in the future we may be unable to generate sufficient funds or access other sources of capital to fund unforeseen environmental liabilities or expenditures. If we or our business partners fail to adhere to environmental, health and safety requirements, including obtaining and complying with any permits required to conduct operations, it could adversely affect our business, financial condition, results of operation and reputation.
In addition, increased public awareness and concern regarding environmental and social corporate responsibility and any concerns or allegations around our environmental, health and safety practices and compliance with laws and regulations in connection with the manufacturing, use, collection and recycling of our products could negatively impact the reputation of our company and products and our business could be materially and adversely affected by any reduction in the market acceptance of our products, even where such concerns or allegations prove to be inaccurate or unfounded or do not relate to the performance of our products or the safety of our manufacturing, collection and recycling processes.
Global climate change (and related laws) could negatively affect our business, financial condition and results of operation. Increased public awareness and concern regarding global climate change may result in more regional and/or federal requirements to reduce or mitigate the effects of greenhouse gas emissions.
There continues to be a lack of consistency between states, the U.S. federal government and other countries regarding legislation and regulations relating to climate change, which creates economic and regulatory uncertainty. Such regulatory uncertainty extends to incentives, that if discontinued, could adversely impact the demand for batteries for energy efficient vehicles. These factors may impact the demand for our products, obsolescence of our products and our results of operations.
There is a growing consensus that greenhouse gas emissions are linked to global climate change. Climate change, such as extreme weather conditions, create financial risk to our business. For example, as described above, the demand for our products and services, such as automotive replacement batteries, may be affected by unseasonable weather conditions. Climate changes could also disrupt our operations by impacting the availability and cost of materials needed for manufacturing and could increase insurance and other operating costs. These factors may impact our decisions to construct new facilities or maintain existing facilities in areas most prone to physical climate risks. We could also face indirect financial risks passed through the supply chain and process disruptions due to physical climate changes could result in price modifications for our products and the resources needed to produce them. In addition, increased public awareness and concern regarding climate change may impact the demand for our products or obsolescence of our products.
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A variety of other factors could adversely affect our results of operations.
Any of the following could materially and adversely impact our results of operations: loss of, or changes in, automobile battery supply contracts with our large original equipment and aftermarket customers; contracts, or the interruption or cessation of operations of, with certain of our suppliers including long-term tolling agreements; the increasing quality and useful life of batteries or use of alternative battery technologies, both of which may adversely impact the lead-acid battery market, including replacement cycle; delays or cancellations of new vehicle programs; market and financial consequences of any recalls that may be required on our products; delays or difficulties in new product development, including lithium-ion technology; impact of potential increases in lithium-ion battery volumes on established lead-acid battery volumes as lithium-ion battery technology grows and costs become more competitive; financial instability or market declines of our customers or suppliers; slower than projected market development in emerging markets; interruption of supply of certain single-source components; changing nature of our joint ventures and relationships with our strategic business partners; unseasonable weather conditions in various parts of the world; transportation delays within our plant network or increased prices for logistics services; our ability to secure sufficient tolling capacity to recycle batteries; price and availability of battery cores used in recycling; and the pace of the development of the market for hybrid and electric vehicles.
Our reliance on certain significant suppliers subjects us to numerous risks, including possible interruptions in supply, which could adversely affect our business.
Our ability to maintain consistent quality throughout our operations depends in part upon our ability to acquire certain products in sufficient quantities. Our suppliers are subject to environmental, health and safety laws and regulations and failure to comply with such laws and regulations could result in a cessation or interruption of their operations or increased costs which are passed on to their customers, including us. Supply shortages for a particular component can delay production and thus delay shipments to customers and our receipt of related net sales. This could cause us to experience a reduction in sales, increased costs and could adversely affect relationships with existing and prospective customers. In particular, a disruption to lead supply could adversely impact our business, financial condition and results of operations.
Negative or unexpected tax consequences could adversely affect our results of operations.
Adverse changes in the underlying profitability and financial outlook of our operations in several jurisdictions could lead to additional changes in our valuation allowances against deferred tax assets and other tax reserves on our statement of financial position, and the future sale of certain businesses could potentially result in the reversal of outside basis differences that could adversely affect our results of operations and cash flows. Additionally, changes in tax laws in the U.S. or in other countries where we have significant operations could materially affect deferred tax assets and liabilities on our consolidated statements of financial position and our income tax provision in our consolidated statements of income. We are also subject to tax audits by governmental authorities. Negative unexpected results from one or more such tax audits could adversely affect our results of operations.
Recently enacted tax reform bills could adversely affect our business and financial conditions.
The Tax Cuts and Jobs Act, or the TCJA, enacted on December 22, 2017, significantly affected U.S. tax law, including by changing how the U.S. imposes tax on certain types of income of corporations and by reducing the U.S. federal corporate income tax rate to 21%. It also imposed new limitations on several tax benefits, including deductions for business interest, use of net operating loss carryforwards, taxation of foreign income, and the foreign tax credit, among others. In response to the COVID-19 pandemic, the Families First Coronavirus Response Act, or FFCR Act, enacted on March 18, 2020 and the Coronavirus Aid Relief, and Economic Security Act, or CARES Act, enacted on March 27, 2020, further amended the U.S. federal tax code, including in respect of certain changes that were made by the TCJA, generally on a temporary basis. There can be no assurance that
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future tax law changes will not increase the rate of the corporate income tax significantly, impose new limitations on deductions, credits or other tax benefits, or make other changes that may adversely affect our business, cash flows or financial performance. In addition, the IRS has yet to issue guidance on a few important issues regarding the changes made by the TCJA and the CARES Act. In the absence of such guidance, we will take positions with respect to several unsettled issues. There is no assurance that the IRS or a court will agree with the positions taken by us, in which case tax penalties and interest may be imposed that could adversely affect our business, cash flows or financial performance.
Other future changes in tax laws or regulations, or the interpretation thereof, tax policy initiatives and reforms under consideration and the practices of tax authorities could adversely affect us. We are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on our business, but such changes could affect our financial position and overall or effective tax rates in the future, reduce after-tax returns to our stockholders, and increase the complexity, burden and cost of tax compliance. If our effective tax rate increases, our operating results and cash flow could be adversely affected. Our effective income tax rate can vary significantly between periods due to a few complex factors including, but not limited to, projected levels of taxable income, tax audits conducted and settled by tax authorities, and adjustments to income taxes upon finalization of income tax returns.
Legal proceedings in which we are, or may be, a party may adversely affect us.
We are currently, and may in the future, become subject to legal proceedings and commercial or contractual disputes. These are typically claims that arise in the normal course of business including, without limitation, commercial or contractual disputes with our suppliers or customers, intellectual property matters and third-party liability, including product liability claims and employment claims. We may in the future be named as a defendant in tort exposure claims and other actions where the third-party use of our products or where our operations (including those involving the collection, recycling, transportation and storage of lead bearing materials as well as those involving the assembly, manufacture, storage and transportation of components, work in process and finished products) have allegedly resulted in contamination to the soil, groundwater and drinking water supplies or elevated concentrations of lead in individuals. Plaintiffs in these cases are generally seeking damages for personal injuries, medical monitoring and diminution in property values, and are also seeking punitive damages and injunctive relief to address the alleged injury or remediation of the alleged contamination. Furthermore, we are currently, and may in the future, be named as a defendant in other claims relating to environmental, health and safety laws and regulations we are subject to. See We are subject to requirements and liabilities relating to environmental, health and safety laws and regulations and environmental remediation matters, including those related to the manufacturing and recycling of lead-acid batteries, which could adversely affect our business, financial condition, results of operation and reputation. For example, in December 2020, we were named in a lawsuit filed by the state of California seeking relief associated with environmental contamination generated by a former Exide lead recycling facility in Vernon, California to which we have sent lead bearing battery scrap and spent lead acid batteries for the purpose of recycling, reimbursement of costs incurred to date by the plaintiff related to its investigation and clean up and potentially the costs of future investigation and remediation. We are currently unable to reasonably estimate the potential loss or range of potential losses as a result of this lawsuit. There is a possibility that litigation in which we are involved may have an adverse impact on our results of operations and cash flows that is greater than we anticipate and/or negatively affect our reputation.
The potential insolvency or financial distress of third parties could adversely impact our business and results of operations.
We are exposed to the risk that third parties to various arrangements who owe us money or goods and services, or who purchase goods and services from us, will not be able to perform their obligations or continue to place orders due to insolvency or financial distress. If third parties fail to perform their obligations under arrangements with us, we may be forced to replace the underlying commitment at current or above market prices
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or on other terms that are less favorable to us. In such events, we may incur losses, or our results of operations, financial condition or liquidity could otherwise be adversely affected.
We may be unable to complete or integrate acquisitions or joint ventures effectively, which may adversely affect our growth, profitability and results of operations.
Acquisitions of businesses and assets, as well as joint ventures (or other strategic arrangements), may play a role in our future growth. We cannot be certain that we will be able to identify attractive acquisition or joint venture targets, obtain financing for acquisitions on satisfactory terms, successfully acquire identified targets, form joint ventures or manage the timing of acquisitions with capital obligations. Acquisitions, partnerships, alliances and subsequent integrations thereof would require significant managerial, operational and financial resources and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our growth and business operations. Additionally, we may not be successful in integrating acquired businesses or joint ventures into our existing operations and achieving projected synergies which could result in impairment of assets, including goodwill and acquired intangible assets. We must necessarily base any assessment of potential acquisitions, partnerships or alliances on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect. Future acquisitions and alliances, as well as other investments, may not produce anticipated synergies or perform in accordance with our expectations. The cost and duration of integrating newly acquired businesses could also materially exceed our expectations.
Competition for acquisition opportunities in the industry in which we operate may rise, thereby increasing our costs of making acquisitions or causing us to refrain from making further acquisitions. If we were to use equity securities to finance a future acquisition, our then-current stockholders would experience dilution. We are also subject to applicable antitrust laws and must avoid anticompetitive behavior. These and other factors related to acquisitions and joint ventures may negatively and adversely impact our growth, profitability and results of operations.
Risks associated with joint venture investments may adversely affect our business and financial results.
We have entered into several joint ventures and we may enter into additional joint ventures in the future. Our joint venture partners may at any time have economic, business or legal interests or goals that are inconsistent with our goals or with the goals of the joint venture. In addition, we may compete against our joint venture partners in certain of our other markets. Disagreements with our business partners may impede our ability to maximize the benefits of our partnerships. Our joint venture arrangements may require us, among other matters, to pay certain costs or to make certain capital investments or to seek our joint venture partners consent to take certain actions. In addition, our joint venture partners may be unable or unwilling to meet their economic or other obligations under the operative documents, and we may be required to either fulfill those obligations alone to ensure the ongoing success of a joint venture or to dissolve and liquidate a joint venture. These risks could result in a material adverse effect on our business and financial results.
A failure of our information technology (IT) and data security infrastructure could adversely impact our business and operations.
We rely upon the capacity, reliability and security of our IT and data security infrastructure and our ability to expand and continually update this infrastructure in response to the changing needs of our business. As we implement new systems or integrate existing systems, they may not perform as expected. We also face the challenge of supporting our older systems and implementing necessary upgrades. If we experience a problem with the functioning of an important IT system or a security breach of our IT systems, including during system upgrades and/or new system implementations, the resulting disruptions could have an adverse effect on our business. Furthermore, we collect and maintain information in digital form that is necessary to conduct our business, and we are increasingly dependent on our IT and data security infrastructure to operate our business. In the ordinary course of our business, we collect, store and transmit large amounts of confidential information,
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including intellectual property, proprietary business information and personal information. It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We have established physical, electronic and organizational measures to safeguard and secure our systems to prevent a data compromise, and rely on commercially available systems, software, tools, and monitoring to provide security for our IT systems and the processing, transmission and storage of digital information. We have also outsourced elements of our IT systems, and as a result a number of third-party vendors may or could have access to our confidential information.
Despite our implementation of security measures, our IT systems, like those of other companies, are vulnerable to damage or interruption from a variety of sources, including physical damage, telecommunications or network failures or interruptions, system malfunction, natural disasters, malicious human acts, terrorism and war. Such IT systems, including our servers, are additionally vulnerable to physical or electronic break-ins, security breaches from inadvertent or intentional actions by our employees, third-party service providers, contractors, consultants, business partners, and/or other third parties, or from cyber-attacks by malicious third parties (including the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering, and other means to affect service reliability and threaten the confidentiality, integrity, and availability of information). The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. We can provide no assurance that our current IT systems, or those of the third parties upon which we rely, are fully protected against cyber security threats. We may not be able to anticipate all types of security threats, and we may not be able to implement preventive measures effective against all such security threats. The techniques used by cyber criminals change frequently, may not be recognized until launched and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations or hostile foreign governments or agencies. It is possible that we or our third-party vendors may experience cybersecurity and other breach incidents that remain undetected for an extended period. Even when a security breach is detected, the full extent of the breach may not be determined immediately. The costs to us to mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant and, while we have implemented security measures to protect our IT and data security infrastructure, our efforts to address these problems may not be successful.
Any system failure, accident or security breach could result in disruptions to our operations or those of our customers. A material network breach in the security of our IT systems could include the theft of our intellectual property (including our trade secrets), customer information, human resources information or other confidential matter or the theft of the confidential information of our customers. To the extent that any disruption or security breach results in a loss or damage to our or our customers data, or an inappropriate disclosure of confidential, proprietary or customer information, it could cause significant damage to our reputation, affect our relationships with our customers, lead to claims against the Company and ultimately harm our business. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future. If our IT systems fail and our redundant systems or disaster recovery plans are not adequate to address such failures, or if our business interruption insurance does not sufficiently compensate us for any losses that we may incur, our revenues and profits could be reduced and the reputation of our brand and our business could be materially and adversely affected.
We are also reliant on the security practices of our third-party service providers, which may be outside of our direct control. The services provided by these third parties are subject to the same risk of outages, other failures and security breaches described above. If these third parties fail to adhere to adequate security practices, or experience a breach of their systems, the data of our employees, customers and business associates may be improperly accessed, used or disclosed. In addition, our providers have broad discretion to change and interpret the terms of service and other policies with respect to us, and those actions may be unfavorable to our business operations. Our providers may also take actions beyond our control that could harm our business, including discontinuing or limiting our access to one or more services, increasing pricing terms, terminating or seeking to
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terminate our contractual relationship altogether, or altering how we are able to process data in a way that is unfavorable or costly to us. Although we expect that we could obtain similar services from other third parties, if our arrangements with our current providers were terminated, we could experience interruptions in our business, as well as delays and additional expenses in arranging for alternative cloud infrastructure services. Any loss or interruption to our systems or the services provided by third parties would adversely affect our business, financial condition and results of operations.
A material disruption of our operations, particularly at our manufacturing or recycling facilities, could adversely affect our business.
If our operations, particularly at our manufacturing or recycling facilities, were to be disrupted as a result of significant equipment failures, natural disasters, power outages, fires, explosions, terrorism, sabotage, adverse weather conditions, public health crises, labor disputes, regulatory changes or other reasons, we may be unable to effectively fill customer orders and otherwise meet obligations to or demand from our customers, which could adversely affect our financial performance. Should we be unable to resume operations at any facility, we may incur unplanned costs, including restructuring and/or impairment costs, as well as revisions to our asset retirement obligations for those facilities.
Interruptions in production could increase our costs and reduce our sales. Any interruption in production capability could require us to make substantial capital expenditures or purchase alternative material at higher costs to fill customer orders, which could negatively affect our profitability and financial condition. We maintain property damage insurance that we believe to be adequate to provide for reconstruction of facilities and equipment, as well as business interruption insurance to mitigate losses resulting from significant production interruption or shutdown caused by an insured loss. However, any recovery under our insurance policies may not offset the lost sales or increased costs that may be experienced during the disruption of operations, which could adversely affect our business, financial condition, results of operations and cash flow.
Our business success depends on attracting and retaining qualified personnel.
Our ability to sustain and grow our business requires us to hire, retain and develop a highly skilled and diverse management team and workforce. Failure to ensure that we have the leadership capacity with the necessary skill set and experience could impede our ability to deliver our growth objectives and execute our strategic plan. Organizational and reporting changes resulting from the Acquisition, or as a result of any future leadership transition or corporate initiatives could result in increased turnover. Additionally, any unplanned turnover or inability to attract and retain key employees could have a negative effect on our results of operations.
Our business may be adversely affected by work stoppages, union negotiations, labor disputes and other matters associated with our labor force.
We employ approximately 16,897 people worldwide. Approximately 57% of these employees are covered by collective bargaining agreements or works council. Although we believe that our relations with the labor unions and works councils that represent our employees are generally good and we have experienced no material strikes or work stoppages recently, no assurances can be made that we will not experience in the future these and other types of conflicts with labor unions, works council, other groups representing employees or our employees generally, or that any future negotiations with our labor unions will not result in significant increases in our cost of labor. Additionally, a work stoppage at one of our suppliers could materially and adversely affect our operations if an alternative source of supply were not readily available. Stoppages by employees of our customers could also result in reduced demand for our products.
We may be unable to successfully implement our business strategy, which could adversely affect our business, financial condition, cash flows or results of operations.
Our ability to achieve our business and financial objectives is subject to a variety of factors, many of which are beyond our control. For example, we may not be successful in increasing our manufacturing and distribution
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efficiency through productivity, process improvements and cost reduction initiatives. Further, we may not be able to realize the benefits of these improvements and initiatives within the time frames we currently expect. For example, in January 2021, we announced that we will be streamlining our recycling infrastructure through the closure of one of our recycling facilities in North America. We may incur costs related to the closure including workforce reductions and non-cash asset impairments, among others. Any failure to successfully implement our business strategy could adversely affect our business, financial condition, cash flows, or results of operations, and could further impair our ability to make certain strategic capital expenditures.
We provide warranties with respect to certain of our products that may require us to bear the costs of product repair or replacement.
We provide warranties with respect to certain of our products. Our management is required to make assumptions and to apply judgment regarding a number of factors, including anticipated rate of warranty claims, the durability and reliability of our products, and after-care costs in negotiating warranties and estimating warranty expenses. Our assumptions could prove to be materially different from the actual performance of our batteries, which could result in substantial expense to repair or replace defective products in the future and may exceed expected levels against which we have established reserves.
In addition, with new products and products that remain under development, we will be required to base our warranty estimates on our historical experience with similar products, testing of the batteries under laboratory conditions and limited performance information obtained through testing activities with customers. As a result, actual warranty claims may be significantly different from our estimates.
The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business.
Following the completion of this offering, we will be required to comply with various regulatory and reporting requirements, including those required by the Securities and Exchange Commission (the SEC). Complying with these reporting and other regulatory requirements will be time-consuming and will result in increased costs to us and could have a negative effect on our business, financial condition and results of operations.
As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934 (as amended, the Exchange Act) and requirements of the Sarbanes-Oxley Act of 2002 (as amended, the Sarbanes-Oxley Act). These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we may need to commit significant resources, hire additional staff and provide additional management oversight. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. Sustaining our growth also will require us to commit additional management, operational and financial resources to identify new professionals to join Clarios and to maintain appropriate operational and financial systems to adequately support expansion. These activities may divert managements attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.
Risks Relating to our Indebtedness
We have a substantial amount of indebtedness, which could adversely affect our financial condition and ability to operate our business.
As of March 31, 2021, we had approximately $10.3 billion of long-term debt outstanding, including deferred financing costs and finance leases, and approximately $1.3 billion of additional borrowing capacity
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under the ABL Facility and the Revolving Facility (including undrawn letters of credit), subject to borrowing base availability and other customary conditions. Our substantial indebtedness, combined with our other financial obligations and contractual commitments, could have important consequences for our business. For example, it could:
| make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in an event of default under the agreements governing such indebtedness; |
| require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, business development and other purposes; |
| compromise our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, due to our high level of debt and the restrictive covenants in the credit agreements that govern our Senior Secured Credit Facilities and the ABL Facility and the indentures governing our outstanding notes; |
| limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; |
| limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions and other corporate purposes; |
| prevent us from raising the funds necessary to repurchase all the notes tendered to us upon the occurrence of certain changes of control, which would constitute a default under the agreements governing such indebtedness; and |
| limit our ability to redeem, repurchase, defease or otherwise acquire or retire for value any subordinated indebtedness we may incur. |
These restrictions could adversely affect our financial condition and limit our ability to successfully implement our growth strategy.
In addition, we may need additional financing to support our business and pursue our growth strategy, including for strategic acquisitions. Our ability to obtain additional financing, if and when required, will depend on investor demand, our operating performance, the condition of the capital markets and other factors. We cannot assure you that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to those of our common stock, and, in the case of equity and equity-linked securities, our existing stockholders may experience dilution.
The credit agreements that govern the Senior Secured Credit Facilities and the ABL Facility and the indentures governing our outstanding notes each impose significant operating and financial restrictions on our company, which may prevent us from capitalizing on business opportunities.
The credit agreements that govern the Senior Secured Credit Facilities and the ABL Facility and indentures governing our outstanding notes each impose significant operating and financial restrictions on our company. These restrictions limit our ability and the ability of certain of our subsidiaries to, among other things:
| incur or guarantee additional debt or issue disqualified stock or preferred stock; |
| pay dividends and make other distributions on, or redeem or repurchase, capital stock; |
| make certain investments; |
| incur certain liens; |
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| enter into transactions with affiliates; |
| merge or consolidate; |
| enter into agreements that prohibit the ability of restricted subsidiaries to make dividends or other payments to us and certain of our other subsidiaries; |
| designate restricted subsidiaries as unrestricted subsidiaries; |
| prepay, redeem or repurchase certain indebtedness that is subordinated in right of payment to the notes; |
| and transfer or sell assets. |
In addition, we will be required to comply with, based on level of utilization of the ABL Facility, a fixed-charge coverage ratio financial covenant under the ABL Facility and, based on level of utilization of the Revolving Facility, a leverage-based financial covenant under the Revolving Facility. See Description of Material Indebtedness.
As a result of the restrictions described above, we will be limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.
Our failure to comply with the restrictive covenants described above as well as other terms of our indebtedness and/or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.
We are a holding company and all of our operations are conducted through our subsidiaries. Our ability to pay dividends to you will depend on cash flow generated by our subsidiaries, which may be subject to limitations beyond our control.
As a holding company, our subsidiaries own all of our assets and conduct all of our operations. Accordingly, our ability to pay dividends to you will depend upon our receipt of dividends and other distributions from our subsidiaries. Furthermore, we have certain existing indebtedness, and may incur additional indebtedness or enter into other arrangements in the future, that contain terms that restrict or prohibit our subsidiaries from paying dividends, making other distributions and making loans to us. The restrictions on these subsidiaries ability to pay dividends to us have not to date had a material impact on our liquidity or our ability to pay dividends to our shareholders. However, we cannot assure you that the agreements governing our existing or future indebtedness will permit our subsidiaries to provide us with sufficient dividends or distributions or permit us to loan money or enter into other similar arrangements to fund dividend payments. To the extent our subsidiaries do not have funds available or are otherwise restricted from paying dividends to us, our ability to pay dividends to our stockholders will be adversely affected.
Interest rate fluctuations may have a material adverse effect on our business, results of operations, financial condition and cash flows. The discontinuation of U.S. dollar LIBOR may have an adverse effect on the interest rate payable under our credit facilities.
Indebtedness under the Senior Secured Credit Facilities and the ABL Facility bears interest at variable rates and we may incur additional variable interest rate indebtedness in the future. This exposes us to interest rate risk, and any interest rate swaps we enter into in order to reduce interest rate volatility may not fully mitigate our interest rate risk. If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even if the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease.
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In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. The First Lien Credit Agreement (as defined below) provides for the discontinuation of U.S. dollar LIBOR by including provisions broadly consistent with the hardwired approach recommended prior to the date of the Repricing Amendment by the Alternative Rates Reference Committee convened by the Federal Reserve Board. The hardwired approach provides for (i) a transition to a benchmark based on the secured overnight funds rate (SOFR) or another benchmark determined after giving regard to any recommendation by the Federal Reserve Board and any evolving or then-prevailing market convention for syndicated credit facilities and (ii) certain spread adjustments and other changes necessary to implement such replacement benchmark. The transition to a replacement benchmark is triggered by the earliest to occur of several events, including the cessation of publication of U.S. dollar LIBOR and the public announcement by the regulatory supervisor of the administrator of U.S. dollar LIBOR that U.S. dollar LIBOR is no longer representative. The ABL Credit Agreement (as defined below) provides for the discontinuation of U.S. dollar LIBOR by including provisions that require the administrative agent and the Borrower to endeavor to establish an alternative benchmark that gives due consideration to the then prevailing market convention for syndicated loans. Currently, it is not possible to determine with certainty the future utilization of U.S. dollar LIBOR or of any particular replacement benchmark. As such, the potential effect of any such event on our business, financial condition, cash flows and results of operations cannot yet be determined. However, any such event could have an adverse effect on our business, financial condition, cash flows and results from operations and could cause the market value of our common shares and/or debt securities to decline.
Risks Related to Our Common Stock and this Offering
There may not be an active, liquid trading market for our common stock.
Prior to this offering, there has been no public market for shares of our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on the NYSE or how liquid that market may become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you purchase. The initial public offering price of shares of our common stock is, or will be, determined by negotiation between us and the underwriters and may not be indicative of prices that will prevail following the completion of this offering. The market price of shares of our common stock may decline below the initial public offering price, and you may not be able to resell your shares of our common stock at or above the initial public offering price.
We expect that our stock price will fluctuate significantly, and you may not be able to resell your shares at or above the initial public offering price.
The trading price of our common stock is likely to be volatile and subject to wide price fluctuations in response to various factors, including:
| market conditions in the broader stock market in general, or in our industry in particular; |
| actual or anticipated fluctuations in our quarterly financial and operating results; |
| introduction of new products and services by us or our competitors; |
| issuance of new or changed securities analysts reports or recommendations; |
| sales of large blocks of our stock; |
| additions or departures of key personnel; |
| regulatory developments; |
| litigation and governmental investigations; and |
| economic and political conditions or events. |
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These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business.
If securities or industry analysts do not publish research or reports about our business, or they publish inaccurate or unfavorable reports about our business, the price of our common stock and trading volume could decline.
The trading market for our common stock will also be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could decline.
If a substantial number of shares become available for sale and are sold in a short period of time, the market price of our common stock could decline.
If our existing stockholders sell substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decrease significantly. The perception in the public market that our existing stockholders might sell shares of common stock could also depress our market price. Upon completion of this offering, we will have outstanding shares of common stock and options to purchase shares. Our directors, executive officers and additional other holders of our common stock will be subject to the lock-up agreements described in Underwriting and the Rule 144 holding period requirements described in Shares Eligible for Future Sale. After all of these lock-up periods have expired and the holding periods have elapsed, additional shares will be eligible for sale in the public market. The market price of shares of our common stock may drop significantly when the restrictions on resale by our existing stockholders lapse. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.
Insiders will continue to have substantial control over us after this offering and could limit your ability to influence the outcome of key transactions and significant corporate matters.
As of , 2021, the Sponsor Group, our controlling shareholder, held approximately % of our outstanding equity interests. Following the completion of this offering, our controlling shareholder will own approximately % of our shares, and as such, will continue to be our controlling shareholder following the completion of this offering. As a result of its ownership of % of our shares, the Sponsor Group will have the power to, among other matters, elect the members of our board of directors and decide upon certain major corporate transactions. Other matters requiring approval by the Sponsor Group pursuant to the Stockholders Agreement we will enter into in connection with this offering (the Stockholders Agreement) include certain amendments to our certificate of incorporation and bylaws, increasing or decreasing the size of our board of directors, removing and appointing our chief executive officer and chief financial officer and material changes to our lines of business. In addition, the Stockholders Agreement will provide that approval by the Sponsor Group is required for certain transactions in excess of $ million, such as incurring debt, issuing equity, the declaration or payment of dividends on capital stock and any acquisition or disposition of any asset or business having consideration or fair value in excess of $ million, including any transaction resulting in a change of control. The Sponsor Group will retain this control pursuant to the Stockholders Agreement as long as it owns or controls at least 25% of our outstanding common stock.
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The Stockholders Agreement will require us to, among other things, for so long as the Sponsor Group is controlled by Brookfield and the Sponsor Group owns or controls at least: (i) 25% of the aggregate number of outstanding shares of our common stock, nominate a number of individuals designated by the Sponsor Group for election as directors (each a Sponsor Director) such that, upon the election of each such individual, the number of Sponsor Directors serving as directors of our company will be equal to a majority of the board of directors (including the chair of the board of directors), and (ii) between 15% and 24.99% of the aggregate number of outstanding shares of our common stock, nominate a number of Sponsor Directors such that, upon the election of each such individual, the number of Sponsor Directors serving as directors of our company will be equal to the greater of (x) 25% of the board of directors and (y) three directors.
In addition, certain of our directors may be employed by or otherwise affiliated with one or more entities forming the Sponsor Group. Although these directors attempt to perform their duties within each entity independently, such employment relationships and affiliations could give rise to potential conflicts of interest when a director is faced with a decision that could have different implications for the applicable entities. These potential conflicts could arise, for example, over matters such as the desirability of changes to our business and operations, funding and capital matters, regulatory matters, matters arising with respect to agreements with the Sponsor Group, board composition, employee retention or recruiting, labor, tax, employee benefit, indemnification and our dividend policy and declarations of dividends, among other matters.
Furthermore, our principal stockholders, directors and executive officers and entities affiliated with them will own approximately % of the outstanding shares of our common stock after this offering. As a result, these stockholders, if acting together, would be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. The concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.
We have opted out of Section 203 of the General Corporation Law of the State of Delaware (the DGCL), which prohibits a publicly held Delaware corporation from engaging in a business combination transaction with an interested stockholder for a period of three years after the interested stockholder became such unless the transaction fits within an applicable exemption, such as board approval of the business combination or the transaction which resulted in such stockholder becoming an interested stockholder. However, our amended certificate of incorporation will contain similar provisions providing that we may not engage in such transactions, provided that the Sponsor Group and its affiliates and any of their respective direct or indirect transferees and any group as to which such persons are a party will not constitute interested stockholders for purposes of this provision. Therefore, the Sponsor Group will be able to transfer control of us to a third-party by transferring their shares of our common stock (subject to certain restrictions and limitations), which would not require the approval of our board of directors or our other stockholders.
We will be a controlled company within the meaning of the rules of the NYSE and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
Upon closing of this offering, the Sponsor Group will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a controlled company within the meaning of the corporate governance standards of the NYSE. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a controlled company and may elect not to comply with certain corporate governance requirements, including:
| the requirement that a majority of the board of directors consist of independent directors; and |
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| the requirement that our compensation and governance committee be composed entirely of independent directors. |
While the Sponsor Group controls a majority of the voting power of our outstanding common stock, we intend to rely on these exemptions and, as a result, will not have a majority of independent directors on our board of directors. In addition, we have opted to have a governance and compensation committee and such committee will not be fully independent. Upon the closing of this offering, we expect that seven of our 11 directors will not qualify as independent directors under the applicable rules of the NYSE. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.
Some provisions of Delaware law and our certificate of incorporation and bylaws may deter third parties from acquiring us.
Our amended and restated certificate of incorporation and bylaws will provide for, among other things:
| division of our board of directors into three classes of directors, with each class as equal in number as possible, serving staggered three-year terms; |
| at any time after the Sponsor Group, together permitted transferees, owns less than a majority of our outstanding common stock (the Majority Ownership Requirement), there will be: |
| restrictions on the ability of our stockholders to call a special meeting and the business that can be conducted at such meeting or to act by written consent; |
| supermajority approval requirements for amending or repealing provisions in the certificate of incorporation and bylaws including (i) the provision requiring a 662⁄3% supermajority vote for stockholders to amend our amended and restated bylaws, (ii) the provisions providing for a classified board of directors (the election and term of our directors), (iii) the provisions regarding resignation and removal of directors, (iv) the provisions regarding competition and corporate opportunities, (v) the provisions regarding entering into business combinations with interested stockholders, (vi) the provisions regarding stockholder action by written consent, (vii) the provisions regarding calling special meetings of stockholders, (viii) the provisions regarding filling vacancies on our board of directors and newly created directorships, (ix) the provisions eliminating monetary damages for breaches of fiduciary duty by a director, (x) the provision regarding forum selection and (xi) the amendment provision requiring that the above provisions be amended only with a 662⁄3% supermajority vote; and |
| the removal of directors for cause only upon the affirmative vote of the holders of at least 662⁄3% of the shares of common stock entitled to vote generally in the election of directors; |
| the authorization of undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; |
| the absence of cumulative voting in the election of directors; and |
| advance notice requirements for stockholder proposals. |
These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging future takeover attempts. These provisions could also make it more difficult for stockholders to nominate directors for election to our board of directors and take other corporate actions.
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Our amended and restated certificate of incorporation will require exclusive forum in certain courts in the State of Delaware or the federal district courts of the United States for certain types of lawsuits that may have the effect of discouraging lawsuits against our directors and officers.
Our amended and restated certificate of incorporation will require, to the fullest extent permitted by law, that (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or stockholders to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or our bylaws or (iv) any action asserting a claim against us governed by the internal affairs doctrine will have to be brought in a state court located within the State of Delaware (or if no state court of the State of Delaware has jurisdiction, the federal district court for the District of Delaware), in all cases subject to the courts having personal jurisdiction over the indispensable parties named as defendants. The foregoing provision will not apply to claims arising under the Securities Act, the Exchange Act or other federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction.
Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. In addition, our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the federal securities laws of the United States, including, in each case, the applicable rules and regulations promulgated thereunder. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
Although we believe these exclusive forum provisions benefit us by providing increased consistency in the application of Delaware law and federal securities laws in the types of lawsuits to which each applies, the exclusive forum provisions may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers or stockholders, which may discourage lawsuits with respect to such claims. Further, in the event a court finds either exclusive forum provision contained in our amended and restated certificate of incorporation to be unenforceable or inapplicable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
We do not anticipate paying any cash dividends in the foreseeable future.
We currently intend to retain our future earnings, if any, for the foreseeable future, to fund the development and growth of our business. We do not intend to pay any dividends to holders of our common stock. Any future determination to pay dividends will be at the discretion of our board of directors, subject to applicable laws, and will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by our board of directors. If we issue any Mandatory Convertible Preferred Stock, no dividends may be declared or paid on our common stock unless accumulated and unpaid dividends on the Mandatory Convertible Preferred Stock have been declared and paid, or set aside for payment, on all outstanding shares of the Mandatory Convertible Preferred Stock for all preceding dividend periods. See Dividend Policy. As a result, capital appreciation in the price of our common stock, if any, will be your only source of gain on an investment in our common stock.
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New investors in our common stock will experience immediate and substantial book value dilution after this offering.
The initial public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of our common stock. Dilution is the difference between the initial public offering price per share of common stock and the pro forma net tangible book value per share of common stock after this offering. If you purchase shares of common stock in this offering, you will incur immediate and substantial dilution in the amount of approximately $ per share per share of common stock, based on the midpoint of the price range set forth on the cover of this prospectus. In addition, if we issue additional equity securities in the future, including to our employees and directors under our equity incentive plan, investors purchasing shares of common stock in this offering will experience additional dilution. See Dilution.
Concurrently with this offering, we are offering shares of the Mandatory Convertible Preferred Stock, plus up to an additional shares of the Mandatory Convertible Preferred Stock if the underwriters in that offering exercise their over-allotment option to purchase additional shares of Mandatory Convertible Preferred Stock in full.
Unless converted earlier as described below, each share of the Mandatory Convertible Preferred Stock will automatically and mandatorily convert on the mandatory conversion date into between and shares of our common stock, subject to certain anti-dilution and other adjustments. The number of shares of common stock issuable upon conversion will be determined based on the Average VWAP (as defined below) per share of our common stock over the 20 consecutive trading day period beginning on, and including, the 21st scheduled trading day immediately preceding the mandatory conversion date in accordance with the certificate of designations setting forth the terms of the Mandatory Convertible Preferred Stock (the Certificate of Designations). Assuming mandatory conversion based on an applicable market value of our common stock equal to the assumed initial public offering price of $ per share of common stock, which is the midpoint of the estimated offering price range shown on the cover page of this prospectus, shares of our common stock (or shares if the underwriters in the Concurrent Offering exercise their over-allotment option in full) are issuable upon conversion of the Mandatory Convertible Preferred Stock being offered in the Concurrent Offering, subject to anti-dilution, make-whole and other adjustments. At any time prior to the mandatory conversion date, holders of Mandatory Convertible Preferred Stock may elect to convert each share of the Mandatory Convertible Preferred Stock into shares of our common stock at the minimum conversion rate of shares of our common stock per share of the Mandatory Convertible Preferred Stock, subject to anti-dilution adjustments. If holders elect to convert any shares of the Mandatory Convertible Preferred Stock during a specified period beginning on the effective date of a fundamental change (as defined in the Certificate of Designations), such shares of the Mandatory Convertible Preferred Stock will be converted into shares of our common stock at an increased conversion rate and subject to additional payments and/or deliveries in respect of a fundamental change dividend make-whole amount and an accumulated dividend amount.
We may also choose to pay dividends on the Mandatory Convertible Preferred Stock in shares of our common stock, and the number of shares of common stock issued for such purpose will be based on the Average VWAP per share of our common stock over a certain period, subject to certain limitations described in the Certificate of Designations. See Mandatory Convertible Preferred Stock Offering.
Any of these issuances may dilute your ownership interest in us and any of these events or the perception that these conversions and/or issuances could occur may have an adverse impact on the price of our common stock.
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The Mandatory Convertible Preferred Stock may adversely affect the market price of our common stock.
The market price of our common stock is likely to be influenced by the Mandatory Convertible Preferred Stock. For example, the market price of our common stock could become more volatile and could be depressed by:
| investors anticipation of the potential resale in the market of a substantial number of additional shares of our common stock received upon conversion of the Mandatory Convertible Preferred Stock; |
| possible sales of our common stock by investors who view the Mandatory Convertible Preferred Stock as a more attractive means of equity participation in us than owning shares of our common stock; and |
| hedging or arbitrage trading activity that may develop involving the Mandatory Convertible Preferred Stock and our common stock. |
Certain rights of the holders of the Mandatory Convertible Preferred Stock, if issued, could delay or prevent an otherwise beneficial takeover or takeover attempt of us.
Certain rights of the holders of the Mandatory Convertible Preferred Stock could make it more difficult or more expensive for a third party to acquire us. For example, if a fundamental change were to occur on or prior to , 2024, holders of the Mandatory Convertible Preferred Stock, if issued, may have the right to convert their Mandatory Convertible Preferred Stock, in whole or in part, at an increased conversion rate and will also be entitled to receive a fundamental change dividend make-whole amount and an accumulated dividend amount as described in the Certificate of Designations. These features of the Mandatory Convertible Preferred Stock could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.
Our common stock will rank junior to the Mandatory Convertible Preferred Stock, if issued, with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up of our affairs.
Our common stock will rank junior to the Mandatory Convertible Preferred Stock, if issued, with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up of our affairs. Unless accumulated and unpaid dividends have been declared and paid, or set aside for payment, on all outstanding shares of the Mandatory Convertible Preferred Stock, if issued, for all preceding dividend periods, no dividends may be declared or paid on our common stock and we will not be permitted to purchase, redeem or otherwise acquire any of our common stock, subject to limited exceptions. In the event of our voluntary or involuntary liquidation, dissolution or winding-up of our affairs, no distribution of our assets may be made to holders of our common stock until we have paid to holders of the Mandatory Convertible Preferred Stock, if issued, a liquidation preference equal to $50.00 per share plus accumulated and unpaid dividends.
Holders of the Mandatory Convertible Preferred Stock, if issued, will have the right to elect two directors in the case of certain dividend arrearages.
Whenever dividends on any shares of the Mandatory Convertible Preferred Stock have not been declared and paid for the equivalent of six or more dividend periods, whether or not for consecutive dividend periods, the authorized number of directors on our board of directors will, at the next annual meeting of stockholders or at a special meeting of stockholders, if any, automatically be increased by two and the holders of such shares of the Mandatory Convertible Preferred Stock, if issued, voting together as a single class with holders of any and all of other series of our Voting Preferred Stock (as defined under Mandatory Convertible Preferred Stock Offering) then outstanding will be entitled, at our next annual meeting of stockholders or at a special meeting of stockholders, if any, to vote for the election of a total of two additional members of our board of directors, subject to certain terms and limitations. This right to elect directors will dilute the representation of the holders of our common stock on our board of directors and may adversely affect the market price of our common stock.
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Our internal controls over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.
As a public company, we will be required to comply with SEC rules that implement Section 404 of the Sarbanes-Oxley Act and make a formal assessment of the effectiveness of our internal controls over financial reporting.
When evaluating our internal controls over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. We cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions or the impact of the same on our operations. If we are not able to implement the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or with adequate compliance, our independent registered public accounting firm may issue an adverse opinion due to ineffective internal controls over financial reporting, and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could negatively affect our results of operations and cash flows.
We will be required to pay the Sponsor Group for certain tax benefits, and the amounts of such payments could be material.
We will enter into a tax receivable agreement with the Sponsor Group that will provide for the payment by us to the Sponsor Group of 85% of the amount of the tax savings that we and our subsidiaries are deemed to realize (which may exceed our actual tax savings) as a result of the utilization of tax attributes existing at the time of this offering. These tax attributes include net operating losses and tax basis in certain of our assets, in each case that relate to periods (or portions thereof) ending on or prior to the closing date of this offering and to which we will succeed as a result of certain internal restructuring transactions.
We expect that the payments we make under the tax receivable agreement could be material. Assuming no material changes in the relevant tax law, and that we and our subsidiaries earn sufficient income to realize the full tax benefits subject to the tax receivable agreement, we expect that future payments under the tax receivable agreement will aggregate to between $ million and $ million. Payments in accordance with the terms of the tax receivable agreement could have an adverse effect on our liquidity and financial condition.
In addition, under some circumstances, the tax receivable agreement will terminate and we will be required to make a payment equal to the present value of the expected future payments under the tax receivable agreement, including upon certain mergers, asset sales and other transactions constituting a change of control under the tax receivable agreement, if certain credit events described in the tax receivable agreement occur with respect to us, if we materially breach our obligations under the tax receivable agreement, or if the Sponsor Group elects to exercise its right after the fifteenth anniversary of this offering to terminate the tax receivable agreement. The amount of any such termination payment will be calculated under certain assumptions, including those relating to our and our subsidiaries future taxable income. In these situations, our obligations under the tax receivable agreement could have a material and adverse impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales or other change of control transactions.
To the extent that we are unable to make payments under the tax receivable agreement for any reason, such payments will be deferred and will accrue interest until paid, which could adversely affect our results of operations and could also affect our liquidity in periods in which such payments are made.
For additional information related to the tax receivable agreement, see Certain Relationships and Related Party TransactionsTax Receivable Agreement.
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To the extent that we are unable to make payments under the tax receivable agreement for any reason, such payments will be deferred and will accrue interest until paid, which could adversely affect our results of operations and could also affect our liquidity in periods in which such payments are made.
For additional information related to the tax receivable agreement, see Certain Relationships and Related Party TransactionsTax Receivable Agreement.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements under the captions Summary, Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, Business, Industry Overview and in other sections of this prospectus that are forward-looking statements. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, and other future conditions. In some cases, you can identify these statements by forward-looking words such as may, might, will, should, expects, plans, anticipates, believes, estimates, predicts, potential or continue, the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. Forward-looking statements contained in this prospectus include, among other things, statements relating to:
| the impact of COVID-19 and its collateral consequences, including production slowdowns, extended disruption of economic activity in our business and lower economic expectations; |
| automotive vehicle production levels, mix and schedules; |
| the technological evolution of the battery and automotive industries; |
| competitiveness of the automotive battery market; |
| commodity prices; |
| our ability to respond to rapid technological changes; |
| our ability to timely develop competitive new products and product enhancements in a changing environment and the acceptance of such products and product enhancements by customers; |
| the potential impact of financial, economic, political and other risks related to conducting business internationally, including disruption of markets, changes in import and export laws, environmental, health and safety laws and regulations, currency restrictions and currency exchange rate fluctuations; |
| risks associated with operating in regulated industries, including our ability to comply with, and liabilities related to, applicable laws, including environmental, health and safety laws and regulations and competition laws, as well as our ability to successfully adapt to any changes in such laws and regulations; |
| the availability and market prices of raw materials and component products; |
| legislation restricting the use of certain hazardous substances in our products; |
| our reliance on third parties for important products and services; |
| the risks associated with our acquisition strategy and integrating acquisitions; |
| the risks associated with future acquisitions and new investments; |
| the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity; and |
| our ability to service our substantial indebtedness. |
These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled Risk Factors. In addition, even if results, level of activity, performance or achievements are consistent with the forward-looking statements contained in this prospectus, those results, level of activity, performance or achievements may not be indicative of results or developments in subsequent periods.
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Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations.
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We estimate that the net proceeds to us from this offering will be approximately $ million, or approximately $ million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses.
We estimate that the net proceeds to us from the Concurrent Offering of the Mandatory Convertible Preferred Stock, if completed, will be approximately $ million, or approximately $ million if the underwriters exercise their over-allotment option to purchase additional shares of the Mandatory Convertible Preferred Stock in full, after deducting estimated underwriting discounts and commissions and estimated offering expenses.
We intend to use the net proceeds to us from this offering and the Concurrent Offering of the Mandatory Convertible Preferred Stock, if it is completed, to (i) redeem approximately $ of the 2026 USD Secured Notes, (ii) redeem approximately $ of the 2025 Secured Notes, (iii) redeem approximately $ of the Unsecured Notes and (iv) repay approximately $ of outstanding indebtedness under the USD Term Loan. The 2026 USD Secured Notes bear interest at a rate of 6.250% per year, the 2025 USD Secured Notes bear interest at a rate of 6.750% per year and the Unsecured Notes bear interest at a rate of 8.500% per year. Amounts borrowed under the USD Term Loan are subject to interest at a rate per annum equal to an applicable margin plus, at our option, either (a) for base rate loans denominated in U.S. Dollars, a base rate determined by reference to the highest of (i) the rate last quoted by The Wall Street Journal (or, if such rate is not quoted by The Wall Street Journal, another national publication selected by the administrative agent in consultation with the Borrower) as the U.S. Prime Rate in effect on such day, (ii) the Federal Funds Effective Rate plus 0.50% per annum and (iii) the one month U.S. Dollar LIBOR rate (which shall not be less than 0.00%) plus 1.00% per annum or (b) for Eurodollar rate loans, a rate determined by reference to the highest of (i) the U.S. Dollar LIBOR rate (in the case of the USD Term Loan) or the EURIBOR rate (in the case of the Euro Term Loan) based on the interest period of the applicable borrowing and (ii) 0.00%. The applicable margin for the USD Term Loan is 2.25% per annum in the case of base rate loans and 3.25% per annum in the case of Eurodollar rate loans and the applicable margin for the Euro Term Loan is 3.25% per annum for EURIBOR rate loans. The 2026 USD Secured Notes will mature on May 15, 2026, the 2025 USD Secured Notes will mature on May 15, 2025, the Unsecured Notes will mature on May 15, 2027 and the USD Term Loan will mature on April 30, 2026.
Each $1.00 increase (decrease) in the public offering price per share would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions, by $ million (assuming no exercise of the underwriters over-allotment option).
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Following the consummation of this offering, we do not currently intend to pay dividends on our common stock. We currently intend to retain any future earnings to fund the development and expansion of our business, including further acquisitions, and, therefore, we do not anticipate paying cash dividends on our common stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors, subject to applicable laws, and will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by our board of directors. If we issue any Mandatory Convertible Preferred Stock, no dividends may be declared or paid on our common stock unless accumulated and unpaid dividends on the Mandatory Convertible Preferred Stock have been declared and paid, or set aside for payment, on all outstanding shares of the Mandatory Convertible Preferred Stock for all preceding dividend periods. See Mandatory Convertible Preferred Stock Offering.
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The following table sets forth our cash, cash equivalents and capitalization as of March 31, 2021:
| on an actual basis; |
| on an as adjusted basis to give effect to the Transactions; and |
| on an as further adjusted basis to reflect: |
| the sale by us of shares of common stock in this offering, at an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, and the concurrent issuance of shares of the Mandatory Convertible Preferred Stock, assuming such offering is completed as described in this prospectus; and |
| the application of the net proceeds as described in Use of Proceeds. |
This table should be read in conjunction with Unaudited Pro Forma Financial Information, Use of Proceeds and Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated and combined financial statements and notes thereto included elsewhere in this prospectus.
March 31, 2021 | ||||||||||||
Actual | As adjusted | As further adjusted |
||||||||||
Cash and cash equivalents |
$ | 550 | $ | $ | ||||||||
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|
|
|
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Long-term debt: |
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Dollar secured notes (1) |
$ | 1,500 | $ | $ | ||||||||
Euro secured notes (1)(2) |
821 | |||||||||||
Unsecured notes (1) |
1,950 | |||||||||||
USD term loan (3) |
3,963 | |||||||||||
Euro term loan (3) |
2,217 | |||||||||||
Revolving facility (3) |
| |||||||||||
ABL facility (3) |
| |||||||||||
Other (4) |
3 | |||||||||||
Total long-term debt (5) |
10,454 | |||||||||||
Stockholders equity: |
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Mandatory Convertible Preferred Stock, $0.01 par value per share, shares authorized, shares outstanding actual and shares outstanding as adjusted (6) |
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Common stock, $0.01 par value per share, shares authorized, shares outstanding actual and shares outstanding as adjusted |
| |||||||||||
Additional paid-in capital |
| |||||||||||
Total stockholders equity (7) |
$ | 1,731 | $ | $ | ||||||||
|
|
|
|
|
|
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Total capitalization |
$ | 12,185 | $ | $ | ||||||||
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|
|
|
(1) | In connection with the Acquisition, our wholly-owned subsidiaries, Clarios Global LP (the Borrower) and Clarios US Finance Company, Inc. (the Co-Borrower and, together with the Borrower, the Borrowers) issued $1,000 million aggregate principal amount of the dollar secured notes, 700 million aggregate principal amount of the euro secured notes and $1,950 million aggregate principal amount of the unsecured notes. We used the net proceeds from the issuance of the notes to finance the Acquisition. See Description of Material Indebtedness. |
(2) | Represents the U.S. dollar equivalent of the 700 million aggregate principal amount of euro secured notes. Euro secured notes are shown in U.S. dollars at an exchange rate of $1.1732 per 1.00, which was the exchange rate in effect on March 31, 2021. |
(3) | In connection with the Acquisition, the Borrowers also entered into (i) senior secured credit facilities (the Senior Secured Credit Facilities), initially consisting of (x) borrowings of $6,409 million equivalent principal |
58
amount under a first lien term loan facility (the Term Loan Facility) consisting of (1) borrowings of $4,200 million under a U.S. Dollar denominated tranche (the USD Term Loan) with an effective interest rate of 3.359% as of March 31, 2021 and (2) borrowings of 1,955 million under a Euro denominated tranche (the Euro Term Loan) with an effective interest rate of 3.250% as of March 31, 2021 and (y) $750 million in aggregate commitments under a first lien revolving credit facility (the Revolving Facility) and (ii) $500 million in aggregate commitments under an asset based revolving credit facility (the ABL Facility). We used the proceeds of the borrowings under the Term Loan Facility and the ABL Facility to pay the cash consideration for the Acquisition and pay related fees and expenses. On March 5, 2020, the parties thereto entered into an incremental amendment to the ABL Facility pursuant to which the aggregate commitments were increased by $250 million to $750 million in the aggregate. As of March 31, 2021, approximately $750 million of additional borrowings were available under the Revolving Facility and $598 million were available under the ABL Facility (after giving effect to $73 million of outstanding letters of credit). See Description of Material Indebtedness. |
(4) | Related to the VIE Transaction described in Note 2, Acquisitions of the notes to the consolidated financial statements included elsewhere in this prospectus. |
(5) | Total debt excludes approximately $(241) million of capitalized debt issuance costs and approximately $50 million of finance leases. |
(6) | Assuming the Concurrent Offering is completed as described in this prospectus. |
(7) | In connection with the Transactions, we will enter into a tax receivable agreement with the Sponsor Group that provides for the payment to the Sponsor Group of 85% of the benefits, if any, that we realize as a result of certain tax attributes subject to the tax receivable agreement (including deductions for payments of imputed interest). We expect to record a $792 million undiscounted liability based on managements estimate of the aggregate amount that it will pay to the Sponsor Group under the tax receivable agreement. This liability, when incurred, will result in an equivalent decrease of stockholders equity as a result of payments being made to the Sponsor Group. See Certain Relationships and Related Party TransactionsTax Receivable Agreement. |
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors and total consideration paid by all stockholders by approximately $ , assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) the total consideration paid by new investors and total consideration paid by all stockholders by $ , assuming the assumed initial public offering price of $ per share of common stock remains the same, and after deducting estimated underwriting discounts and commissions.
59
Our pro forma net tangible book value as of , 2021 was $ or $ per share of common stock. Pro forma net tangible book value per share represents tangible assets, less liabilities, divided by the aggregate number of shares of common stock outstanding. After giving effect to the sale by us of the shares of common stock in this offering, at an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, and the concurrent issuance of shares of the Mandatory Convertible Preferred Stock, assuming the Concurrent Offering is completed as described in this prospectus, and the receipt and application of the net proceeds, our pro forma net tangible book value as of , 2021 would have been $ or $ per share. This represents an immediate increase in pro forma net tangible book value to existing stockholders of $ per share and an immediate dilution to new investors of $ per share. Dilution per share represents the difference between the price per share to be paid by new investors for the shares of common stock sold in this offering and the pro forma net tangible book value per share immediately after this offering. The following table illustrates this per share dilution:
Assumed initial public offering price |
$ | |||||||
Pro forma net tangible book value per share |
$ | |||||||
Increase in pro forma net tangible book value per share attributable to new investors |
||||||||
Pro forma net tangible book value per share after offering |
||||||||
|
|
|||||||
Dilution per share to new investors |
$ | |||||||
|
|
The dilution information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. A $1.00 increase (decrease) in the assumed initial public offering price of $ per share of common stock, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by $ per share and increase (decrease) the immediate dilution to new investors by $ per share, in each case assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions. Similarly, each increase of 1,000,000 shares in the number of shares of common stock offered by us would increase our pro forma as adjusted net tangible book value by approximately $ per share and decrease the dilution to new investors by approximately $ per share, and each decrease of 1,000,000 shares in the number of shares of common stock offered by us would decrease our pro forma as adjusted net tangible book value by approximately $ per share and increase the dilution to new investors by approximately $ per share, in each case assuming the assumed initial public offering price of $ per share of common stock remains the same, and after deducting estimated underwriting discounts and commissions.
The following table sets forth, on a pro forma basis, as of , 2021, the number of shares of common stock purchased from us, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by existing stockholders and by the new investors, at an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and offering expenses payable by us:
Shares Purchased | Total Consideration | Average Price Per Share |
||||||||||||||||||
Number | Percent | Amount | Percent | |||||||||||||||||
Existing stockholders |
% | $ | % | $ | ||||||||||||||||
New investors |
||||||||||||||||||||
Total |
100 | % | $ | 100 | % | $ |
60
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Financial Information of Clarios consists of the Unaudited Pro Forma Consolidated Statement of Income (Loss) for the year ended September 30, 2020 and the six months ended March 31, 2021, and the Unaudited Pro Forma Consolidated Statement of Financial Position as of March 31, 2021. The Unaudited Pro Forma Consolidated Financial Information reported below should be read in conjunction with our historical audited consolidated financial statements and the related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this information statement.
The Unaudited Pro Forma Consolidated Financial Information has been prepared in accordance with Article 11 of the SECs Regulation S-X. In May 2020, the SEC adopted Release No. 33-10786 Amendments to Financial Disclosures about Acquired and Disposed Businesses, or the Final Rule. The Final Rule became effective on January 1, 2021 and the Unaudited Pro Forma Consolidated Financial Information is presented in accordance therewith.
The Unaudited Pro Forma Consolidated Financial Information presented below has been derived from our historical audited consolidated financial statements included elsewhere in this prospectus. The pro forma adjustments include transaction accounting adjustments in accordance with U.S. GAAP to illustrate the effects of the following transactions:
| the effects of the Tax Receivable Agreement, as described under Certain Relationships and Related Party TransactionsTax Receivable Agreement; |
| the partial repayment of existing debt from net proceeds received under the offering; and |
| a provision for corporate income taxes on the income attributable to Clarios as a result of the incorporation of Clarios International Inc. as an indirect parent of Clarios Global LP, inclusive of all U.S. federal, state, and local income taxes. |
The Unaudited Pro Forma Consolidated Financial Information as if each of the foregoing transactions had been completed as of March 31, 2021 with respect to the unaudited pro forma consolidated balance sheet as of March 31, 2021 and as of October 1, 2019 with respect to the unaudited pro forma consolidated statement of income (loss) for the year ended September 30, 2020 and the six months ended March 31, 2021.
The pro forma adjustments are based on currently available information and certain estimates and assumptions. Our management believes that the assumptions provide a reasonable basis for presenting the significant effects of the transactions described above, as contemplated, and the pro forma adjustments give appropriate effect to those assumptions. This information is for illustrative purposes only and does not purport to represent what Clarios financial position and results of operations actually would have been had the offering and related transactions occurred on the dates indicated, or to project Clarios financial performance for any future period. The Unaudited Pro Forma Consolidated Financial Information is based on information and assumptions which are described in the accompanying notes.
The Unaudited Pro Forma Consolidated Financial Information and the related notes should be read in conjunction with Risk Factors, Use of Proceeds, Capitalization, Managements Discussion and Analysis of Financial Condition and Results of Operations, Certain Relationships and Related Party Transactions and our audited consolidated and combined financial statements and the related notes included elsewhere in this prospectus.
61
CLARIOS INTERNATIONAL INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED MARCH 31, 2021
(in millions)
Historical Clarios Global LP |
Transaction Accounting Adjustments |
Note Ref | Pro Forma Clarios International Inc. |
|||||||||||||
Net sales |
$ | 4,499 | $ | $ | 4,499 | |||||||||||
Cost of sales |
3,581 | 3,581 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Gross Profit |
918 | 918 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Selling, general and administrative expenses |
(455 | ) | (455 | ) | ||||||||||||
Equity income |
45 | 45 | ||||||||||||||
Restructuring and impairment costs |
(253 | ) | (253 | ) | ||||||||||||
Net financing charges |
(366 | ) | 69 | (b | ) | (297 | ) | |||||||||
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes |
(111 | ) | 69 | (42 | ) | |||||||||||
Income tax provision (benefit) |
137 | (109 | ) | (c | ) | 28 | ||||||||||
|
|
|
|
|
|
|||||||||||
Net income (loss) |
(248 | ) | 178 | (70 | ) | |||||||||||
Income (loss) attributable to noncontrolling interests |
1 | 1 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Net income (loss) attributable to the Company |
$ | (249 | ) | $ | 178 | $ | (71 | ) | ||||||||
|
|
|
|
|
|
|||||||||||
Earings (loss) per share |
||||||||||||||||
Basic and diluted |
n/a | (g | ) | |||||||||||||
Weighted-average shares outstanding |
n/a | (g | ) |
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Information
62
CLARIOS INTERNATIONAL INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS)
FOR THE YEAR ENDED SEPTEMBER 30, 2020
(in millions)
Historical Clarios Global LP |
Transaction Accounting Adjustments |
Note Ref | Pro Forma Clarios International Inc. |
|||||||||||||
Net sales |
$ | 7,602 | $ | $ | 7,602 | |||||||||||
Cost of sales |
6,405 | 6,405 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Gross Profit |
1,197 | 1,197 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Selling, general and administrative expenses |
(936 | ) | (936 | ) | ||||||||||||
Equity income |
48 | 48 | ||||||||||||||
Restructuring and impairment costs |
(11 | ) | (11 | ) | ||||||||||||
Net financing charges |
(717 | ) | 130 | (b | ) | (587 | ) | |||||||||
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes |
(419 | ) | 130 | (289 | ) | |||||||||||
Income tax benefit |
(17 | ) | (76 | ) | (c | ) | (93 | ) | ||||||||
|
|
|
|
|
|
|||||||||||
Net income (loss) |
(402 | ) | 206 | (196 | ) | |||||||||||
Income (loss) attributable to noncontrolling interests |
(3 | ) | (3 | ) | ||||||||||||
|
|
|
|
|
|
|||||||||||
Net income (loss) attributable to the Company |
$ | (399 | ) | $ | 206 | $ | (193 | ) | ||||||||
|
|
|
|
|
|
|||||||||||
Earnings (loss) per share |
||||||||||||||||
Basic and diluted |
n/a | (g | ) | |||||||||||||
Weighted-average shares outstanding |
n/a | (g | ) |
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Information
63
CLARIOS INTERNATIONAL INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF MARCH 31, 2021
(in millions)
Historical Clarios Global LP |
Transaction Accounting Adjustments |
Note Ref | Pro Forma Clarios International Inc. |
|||||||||||||
Assets |
||||||||||||||||
Cash and cash equivalents |
$ | 550 | $ | 550 | ||||||||||||
Accounts receivablenet |
1,116 | 1,116 | ||||||||||||||
Inventories |
1,388 | 1,388 | ||||||||||||||
Other current assets |
256 | 256 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Current assets |
3,310 | 3,310 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Operating lease right-of-use assets |
86 | 86 | ||||||||||||||
Property, plant and equipmentnet |
3,281 | 3,281 | ||||||||||||||
Goodwill |
1,787 | 1,787 | ||||||||||||||
Other intangible assetsnet |
5,817 | 5,817 | ||||||||||||||
Equity method investments |
764 | 764 | ||||||||||||||
Noncurrent income tax assets |
163 | 256 | (d) | 419 | ||||||||||||
Other noncurrent assets |
42 | 42 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 15,250 | $ | 256 | $ | 15,506 | ||||||||||
|
|
|
|
|
|
|||||||||||
Liabilities and Equity |
||||||||||||||||
Short-term debt |
$ | 9 | $ | 9 | ||||||||||||
Current portion of long-term debt |
51 | $ | 51 | |||||||||||||
Operating leasecurrent liabilities |
33 | 33 | ||||||||||||||
Accounts payable |
1,159 | 1,159 | ||||||||||||||
Accrued compensation and benefits |
140 | 140 | ||||||||||||||
Accrued interest |
115 | 115 | ||||||||||||||
Other current liabilities |
505 | 505 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Current liabilities |
2,012 | 2,012 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Long-term debt |
10,212 | (1,711 | ) | (b) | 8,501 | |||||||||||
Operating leasenoncurrent liabilities |
54 | 54 | ||||||||||||||
Pension and postretirement benefits |
211 | 211 | ||||||||||||||
Noncurrent income tax liabilities |
847 | (98 | ) | (d) | 749 | |||||||||||
Other noncurrent liabilities |
183 | 183 | ||||||||||||||
Amounts payable pursuant to Tax Receivable Agreement |
| 792 | (a) | 792 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Long-term liabilities |
11,507 | (1,017 | ) | 10,490 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Common stock (par value $0.01) |
| | (e) | | ||||||||||||
Additional paid-in capital |
| 3,389 | (f) | 3,389 | ||||||||||||
Parent company investment |
1,927 | (1,927 | ) | (e) | | |||||||||||
Accumulated deficit |
| (189 | ) | (b) | (189 | ) | ||||||||||
Accumulated other comprehensive loss |
(206 | ) | | (206 | ) | |||||||||||
|
|
|
|
|
|
|||||||||||
Equity attributable to the Company |
1,721 | 1,273 | 2,994 | |||||||||||||
Noncontrolling interest |
10 | | 10 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total equity |
1,731 | 1,273 | 3,004 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total liabilities and stockholders equity |
$ | 15,250 | $ | 256 | $ | 15,506 | ||||||||||
|
|
|
|
|
|
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Information
64
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The accompanying consolidated financial statements have been prepared from Clarios historical accounting records and include the following unaudited pro forma adjustments as of March 31, 2021 and for the six months ended March 31, 2021 and the year ended September 30, 2020.
Note 1: Transaction Accounting Adjustments
This note should be read in conjunction with other notes in the Unaudited Pro Forma Consolidated Financial Statements. Adjustments included in the column under the heading Transaction Accounting Adjustments represent the following:
(a) | As described in greater detail in the section entitled Certain Relationships and Related Party TransactionsTax Receivable Agreement, prior to the completion of this offering we will enter into a tax receivable agreement with the Sponsor Group. The agreement provides for the payment to the Sponsor Group of 85% of the benefits, if any, that we realize as a result of certain tax attributes subject to the tax receivable agreement (including deductions for payments of imputed interest) and is effective upon the completion of this offering. |
The tax receivable agreement will be accounted for as a liability, with amounts accrued upon the agreements effective date as payments under the agreement are expected to be both probable and reasonably estimable as of that date. We expect to record a $792 million undiscounted liability based on managements estimate of the aggregate amount that it will pay to the Sponsor Group.
Managements estimate is based on an analysis that compares the Companys assumed income tax liability with its hypothetical liability had we not been able to utilize the Covered Tax Benefits (as defined within Certain Relationships and Related Party TransactionsTax Receivable Agreement), giving effect to the Transactions undertaken for this offering including the recognition of deferred tax assets pertaining to operations that will be subject to Canadian and U.S. income taxation as more fully discussed in (c) below. Payments under the tax receivable agreement will not result in any future tax benefits for the Company. The Company will continue to make payments until all such Covered Tax Benefits have been realized or expire. Based on existing tax law and projections of taxable income, the Company estimates the liability will be substantially paid within a period of approximately 15 years from the date of this offering. The actual period over which the Company is required to make payments under the tax receivable agreement is subject to various uncertainties, including changes in tax law and fluctuations in taxable income throughout duration of the tax receivable agreement, and may materially differ from the Companys current estimate.
(b) | Reflects the following: |
i. | Adjustments to long-term debt to reflect the use of net proceeds from this offering to repay outstanding indebtedness of $1,772 million, including $450 million of the 6.25% 2026 USD Secured Notes, $200 million of the 6.75% 2025 Secured Notes, $975 million of the 8.50% Unsecured Notes, and $147 million of the 4.47% USD Term Loan as of October 1, 2019, net of a reduction to previously deferred financing fees of approximately $61 million. |
ii. | Adjustments to accumulated deficit for an early debt repayment penalty of $128 million and write-off of previously deferred financing fees of approximately $61 million. |
iii. | An adjustment to interest expense assuming the outstanding indebtedness had been repaid as of October 1, 2019. |
(c) | As noted throughout this registration statement, prior to the organizational transactions undertaken for this offering, the Company includes certain pass through entities for purposes of Canadian and U.S. income taxation and, therefore, no income taxes are reflected in the historical financial statements for those entities. As a result of the organizational transactions, these entities are now directly subject to |
65
U.S. income taxation, thus, the pro forma statements of income reflect a tax benefit on pre-tax losses for U.S. federal, state and local income tax purposes. A U.S. federal and blended state statutory tax rate of approximately 24%, which was calculated assuming the U.S. federal rate currently in effect and the highest statutory rates apportioned to each applicable state and local jurisdiction, has been applied to the U.S. pre-tax losses to reflect the additional estimated income tax benefits. This U.S. federal and blended state statutory tax rate was applied in each reporting period and does not reflect the Companys global effective tax rate, which includes other tax adjustments, such as foreign taxes and other tax charges or benefits, and does not take into account any historical or possible future tax events that may impact the Company. Further, the pro forma statements of income reflect adjustments for any income tax effects of pre-tax adjustments and additional impacts attributable to the organizational transactions, including certain tax benefits on net financing expenses. |
(d) | Reflects an increase in deferred tax assets and a decrease in deferred tax liabilities related to tax benefits from future deductions attributable to the organizational transactions and offering, with an offsetting increase to additional paid-in capital. The Company determined the deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using the enacted tax rates in effect for the year in which the differences are expected to reverse. As noted in (c) above, the Company was previously not subject to U.S. income taxation. As such, most of the deferred tax adjustments relate to the recording of U.S. net deferred tax assets including net operating losses and tax basis in certain depreciable and amortizable assets. Additionally, net deferred taxes have increased to reflect certain tax carryovers associated with net financing expenses. At this time, the Company considers it more likely than not that it will have sufficient taxable income in the future that will allow it to realize these deferred tax assets. |
(e) | On issuance, the Parent company investment in Clarios will be re-designated as Clarios Shareholders Equity and will be allocated between shares of our common stock and additional paid in capital based on the number of shares of common stock outstanding at the issuance date. |
(f) | Reflects the adjustments to additional paid-in capital resulting from the Transactions, calculated as follows (in millions): |
Net adjustment from recognition of tax receivable agreement liability, see note (a) |
$ | (792 | ) | |
Net adjustment from recognition of deferred tax, see note (d) |
354 | |||
Reclassification of parent company investment to additional paid in capital, see note (e) |
1,927 | |||
Portion of shareholders equity over par value related to net proceeds from this offering |
1,900 | |||
Additional paid-in capital |
$ | 3,389 |
(g) | Pro forma basic and diluted loss per share and pro forma weighted-average basic and diluted shares outstanding for the six months ended March 31, 2021 and the year ended September 30, 2020 reflect the number of shares of Clarios common stock that are expected to be outstanding upon completion of the offering. |
We refer to the transactions related to this offering collectively as the Transactions.
66
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read together with the information under the headings Basis of Presentation and Other Information, SummarySummary Historical Consolidated and Combined and Unaudited Pro Forma Financial and Other Data, Capitalization and Unaudited Pro Forma Financial Information and our consolidated and combined financial statements and the notes related thereto included elsewhere in this prospectus. The following discussion and analysis of our financial condition and results of operations contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those set forth under Risk Factors and Cautionary Note Regarding Forward-Looking Statements. Actual results may differ materially from those contained in any forward-looking statement.
In order to provide a more meaningful basis for comparing the results of operations for the year ended September 30, 2020 to the corresponding prior year periods, we have presented financial information for the year ended September 30, 2019 by combining financial information for our Successor period (the five months ended September 30, 2019) and our Predecessor period (the seven months ended April 30, 2019). We believe that describing certain year-over-year variances and trends for the year ended September 30, 2020 as compared to the corresponding prior year periods without regard to the concept of Successor and Predecessor (i.e., on a combined basis) facilitates a meaningful analysis of our results of operations and is useful in identifying current business trends. The combined results represent the sum of the reported amounts for the Predecessor period for the seven months ended April 30, 2019 and the Successor period for the five months ended September 30, 2019. These combined results are not considered to be prepared in accordance with U.S. GAAP and have not been prepared as pro forma results under applicable regulations. The combined operating results may not reflect the actual results we would have achieved absent the Acquisition and may not be indicative of future results. The year ended September 30, 2020, which is the most recent annual period shown, reflects a full year of the Successor business results. See Factors Affecting the Comparability of Our Results of OperationsThe Acquisition.
Overview
Clarios is one of the worlds largest suppliers of energy storage solutions. We design and manufacture advanced, low-voltage battery technologies for global mobility and industrial applications, offering reliability, safety and comfort to everyday lives. Our batteries power cars, commercial vehicles, motorcycles, marine vehicles, powersports vehicles and industrial products. In our core low-voltage mobility battery markets, we are the only global manufacturer and are significantly larger than our nearest competitor by revenue. We believe we are unique in terms of our global capabilities, with the number one market position in both the Americas and EMEA, and the number three market position in Asia. The majority of demand for our products comes from the aftermarket channel, driven by consumer replacements. We sell more than 140 million batteries annually that are distributed to OEM and aftermarket customers in over 140 countries. Our scale, global footprint and vertical integration allow us to operate with a best-in-class cost structure, lead the industry in technological innovation and deliver greater value to customers and consumers. We have established one of the worlds most successful examples of a circular economy. We design, manufacture, transport, recycle and recover the materials in vehicle batteries using a closed-loop system. Our batteries are designed so that up to 99% of the materials can be responsibly recovered, recycled and repurposed directly into new batteries.
Our batteries provide reliable, low-voltage power to a full range of propulsion technologies and will remain critical with the transition of the global transportation network from ICE to hybrid and EVs. Our batteries support a range of functions critical to vehicle performance ranging from the more traditional roles of engine starting and ignition and supporting key-off loads, to more demanding emerging functions such as start-stop, ADAS, over-the-air software updates and autonomous driving. Importantly, our batteries provide the fail-safe power required to support electric and AVs. Our advanced products are well-positioned to enable the increasing electrical load requirements seen in nearly all vehicles entering the market today, and especially the technologies of start-stop, EV and AV, which require more robust, advanced energy solutions. We believe the battery mix
67
shift towards higher-margin advanced products represents a significant opportunity for Clarios as we deliver a compelling value proposition to our consumers by combining advanced technology solutions for mission critical systems with a lower cost solution than competing technologies.
Our product portfolio includes SLI and Advanced Batteries, which include EFB and AGM. We believe our products have differentiating factors, such as PowerFrame, which reduces lead usage and bolsters corrosion resistance, our patented EFB design and our certified non-spillable AGM batteries. We also develop and manufacture low-voltage lithium-ion battery technologies for select markets. We distribute our products primarily through the aftermarket and OEMs. We sell our products through a number of well-recognized global and regional brands such as VARTA®, LTH®, Heliar®, OPTIMA®, Delkor® and MAC® Batteries. Principally outside of North America we go to market with these owned brands which, based on consumer awareness studies, are consistently #1 or #2 in nearly every major market in which we participate. We also provide private label brands to our aftermarket customers including DieHard, Interstate, Duralast, Bosch and EverStart.
For the twelve months ended September 30, 2020, approximately 80% of our unit volume and an even larger share of our gross profit was generated through the replacement aftermarket channel. In the automotive market, our batteries have an average life of three to six years and the battery is replaced, on average, two to four times over a vehicles useful life, depending on the battery technology, application, driving habits and geography. Given aftermarket customers require not only a high-quality product but also outstanding service and support, we deliver value far beyond the supply of batteries. We have developed deep channel partnerships and have longstanding relationships with large domestic and international aftermarket customers such as Interstate, AutoZone, Bosch, Advance Auto Parts, Walmart and LKQ, serving as a critical partner in one of their largest and most important sales categories. We operate an entire logistics network for battery delivery (in some cases, direct to store) and for the return of spent batteries to be recycled, often through our owned recycling network. We benefit from our scale and technology developed with OEMs, which allow us to deliver a high level of expertise to the replacement channel, including training, technical and system expertise and category management. Our scale also allows us to fulfill store level demand in a timely fashion and at competitive cost. These differentiators are increasingly important as the complexity of monitoring and installing Advanced Batteries continues to rise. Additionally, we continue to innovate around aftermarket distribution through point of sale and digital channels, particularly in China.
The remaining roughly 20% of our unit volume is generated through the OEM channel, which is comprised of sales to major car, commercial vehicle, motorcycle, marine, powersports vehicle and industrial manufacturers globally. Our capabilities and expertise have also positioned us as the partner of choice for our OEM customers, including Ford Motor Company, General Motors Company, Volkswagen, Tesla, Inc., BYD Auto Co., Ltd, Li Auto Inc., The Daimler Motor Company Limited, BMW, PACCAR Inc., Polaris, Toyota Motor Corporation and Caterpillar Inc. Our OEM business is driven by global demand for new vehicles and equipment but serves as a key driver of our future aftermarket replacement business. Our focus is to be sourced as first fit with both leading traditional OEMs and emerging EV OEMs globally, which in turn bolsters our replacement business in the aftermarket channel. Our customers look to us to provide low-voltage systems integration expertise and drive technological innovation. We work closely with OEMs during development of future platform launches, designing energy storage technologies that will cost-effectively help them meet increasing environmental, safety and vehicle electrification requirements. Our leading global position in the OEM channel allows us to collaborate with a wide range of customers in bringing to market new technologies that can support and accelerate advancements in powertrain technology and autonomy. In addition, our global footprint allows us to serve OEMs with the same product in multiple regions with localized production, which simplifies their procurement
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processes on global vehicle platforms. No customer accounted for more than 10% of total volume for the twelve months ended September 30, 2020.
Material Trends Affecting Our Results of Operations
COVID-19
In December 2019, a novel strain of coronavirus SARS-CoV-2, causing a disease referred to as COVID-19, was reported in Wuhan, China. The coronavirus has since spread to, and infections have been found in, the vast majority of countries around the world, including the United States and throughout EMEA. In March 2020, the World Health Organization recognized the COVID-19 outbreak as a pandemic based on the global spread of the disease, the severity of illnesses it causes and its effects on society. In response to the COVID-19 outbreak, the governments of many countries, states and cities have imposed and re-imposed from time to time preventative or protective actions, such as imposing restrictions on travel and business operations, and advising or requiring individuals to limit or forego their time outside of their homes. Accordingly, the COVID-19 outbreak has severely restricted the level of economic activity in many countries, and continues to adversely impact global economic activity and has contributed to significant volatility in financial markets.
The Companys operating performance is subject to global economic and market conditions, including their impacts on the global automotive industry. During the year ended September 30, 2020, the COVID-19 outbreak adversely impacted the Companys operational and financial performance, primarily due to lower sales volumes to our OEM customers, many of whom have experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. We also experienced operational inefficiencies as we adjusted production levels to align with changing market demand and, in response to regulatory requirements, implemented enhanced safety measures to protect the health of our employees. During the disruption caused by COVID-19, we have managed our balance sheet prudently and have maintained appropriate liquidity, refer to Liquidity and Capital Resources and Liquidity Outlook for further information.
The extent of the future impact of the COVID-19 outbreak on the Companys operational and financial performance will depend on certain developments, including the duration, intensity and continued spread of the pandemic, including new variants and virus strains, regulatory and private sector responses, which may be precautionary, the development and availability of vaccines and the impact to the Companys customers, workforce and vendors, all of which are uncertain and cannot be predicted. The Companys financial condition and results could also be impacted by significant changes in commodity prices, foreign currency exchange rates and interest rates that may result from volatility in the economic and financial markets as a result of the COVID-19 pandemic. We currently expect that the COVID-19 pandemic may negatively impact our financial condition and results of operations in future periods. While we have seen positive trends of recovery in the aftermarket as the easing of mobility restrictions progresses across our geographies, such trends could reverse as COVID-19 outbreaks recur in certain areas, and we currently expect OEM market disruption to adversely affect OEM volumes for the year ending September 30, 2021. Changing market conditions may also affect the estimates and assumptions made by management. Such estimates and assumptions affect, among other things, the Companys goodwill, long-lived asset and indefinite-lived intangible asset valuations; equity investment valuations; valuation of deferred income taxes and income tax contingencies; measurement of compensation cost for certain cash bonus plans; and pension plan assumptions. Events and changes in circumstances arising in future periods, including those resulting from the impacts of COVID-19, will be reflected in managements estimates for future periods.
Technological Changes
Our business is impacted by technological changes in the battery and automotive markets in the geographic segments in which we operate. Increasing electrical loads in new vehicles have led to a shift from conventional
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flooded batteries to advanced lead-acid batteries. In turn, we have invested in new product and process technologies and have expanded product offerings to AGM and EFB technologies that power start-stop vehicles, as well as lithium-ion battery technology for certain hybrid and EVs. Advanced lead-acid batteries have represented an increasing portion of our product mix over time (particularly in EMEA and Asia, where demand for Advanced Batteries has increased) with two primary effects to our results: (i) net sales and gross profit have improved faster than volume growth as these batteries offer both price and profitability advantages compared to conventional flooded batteries, and (ii) our capital expenditures have increased in order to increase production capacity for AGM and EFB batteries to meet increased demand. Between September 30, 2014 and September 30, 2020, our capital expenditures related to AGM and EFB batteries totaled approximately $472 million. As a result, we have experienced increasing depreciation costs. We currently expect elevated capital expenditures related to AGM and EFB batteries to continue.
Growth in Asia
Over two billion people in Asia are expected to enter the middle class by 2030 according to The Brookings Institution. For the year ended September 30, 2020, approximately 11% of our net sales were in Asia. We expect this business to grow as more customers in Asia enter the middle class and purchase vehicles, as growth in our business has historically been driven by increasing volume in these markets. In response to this trend, we have invested approximately $277 million between September 30, 2016 and September 30, 2020 in an effort to expand our capacity in the region.
Seasonality
Our business is impacted by seasonal factors, as aftermarket replacements are highest in the winter months. Our net sales reflect our channel partners stocking patterns to meet this increased demand, and have historically been greatest between our fourth and first fiscal quarters (late summer through early winter). Global climate change may impact the seasonality of our business as the demand for our products, such as automotive replacement batteries, may be affected by unseasonable weather conditions.
Lead Price Volatility
The price volatility of lead as traded on the London Metal Exchange has several impacts on our business:
| In the Americas aftermarket, we operate a closed-loop system through which we typically collect one spent battery core for every new battery we sell. This effectively minimizes the impact of lead pricing on our margins. |
| In other segments and channels, we typically treat lead as a pass-through cost to our customers with a lag between the price we charge our customers and the market price of lead to match the cost of lead reflected in our cost of goods sold. This practice minimizes, but does not eliminate, the impact of lead price volatility on our profits in these geographic segments and channels. When lead prices are particularly volatile, we experience volatility in our net sales and margins. |
| In addition, during periods of high lead price volatility, some customers may shift buying patterns, pulling ahead purchases in anticipation of higher lead prices in the future or delaying purchases in anticipation of lower lead prices in the future. If lead prices continue to be volatile and our customers shift buying patterns in this manner, our quarterly results may be volatile and, consequently, it may be difficult to compare results on a quarter-to-quarter basis. |
Factors Affecting the Comparability of Our Results of Operations
As a result of a number of factors, our historical results of operations may not be comparable from period to period or going forward. Set forth below is a brief discussion of the key factors impacting the comparability of our results of operations.
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The Acquisition
On April 30, 2019, the Power Solutions Business of JCI was acquired by Clarios International LP (Holdings). As a result of the Acquisition, a new basis of accounting was created on May 1, 2019. The audited consolidated and combined financial statements as of and for the year ended September 30, 2018 and as of and for the seven month period ended April 30, 2019, which are included elsewhere in this prospectus, are referred to therein as Predecessor combined financial information. The consolidated results of operations and cash flows of the Company beginning on May 1, 2019 and the consolidated financial position of the Company as of balance sheet dates subsequent to April 30, 2019 are referred to therein as Successor consolidated financial information.
The Predecessor and Successor financial information presented herein is not comparable primarily due to the fact that the Successor financial information reflects:
| The application of acquisition accounting as of May 1, 2019, as further described in Note 2, Acquisitions, to the audited consolidated and combined financial statements included elsewhere in this prospectus, which requires the acquirer to reflect the fair value of the net assets acquired in a business combination as of the date of acquisition which often exceeds the net assets carrying value on the acquired businesss financial statements. As a result of applying acquisition accounting, the carrying value of the Successors net assets exceeds the carrying value of the Predecessors net assets on the consolidated statement of financial position. The most significant implications to the consolidated statements of income (loss) for the Successor periods due to the application of acquisition accounting are increased depreciation and amortization expense; |
| Additional debt and interest expense associated with debt financing arrangements entered into in connection with the Acquisition, as further described in Note 8, Debt and Financing Arrangements, to the audited consolidated and combined financial statements included elsewhere in this prospectus; and |
| Certain pass-through entities for purposes of Canadian and U.S. income taxation and, therefore, no income taxes are reflected in the Successor financial statements for those entities. |
The Transactions
In connection with this offering, we intend to enter into the Transactions. As a result, our results of operations in the future may not be directly comparable to the historical results presented in this prospectus. For more information see Unaudited Pro Forma Financial Information.
How We Assess Our Performance
We use Total Adjusted EBITDA to analyze and evaluate the performance of our business and to provide a greater understanding with respect to our results of operations, including within each of our segments. We believe that Total Adjusted EBITDA is an important measure that excludes many of the costs associated with our existing capital structure and excludes costs that management believes do not reflect our ongoing operating performance. Accordingly, Total Adjusted EBITDA is a key metric that management uses to assess the period-to-period performance of our core business operations and our segments.
Total Adjusted EBITDA helps to identify trends in the performance of our core ongoing operations by excluding the effects related to (i) non-cash items, (ii) costs and charges that do not relate to our ongoing operations, and (iii) certain other adjustments. We believe that presenting Total Adjusted EBITDA enables investors to assess our performance from period to period using the same metric utilized by management and to evaluate our performance relative to other companies that are not subject to such factors. See Note 19, Segment Information, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information and Total Adjusted EBITDA and Indenture EBITDA for a reconciliation of Total Adjusted EBITDA to net income (loss) for the given period.
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Total Adjusted EBITDA may not be comparable to similar measures used by other companies. Total Adjusted EBITDA is a non-U.S. GAAP financial measure. It has important limitations as analytical tools and you should not consider it in isolation or as substitutes for analysis of our financial performance as reported under U.S. GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance or as alternatives to cash flow from operating activities as measures of our liquidity.
Because of these limitations, Total Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Total Adjusted EBITDA only for supplemental purposes.
Components of Results of Operations
Net Sales
Net sales consist of gross sales less sales adjustments related to provisions for customer returns, allowances and rebates. Net sales are derived from sales of lead-acid and lithium-ion batteries to customers globally. We have generally been able to increase the average prices of our products in the low single digit percentages on an annual basis. During economic downturns, the annual increase in such prices has generally been in the mid-single digit percentages.
The Company services both automotive OEM and the battery aftermarket by providing Advanced Battery technology. The Companys revenue is generated through the manufacture and sale of automotive battery products, of which the delivery of goods ordered typically represents the Companys sole performance obligation with respect to distinct goods and services offered to customers. The Company recognizes revenue at the point in time when control over the goods transfers to the customer as specified by the shipping terms agreed upon with the customer.
Cost of Sales
Our cost of sales consists of costs relating to battery production, battery recycling and logistics. Battery production costs consist of the costs of (i) procuring raw materials (primarily lead, polypropylene, separators and sulfuric acid), (ii) component manufacturing and (iii) direct and indirect conversion costs. Battery recycling costs consist of costs associated with recycling used batteries, including those relating to collecting used batteries, tolling contracts with secondary lead smelting companies, breaking and separation, and smelting. Logistics costs consist of costs related to shipping (i) raw materials to component plants, assembly plants and smelters, (ii) components to assembly plants and dry unformed batteries to fill and form facilities (primarily in North America), and (iii) finished batteries to distribution centers and to aftermarket customers.
Selling, General and Administrative Expenses
SG&A expenses include salaries and benefits of our commercial organizations and administrative functions, marketing and commission costs, engineering and product development costs, and administrative costs at the regional and global headquarter level.
Restructuring and Impairment Costs
To better align its resources with its growth strategies and reduce the cost structure of its global operations to address dynamics in certain underlying markets, the Company commits to restructuring plans as necessary, which may include workforce reductions, global plant closures and consolidations, asset impairments and other cost-reduction initiatives.
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Net Financing Charges
Net financing charges primarily relate to net interest expense, banking and factoring fees, and net foreign exchange results for financing activities.
Equity Income
Equity income primarily relates to our share of non-consolidated, partially-owned affiliates. Investments in partially-owned affiliates for which the Company exercises significant influence but does not have control are accounted for by the equity method. We own portions of battery manufacturers in countries and regions where we do not own plants, and businesses engaged in the distribution of lead-acid batteries.
Income Tax Provision
The Predecessor income tax provision in the combined statements of income was calculated as if the Company filed separate income tax returns and operated as a stand-alone business for the periods presented. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of the actual tax balances of the Company as part of consolidated JCI. Prior to the Acquisition, the Companys operations historically were included in JCIs U.S. federal and state tax returns or non-U.S. jurisdiction tax returns. JCIs global tax model was developed based upon its entire portfolio of businesses. Accordingly, the Companys tax results as presented for the periods prior to the Acquisition are not necessarily indicative of future performance and do not necessarily reflect the results that would have been generated if the company had operated as an independent company for the periods presented. As portions of the Companys operations were included in JCIs tax returns for periods prior to the Acquisition, payments to certain tax authorities were made by JCI, and not by the Company. For the periods prior to the Acquisition, the Company did not maintain taxes payable to/from JCI and the Companys subsidiaries were deemed to settle the annual current tax balances immediately with the legal tax-paying entities in the respective jurisdictions.
The Successor income tax provision, deferred taxes and uncertain tax positions reflect managements best estimate of current and future taxes to be paid. Due to U.S. and Canadian pass-through entities, no income tax impacts are reflected in the Successor financial statements for those jurisdictions. The Company is subject to income taxes in numerous foreign jurisdictions. Significant judgments and estimates are required in the determination of the consolidated income tax expense. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations.
Refer to Note 13, Income Taxes, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information.
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Results of Continuing Operations
Six Months Ended March 31, 2021 Compared to Six Months Ended March 31, 2020 (in millions; unaudited)
Consolidated Statements of Income (Loss) |
Six Months Ended March 31, |
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2021 | 2020 | Change | % Change | |||||||||||||
Net sales |
$ | 4,499 | $ | 3,915 | $ | 584 | 15 | % | ||||||||
Cost of sales |
3,581 | 3,247 | 334 | 10 | % | |||||||||||
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Gross profit |
918 | 668 | 250 | 37 | % | |||||||||||
Selling, general and administrative expenses |
(455 | ) | (462 | ) | 7 | (2 | )% | |||||||||
Equity income |
45 | 28 | 17 | 61 | % | |||||||||||
Restructuring and impairment costs |
(253 | ) | | (253 | ) | |||||||||||
Net financing charges |
(366 | ) | (339 | ) | (27 | ) | 8 | % | ||||||||
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Loss before income taxes |
(111 | ) | (105 | ) | (6 | ) | 6 | % | ||||||||
Income tax provision (benefit) |
137 | (19 | ) | 156 | * | |||||||||||
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Net loss |
(248 | ) | (86 | ) | (162 | ) | * | |||||||||
Income (loss) attributable to noncontrolling interests |
1 | (1 | ) | 2 | * | |||||||||||
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Net loss attributable to the Company |
$ | (249 | ) | $ | (85 | ) | $ | (164 | ) | * | ||||||
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* | Metric not meaningful |
Net Sales
Net sales increased $584 million to $4,499 million for the six months ended March 31, 2021 from $3,915 million for the six months ended March 31, 2020, primarily due to the effect of increased volumes of $494 million, favorable pricing and product mix of $146 million, and the favorable impacts of foreign currency translation of $89 million, partially offset by the impact of lower lead costs on pricing of $145 million. Approximately $129 million of the increase in volumes was due to the effects of the COVID-19 pandemic in the six months ended March 31, 2020, which impacted the global economy and resulted in lower sales volumes to our OEM customers, many of whom experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. In the six months ended March 31, 2021, strong demand primarily from our aftermarket customers favorably impacted volumes, and higher volumes of advanced batteries contributed to favorable product mix. Refer to Segment Analysis below for a discussion of net sales by segment.
Gross Profit
Gross profit increased $250 million, or 37%, to $918 million for the six months ended March 31, 2021 from $668 million for the six months ended March 31, 2020. The increase was primarily due to favorable pricing and product mix, an increase in volumes and the favorable impacts of foreign currency translation, partially offset by higher transportation costs and higher operating costs across our global battery plants. The change in value of battery cores due to the change in the value of lead had a positive non-cash impact of $32 million in the six months ended March 31, 2021, compared to a negative non-cash impact of $46 million in the six months ended March 31, 2020. In the six months ended March 31, 2021, the negative impact to our cost structure from the COVID-19 pandemic was approximately $38 million, which was primarily comprised of higher transportation rates and other additional expenses as we implemented enhanced safety measures to protect the health of our employees. In the six months ended March 31, 2020, the negative impact to our cost structure from the COVID-19 pandemic was approximately $16 million, which was primarily comprised of stranded fixed costs and additional expenses as we adjusted production levels to align with changing market demand and implemented
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enhanced safety measures to protect the health of our employees. See Material Trends Affecting Our Results of Operations COVID-19.
Selling, General and Administrative Expenses
SG&A expenses decreased $7 million, or 2%, to $455 million for the six months ended March 31, 2021 from $462 million for the six months ended March 31, 2020, primarily due to $44 million of certain items in the six months ended March 31, 2020, including, among others, incremental stand up costs, consulting costs related to operational improvement initiatives, severance costs, and the non-cash impact of revaluing an investment in marketable common stock. In the six months ended March 31, 2021, there were $18 million of certain net items, including, among others, incremental stand up costs, consulting costs related to operational improvement and strategic initiatives, and the non-cash impact of revaluing an investment in marketable common stock. These impacts were partially offset by an increase in charitable contributions, and higher depreciation and amortization expense in the six months ended March 31, 2021. The Company also received approximately $2 million of COVID-19 related recoveries in the six months ended March 31, 2021.
Equity Income
Equity income increased $17 million, to $45 million for the six months ended March 31, 2021 from $28 million for the six months ended March 31, 2020, primarily due to favorable operational results of certain equity method investments and $6 million of remeasurement gains related to the consolidation of certain equity method investments in the six months ended March 31, 2021. Refer to Note 2, Acquisitions, of the notes to the unaudited consolidated financial statements included elsewhere in this prospectus for further information.
Restructuring and Impairment Costs
The Company incurred $253 million of restructuring and impairment costs in the six months ended March 31, 2021. Refer to Note 15, Restructuring and Impairment Costs, of the notes to the unaudited consolidated financial statements included elsewhere in this prospectus for further information related to the Companys restructuring plans and impairment costs.
Upon cessation of the Companys lead recycling operations in its North America recycling plant in March 2021, the Company estimates that annual cost of sales in the Americas segment will decrease by approximately $50 million by optimizing our supply chain network. The Company expects the benefit of these actions will be partially realized in the second half of fiscal 2021 and fully realized in fiscal 2022, though savings estimates may vary based upon variable costs in our supply chain network. Restructuring plan activities, which include the decommissioning of the North America recycling plant, are expected to be substantially complete by the end of fiscal 2022. Outstanding restructuring reserves at March 31, 2021 related to this restructuring action were approximately $11 million, which are expected to be substantially paid by the end of fiscal 2022. Additional costs associated with the decommissioning of the North America recycling plant, which the Company expects to incur but was not yet obligated as of March 31, 2021, are preliminarily estimated to be as much as $40 million and are anticipated to be substantially incurred by the end of fiscal 2022. The Companys preliminary estimate of additional plan costs are subject to further refinement, which may be material, based upon changes in the facts and circumstances regarding closure activities undertaken.
Upon completion of the organizational transformation initiative announced in the first quarter of fiscal 2021, the Company estimates that annual operating costs will decrease by approximately $30 million, which is primarily the result of lower cost of sales and SG&A due to reduced employee-related costs. The Company expects the annual benefit of these actions will be partially realized in fiscal 2021 and fully realized in fiscal 2022. The restructuring action is substantially complete as of March 31, 2021. Outstanding restructuring reserves at March 31, 2021 related to this restructuring action were approximately $17 million, which is expected to be substantially paid by the end of fiscal 2021.
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The Company did not incur any restructuring and impairment costs for the six months ended March 31, 2020.
Net Financing Charges
Net financing charges increased $27 million to $366 million for the six months ended March 31, 2021 from $339 million for the six months ended March 31, 2020. The change in net financing charges is primarily due to $16 million of expense associated with the repricing of the Term Loan Facility, including $12 million of expense to write-off unamortized deferred financing costs on the extinguishment of debt, and net foreign exchange results for financing activities. Refer to Note 8, Debt and Financing Arrangements, of the notes to the unaudited consolidated financial statements included elsewhere in this prospectus for further information.
Income Tax Provision
For the six months ended March 31, 2021 the provision for income taxes was $137 million compared to a benefit from income taxes of $(19) million for the six months ended March 31, 2020. The change in the provision for income taxes is primarily due to increased income tax impacts of foreign exchange fluctuations, an increase in prior year uncertain tax positions and changes in global mix of income, partially offset by changes in the deferred tax liability related to basis differences of certain subsidiaries. Refer to Note 13, Income Taxes, of the notes to consolidated financial statements for further information.
Year Ended September 30, 2020 Compared to Year Ended September 30, 2019 (in millions)
Successor | Predecessor | Combined | ||||||||||||||||||||||
Consolidated & Combined Statements of Income (Loss) |
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2019 |
Change | % Change | ||||||||||||||||||
Net sales |
$ | 7,602 | $ | 3,535 | $ | 4,993 | $ | 8,528 | $ | (926 | ) | (11 | )% | |||||||||||
Cost of sales |
6,405 | 3,214 | 4,059 | 7,273 | (868 | ) | (12 | )% | ||||||||||||||||
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Gross profit |
1,197 | 321 | 934 | 1,255 | (58 | ) | (5 | )% | ||||||||||||||||
Selling, general and administrative expenses |
(936 | ) | (459 | ) | (359 | ) | (818 | ) | (118 | ) | 14 | % | ||||||||||||
Equity income |
48 | 17 | 30 | 47 | 1 | 2 | % | |||||||||||||||||
Restructuring and impairment costs |
(11 | ) | | | | (11 | ) | * | ||||||||||||||||
Net financing charges |
(717 | ) | (274 | ) | (23 | ) | (297 | ) | (420 | ) | * | |||||||||||||
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Income (loss) before income taxes |
(419 | ) | (395 | ) | 582 | 187 | (606 | ) | * | |||||||||||||||
Income tax provision (benefit) |
(17 | ) | (31 | ) | 178 | 147 | (164 | ) | * | |||||||||||||||
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Net income (loss) |
(402 | ) | (364 | ) | 404 | 40 | (442 | ) | * | |||||||||||||||
Income (loss) attributable to noncontrolling interests |
(3 | ) | (8 | ) | 23 | 15 | (18 | ) | * | |||||||||||||||
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Net income (loss) attributable to the Company |
$ | (399 | ) | $ | (356 | ) | $ | 381 | $ | 25 | $ | (424 | ) | * | ||||||||||
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* | Metric not meaningful |
Net Sales
Net sales decreased $926 million to $7,602 million for the year ended September 30, 2020 from $8,528 million for the year ended September 30, 2019, primarily due to the effect of decreased volumes of
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$552 million, the impact of lower lead costs on pricing of $314 million, and the unfavorable impact of foreign currency translation of $94 million, partially offset by favorable pricing and product mix of $34 million. Approximately $485 million of the decrease in volumes was due to the impact of the COVID-19 pandemic on the global economy, with the remaining decrease in volumes primarily due to declines in macroeconomic conditions in China and global OEM production, as well as mild weather in the U.S. and Europe. The COVID-19 pandemic resulted in lower sales volumes to our OEM customers, many of whom experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. These negative impacts were partially offset by higher volumes of Advanced Batteries to our aftermarket customers, which contributed to favorable product mix. Refer to the Segment Analysis below for a discussion of net sales by segment.
Gross Profit
Gross profit decreased $58 million, or 5%, to $1,197 million for the year ended September 30, 2020 from $1,255 million for the year ended September 30, 2019. The negative impact to our cost structure from the COVID-19 pandemic was approximately $130 million in the year ended September 30, 2020, which was primarily comprised of stranded fixed costs and additional expenses as we adjusted production levels to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. See Material Trends Affecting Our Results of OperationsCOVID-19. The change in value of battery cores due to the change in the value of lead had a negative non-cash impact of $49 million in the year ended September 30, 2020, compared to a positive non-cash impact of $14 million in the year ended September 30, 2019. The decrease in gross profit was also partially due to increased depreciation expense of $36 million in the year ended September 30, 2020 related to the purchase accounting impacts of the Acquisition. Net mark-to-market adjustments on pension and postretirement plans had a net unfavorable year-over-year impact on cost of sales of $15 million primarily due to a decrease in discount rates. Other unfavorable impacts included higher operating costs across our global battery plants, lower overall volumes and the negative impact of foreign currency translation, partially offset by the favorable impact of pricing, lower transportation and purchasing costs, and an increase in volumes of Advanced Batteries to our aftermarket customers. In addition, purchase accounting related to the Acquisition negatively impacted gross profit by $296 million in the year ended September 30, 2019 due to inventory selling through at fair value. Refer to the Segment Analysis below for a discussion of Adjusted EBITDA by segment.
Selling, General and Administrative Expenses
SG&A expenses increased $118 million, or 14%, to $936 million for the year ended September 30, 2020 from $818 million for the year ended September 30, 2019, primarily due to $234 million of increased depreciation and amortization expense in the year ended September 30, 2020 due to the purchase accounting impacts of the Acquisition; partially offset by the benefits of general and administrative cost saving initiatives year over year. In the year ended September 30, 2020, the Company incurred $89 million of certain items, including, among others, incremental stand up costs, consulting costs related to operational improvement initiatives and severance costs. In the year ended September 30, 2019, the Company incurred $137 million of transaction costs, incremental stand-up costs and consulting costs related to operational improvement initiatives. Net mark-to-market adjustments on pension and postretirement plans had a net unfavorable year-over-year impact on SG&A of $1 million primarily due to a decrease in discount rates.
Equity Income
Equity income increased $1 million to $48 million for the year ended September 30, 2020 from $47 million for the year ended September 30, 2019, primarily due to favorable operational results of certain equity method investments in the year ended September 30, 2020, partially offset by $7 million of higher unfavorable purchase accounting impacts in the year ended September 30, 2020 related to the Acquisition.
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Restructuring and Impairment Costs
The Company incurred $11 million of restructuring and impairment costs in the year ended September 30, 2020 related to the announcement that it will discontinue assembly operations at one of its U.S. plants. These costs include approximately $10 million of non-cash asset impairment costs related to certain assets identified as having no alternative use and $1 million of costs primarily related to workforce reductions. Refer to Note 15, Restructuring and Impairment Costs, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information.
The Company currently estimates that upon completion of the restructuring action, annual operating costs in the Americas segment will decrease by approximately $20 million. The Company expects the annual benefit of these actions will be substantially realized in fiscal 2021. For fiscal 2020, the savings were approximately 50% of the expected annual operating cost reduction as the action was taken mid-year. The restructuring action is expected to be substantially complete by the end of fiscal 2021. Outstanding restructuring reserves at September 30, 2020 were immaterial.
The Company did not incur any restructuring and impairment costs for the year ended September 30, 2019.
Net Financing Charges
Net financing charges increased $420 million to $717 million for the year ended September 30, 2020 from $297 million for the year ended September 30, 2019. The change in net financing charges is primarily due to an increase in interest expense and deferred financing cost amortization in the year ended September 30, 2020 driven by the third-party debt in connection with the Acquisition, and unfavorable net foreign exchange results for financing activities. Refer to Note 8, Debt and Financing Arrangements, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information.
Income Tax Provision
For the year ended September 30, 2020 the provision from income taxes was $(17) million compared to $147 million for the year ended September 30, 2019. The change in the provision for income taxes is primarily due to the fact that subsequent to the Acquisition, the structure of certain legal entities has been changed such that they are not subject to Canadian or U.S. income taxes at the Successor company level, income tax impacts of foreign exchange fluctuations and tax charges in the seven months ended April 30, 2019 related to pre-acquisition transactions resulting in adjustments to the outside basis of certain subsidiaries and valuation allowances. Refer to Note 13, Income Taxes, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information.
Year Ended September 30, 2019 Compared to Year Ended September 30, 2018 (in millions)
Successor | Predecessor | Combined | Predecessor | |||||||||||||||||||||
Consolidated & Combined Statements of |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2019 |
Year Ended September 30, 2018 |
Change | % Change | ||||||||||||||||||
Net sales |
$ | 3,535 | $ | 4,993 | $ | 8,528 | $ | 8,000 | $ | 528 | 7 | % | ||||||||||||
Cost of sales |
3,214 | 4,059 | 7,273 | 6,293 | 980 | 16 | % | |||||||||||||||||
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Gross profit |
321 | 934 | 1,255 | 1,707 | (452 | ) | (26 | )% | ||||||||||||||||
Selling, general and administrative expenses |
(459 | ) | (359 | ) | (818 | ) | (474 | ) | (344 | ) | 73 | % | ||||||||||||
Equity income |
17 | 30 | 47 | 58 | (11 | ) | (19 | )% | ||||||||||||||||
Restructuring and impairment costs |
| | | (11 | ) | 11 | (100 | )% | ||||||||||||||||
Net financing charges |
(274 | ) | (23 | ) | (297 | ) | (40 | ) | (257 | ) | * | |||||||||||||
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Successor | Predecessor | Combined | Predecessor | |||||||||||||||||||||
Consolidated & Combined Statements of |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2019 |
Year Ended September 30, 2018 |
Change | % Change | ||||||||||||||||||
Income (loss) before income taxes |
(395 | ) | 582 | 187 | 1,240 | (1,053 | ) | (85 | )% | |||||||||||||||
Income tax provision (benefit) |
(31 | ) | 178 | 147 | 601 | (454 | ) | (76 | )% | |||||||||||||||
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Net income (loss) |
(364 | ) | 404 | 40 | 639 | (599 | ) | (94 | )% | |||||||||||||||
Income (loss) attributable to noncontrolling interests |
(8 | ) | 23 | 15 | 47 | (32 | ) | (68 | )% | |||||||||||||||
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Net income (loss) attributable to the Company |
$ | (356 | ) | $ | 381 | $ | 25 | $ | 592 | $ | (567 | ) | (96 | )% | ||||||||||
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* | Metric not meaningful |
Net Sales
Net sales increased $528 million to $8,528 million for the year ended September 30, 2019 from $8,000 million for the year ended September 30, 2018, primarily due to an approximately $1,037 million increase in net sales from the effects of the change in revenue recognition from the implementation of the new revenue standard, and the favorable impact of pricing and product mix of $104 million, partially offset by the impact of lower lead costs on pricing of $326 million, the unfavorable impact of foreign currency translation $223 million and the effect of decreased volumes of $64 million. The decrease in volumes was primarily due to declines in macroeconomic conditions in China and global OEM production. These negative impacts were partially offset by higher volumes of Advanced Batteries, which contributed to favorable product mix. Refer to Note 1, Summary of the Business and Significant Accounting Policies, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information regarding the adoption of the new revenue standard. Refer to Segment Analysis below for a discussion of net sales by segment.
Gross Profit
Gross profit decreased $452 million, or 26%, to $1,255 million for the year ended September 30, 2019 from $1,707 million for the year ended September 30, 2018, primarily due to $321 million of purchase accounting impacts related to the Acquisition in the year ended September 30, 2019, which consisted of increased depreciation and amortization, and the sell through of inventory at fair value. Net mark-to-market adjustments on pension and postretirement plans had a net unfavorable year-over-year impact on cost of sales of $22 million primarily due to a decrease in discount rates. Other unfavorable impacts included higher operating and transportation costs driven by inflation and efforts to satisfy customer demand, lower overall volumes and the negative impact of foreign currency translation, partially offset by the favorable impact of pricing and an increase in volumes of Advanced Batteries. Additionally, the change in value of battery cores due to the change in the value of lead had a positive non-cash impact of $14 million in the five months ended September 30, 2019.
Selling, General and Administrative Expenses
SG&A expenses increased $344 million, or 73%, to $818 million for the year ended September 30, 2019 from $474 million for the year ended September 30, 2018, primarily due to $165 million of purchase accounting impacts related to the Acquisition (increased depreciation and amortization); $137 million of transaction costs, incremental stand-up costs and consulting costs related to operational improvement initiatives in the year ended September 30, 2019; and a prior year gain on business deconsolidation. Net mark-to-market adjustments on pension and postretirement plans had a net unfavorable year-over-year impact on SG&A of $14 million primarily due to a decrease in discount rates.
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Equity Income
Equity income decreased $11 million to $47 million for the year ended September 30, 2019 from $58 million for the year ended September 30, 2018, primarily due to $6 million of purchase accounting impacts related to the Acquisition in the five months ended September 30, 2019.
Restructuring and Impairment Costs
We did not incur any restructuring and impairment costs for the year ended September 30, 2019, compared to $11 million for the year ended September 30, 2018. Restructuring and impairment costs primarily consists of workforce reductions.
Net Financing Charges
Net financing charges increased $257 million to $297 million for the year ended September 30, 2019 from $40 million for the year ended September 30, 2018. The change in net financing charges is primarily due to an increase in interest expense and bond cost amortization in the five months ended September 30, 2019 driven by an increase in third-party debt in connection with the Acquisition, partially offset by favorable net foreign exchange results for financing activities. Refer to Note 8, Debt and Financing Arrangements, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information.
Income Tax Provision
For the year ended September 30, 2019 the provision for income taxes decreased to $147 million from $601 million for the year ended September 30, 2018. The change in the provision for income taxes is primarily due to the fact that subsequent to the Acquisition, the structure of certain legal entities has been changed such that they are not subject to U.S. income taxes at the Successor company level and tax charges in the year ended September 30, 2018 related to pre-acquisition legal entity restructuring and tax impacts of the TCJA.
Segment Analysis
Management evaluates the performance of its business segments primarily on segment earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), which represents net income before income taxes and noncontrolling interest, depreciation, intangible asset amortization, net financing charges, restructuring and impairment costs, net mark-to-market adjustments related to pension and postretirement plans, deal and stand-up costs, impacts of purchase accounting, core valuation changes and other items. For more information, see Note 18, Segment Information, of the notes to the unaudited consolidated financial statements and Note 19, Segment Information, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus.
Six Months Ended March 31, 2021 Compared to Six Months Ended March 31, 2020 (in millions, unaudited)
Net Sales
Six Months Ended March 31, |
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2021 | 2020 | Change | % Change | |||||||||||||
Americas |
$ | 2,641 | $ | 2,419 | $ | 222 | 9 | % | ||||||||
EMEA |
1,344 | 1,058 | 286 | 27 | % | |||||||||||
Asia |
514 | 438 | 76 | 17 | % | |||||||||||
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$ | 4,499 | $ | 3,915 | $ | 584 | 15 | % | |||||||||
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Americas: Net sales increased $222 million to $2,641 million for the six months ended March 31, 2021 from $2,419 million for the six months ended March 31, 2020, primarily due to the effect of increased volumes of $199 million, and favorable pricing and product mix of $75 million, partially offset by the unfavorable impacts of foreign currency translation of $26 million, and the impact of lower lead costs on pricing of $26 million. Approximately $37 million of the increase in volumes was due to the effects of the COVID-19 pandemic in the six months ended March 31, 2020, which impacted the global economy and resulted in lower sales volumes to our OEM customers, many of whom experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. In the six months ended March 31, 2021, strong demand primarily to our aftermarket customers favorably impacted volumes, and higher volumes of advanced batteries contributed to favorable product mix.
EMEA: Net sales increased $286 million to $1,344 million for the six months ended March 31, 2021 from $1,058 million for the six months ended March 31, 2020, primarily due to the effect of increased volumes of $230 million, the favorable impacts of foreign currency translation of $86 million, and favorable pricing and product mix of $50 million, partially offset by the impact of lower lead costs on pricing of $80 million. Approximately $39 million of the increase in volumes was due to the effects of the COVID-19 pandemic in the six months ended March 31, 2020, which impacted the global economy and resulted in lower sales volumes to our OEM customers, many of whom experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. In the six months ended March 31, 2021, strong demand primarily to our aftermarket customers favorably impacted volumes, and higher volumes of advanced batteries contributed to favorable product mix.
Asia: Net sales increased $76 million to $514 million for the six months ended March 31, 2021 from $438 million for the six months ended March 31, 2020, primarily due to the effect of increased volumes of $68 million, the favorable impacts of foreign currency translation of $29 million, and favorable pricing and product mix of $18 million, partially offset by the impact of lower lead costs on pricing of $39 million. Approximately $53 million of the increase in volumes was due to the effects of the COVID-19 pandemic in the six months ended March 31, 2020, which impacted the global economy and resulted in lower sales volumes to our OEM customers, many of whom experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. In the six months ended March 31, 2021, strong demand primarily to our aftermarket customers favorably impacted volumes, and higher volumes of advanced batteries contributed to favorable product mix.
Adjusted EBITDA
Six Months Ended March31, |
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2021 | 2020 | Change | % Change | |||||||||||||
Americas |
$ | 556 | $ | 505 | $ | 51 | 10 | % | ||||||||
EMEA |
279 | 173 | 106 | 61 | % | |||||||||||
Asia |
104 | 57 | 47 | 82 | % | |||||||||||
Corporate expenses |
(62 | ) | (47 | ) | (15 | ) | 32 | % | ||||||||
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$ | 877 | $ | 688 | $ | 189 | 27 | % | |||||||||
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Americas: Adjusted EBITDA increased $51 million to $556 million for the six months ended March 31, 2021 from $505 million for the six months ended March 31, 2020. In the six months ended March 31, 2021, the negative impact to our earnings from the COVID-19 pandemic was approximately $38 million, which was primarily comprised of higher transportation rates and other additional expenses as we implemented enhanced safety measures to protect the health of our employees. In the six months ended March 31, 2020, the negative impact to our earnings from the COVID-19 pandemic was approximately $15 million, which was primarily comprised of lower sales volumes, stranded fixed costs and additional expenses as we adjusted production levels
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to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. See Material Trends Affecting Our Results of Operations COVID-19. Other impacts included favorable pricing and product mix of $99 million, higher volumes of $26 million, lower SG&A of $13 million, and an increase in equity income of $11 million, partially offset by higher operating costs of $72 million including higher transportation and purchasing costs, and the unfavorable impact of foreign currency translation of $3 million.
EMEA: Adjusted EBITDA increased $106 million to $279 million for the six months ended March 31, 2021 from $173 million for the six months ended March 31, 2020. In the six months ended March 31, 2020, the negative impact to our earnings from the COVID-19 pandemic was approximately $9 million, which was primarily comprised of lower sales volumes, stranded fixed costs and additional expenses as we adjusted production levels to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. See Material Trends Affecting Our Results of Operations COVID-19. Other impacts included higher volumes of $37 million, lower operating costs of $33 million including lower purchasing costs, favorable pricing and product mix of $23 million, and the favorable impact of foreign currency translation of $10 million, partially offset by higher SG&A of $4 million and a decrease in equity income of $2 million.
Asia: Adjusted EBITDA increased $47 million to $104 million for the six months ended March 31, 2021 from $57 million for the six months ended March 31, 2020. In the six months ended March 31, 2020, the negative impact to our earnings from the COVID-19 pandemic was approximately $9 million, which was primarily comprised of lower sales volumes, stranded fixed costs and additional expenses as we adjusted production levels to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. See Material Trends Affecting Our Results of Operations COVID-19. Other impacts included lower operating costs of $23 million including lower purchasing costs, higher volumes of $7 million, favorable pricing and product mix of $7 million, the favorable impact of foreign currency translation of $2 million, and an increase in equity income of $1 million, partially offset by higher SG&A of $2 million.
Corporate expenses: Corporate costs increased $15 million to ($62) million for the six months ended March 31, 2021 from ($47) million for the six months ended March 31, 2020 primarily due to an increase in charitable contributions.
Year Ended September 30, 2020 Compared to Year Ended September 30, 2019 (in millions)
Net Sales
Successor | Predecessor | Combined | ||||||||||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2019 |
Change | % Change | |||||||||||||||||||
Americas |
$ | 4,710 | $ | 2,230 | $ | 3,090 | $ | 5,320 | $ | (610 | ) | (11 | )% | |||||||||||
EMEA |
2,036 | 946 | 1,281 | 2,227 | (191 | ) | (9 | )% | ||||||||||||||||
Asia |
856 | 359 | 622 | 981 | (125 | ) | (13 | )% | ||||||||||||||||
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$ | 7,602 | $ | 3,535 | $ | 4,993 | $ | 8,528 | $ | (926 | ) | (11 | )% | ||||||||||||
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Americas: Net sales decreased $610 million to $4,710 million for the year ended September 30, 2020 from $5,320 million for the year ended September 30, 2019, primarily due to the effect of decreased volumes of $300 million, the impact of lower lead costs on pricing of $265 million, and the unfavorable impact of foreign currency translation of $63 million, partially offset by favorable pricing and product mix of $18 million. Approximately $243 million of the decrease in volumes was due to the impact of the COVID-19 pandemic on the global economy, with the remaining decrease in volumes primarily due to declines in OEM production, as well as mild weather in the U.S. The COVID-19 pandemic resulted in lower sales volumes to our OEM customers, many
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of whom experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. These negative impacts were partially offset by higher volumes of Advanced Batteries to our aftermarket customers, which contributed to favorable product mix.
EMEA: Net sales decreased $191 million to $2,036 million for the year ended September 30, 2020 from $2,227 million for the year ended September 30, 2019, primarily due to the effect of decreased volumes of $115 million, unfavorable pricing and channel mix of $47 million, the impact of lower lead costs on pricing of $21 million, and the unfavorable impact of foreign currency translation of $8 million. Approximately $160 million of the decrease in volumes was due to the impact of the COVID-19 pandemic on the global economy resulting in lower sales values to our OEM customers, many of whom experienced temporary shut-downs; the offsetting increase in volumes was due to strong volumes to our aftermarket customers in EMEA.
Asia: Net sales decreased $125 million to $856 million for the year ended September 30, 2020 from $981 million for the year ended September 30, 2019, primarily due to the effect of decreased volumes of $84 million, the impact of lower lead costs on pricing of $28 million, and the unfavorable impact of foreign currency translation of $23 million, partially offset by favorable pricing and product mix of $10 million. Approximately $82 million of the decrease in volumes was due to the impact of the COVID-19 pandemic on the global economy, with the remaining decrease in volumes primarily due to declines in macroeconomic conditions in China and global OEM production. The COVID-19 pandemic resulted in lower sales volumes to our OEM customers, many of whom experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. These negative impacts were partially offset by higher volumes of Advanced Batteries to our aftermarket customers, which contributed to favorable product mix.
Adjusted EBITDA
Successor | Predecessor | Combined | ||||||||||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2019 |
Change | % Change | |||||||||||||||||||
Americas |
$ | 924 | $ | 432 | $ | 581 | $ | 1,013 | $ | (89 | ) | (9 | )% | |||||||||||
EMEA |
324 | 163 | 245 | 408 | (84 | ) | (21 | )% | ||||||||||||||||
Asia |
112 | 38 | 85 | 123 | (11 | ) | (9 | )% | ||||||||||||||||
Corporate expenses |
(100 | ) | (39 | ) | (50 | ) | (89 | ) | (11 | ) | 12 | % | ||||||||||||
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$ | 1,260 | $ | 594 | $ | 861 | $ | 1,455 | $ | (195 | ) | (13 | )% | ||||||||||||
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Americas: Adjusted EBITDA decreased $89 million to $924 million for the year ended September 30, 2020 from $1,013 million for the year ended September 30, 2019. The negative impact to our earnings from the COVID-19 pandemic was approximately $129 million in the year ended September 30, 2020, which was primarily comprised of lower sales volumes, stranded fixed costs and additional expenses as we adjusted production levels to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. See Material Trends Affecting Our Results of OperationsCOVID-19. Other impacts included the unfavorable impact of foreign currency translation of $12 million and lower volumes of $6 million, partially offset by lower operating costs of $27 million including lower transportation costs and purchasing costs, favorable pricing and product mix of $20 million, an increase in equity income of $7 million, and lower SG&A of $4 million.
EMEA: Adjusted EBITDA decreased $84 million to $324 million for the year ended September 30, 2020 from $408 million for the year ended September 30, 2019. The negative impact to our earnings from the COVID-19 pandemic was approximately $62 million in the year ended September 30, 2020, which was primarily
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comprised of lower sales volumes, stranded fixed costs and additional expenses as we adjusted production levels to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. See Material Trends Affecting Our Results of OperationsCOVID-19. Other impacts included unfavorable pricing and product mix of $39 million and the unfavorable impact of foreign currency translation of $3 million, partially offset by higher volumes of $12 million, lower SG&A of $4 million, an increase in equity income of $3 million and lower operating costs of $1 million including lower purchasing costs.
Asia: Adjusted EBITDA decreased $11 million to $112 million for the year ended September 30, 2020 from $123 million for the year ended September 30, 2019. The negative impact to our earnings from the COVID-19 pandemic was approximately $14 million in the year ended September 30, 2020, which was primarily comprised of lower sales volumes, stranded fixed costs and additional expenses as we adjusted production levels to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. See Material Trends Affecting Our Results of OperationsCOVID-19. Other impacts included the unfavorable impact of foreign currency translation of $3 million, lower volumes of $1 million, and a decrease in equity income of $1 million partially offset by lower SG&A of $5 million, and lower operating costs of $3 million including lower transportation and purchasing costs.
Corporate expenses: Corporate expenses increased $11 million to ($100) million for the year ended September 30, 2020 from ($89) million for the year ended September 30, 2019 primarily due to incremental costs related to operating as a stand-alone Successor company.
Year Ended September 30, 2019 Compared to Year Ended September 30, 2018 (in millions)
Net Sales
Successor | Predecessor | Combined | Predecessor | |||||||||||||||||||||
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2019 |
Year Ended September 30, 2018 |
Change | % Change | |||||||||||||||||||
Americas |
$ | 2,230 | $ | 3,090 | $ | 5,320 | $ | 4,349 | $ | 971 | 22 | % | ||||||||||||
EMEA |
946 | 1,281 | 2,227 | 2,478 | (251 | ) | (10 | )% | ||||||||||||||||
Asia |
359 | 622 | 981 | 1,173 | (192 | ) | (16 | )% | ||||||||||||||||
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$ | 3,535 | $ | 4,993 | $ | 8,528 | $ | 8,000 | $ | 528 | 7 | % | |||||||||||||
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Americas: Net sales increased $971 million to $5,320 million for the year ended September 30, 2019 from $4,349 million for the year ended September 30, 2018, primarily due to an approximately $1,037 million increase in net sales from the effects of the change in revenue recognition from the implementation of the new revenue standard, and the favorable impact of pricing and product mix of $110 million, partially offset by impact of lower lead costs on pricing $109 million, the unfavorable impact of foreign currency translation of $41 million and the effect of decreased volumes of $26 million. The decrease in volumes was primarily due to declines in global OEM production. These negative impacts were partially offset by higher volumes of Advanced Batteries, which contributed to favorable product mix.
EMEA: Net sales decreased $251 million to $2,227 million for the year ended September 30, 2019 from $2,478 million for the year ended September 30, 2018, primarily due to the impact of lower lead costs on pricing of $176 million, the unfavorable impact of foreign currency translation of $126 million, and the unfavorable impact of pricing and channel mix of $17 million, partially offset by the effect of increased volumes of $68 million. The increase in volumes was primarily due to higher volumes of Advanced Batteries, which also contributed to favorable product mix to partially offset unfavorable channel mix.
Asia: Net sales decreased $192 million to $981 million for the year ended September 30, 2019 from $1,173 million for the year ended September 30, 2018, primarily due to the effect of decreased volumes of
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$108 million, the impact of lower lead costs on pricing of $41 million and the unfavorable impact of foreign currency translation of $57 million, partially offset by the favorable impact of pricing and product mix of $14 million. The decrease in volumes was primarily due to declines in macroeconomic conditions in China and global OEM production.
Adjusted EBITDA
Successor | Predecessor | Combined | Predecessor | |||||||||||||||||||||
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2019 |
Year Ended September 30, 2018 |
Change | % Change | |||||||||||||||||||
Americas |
$ | 432 | $ | 581 | $ | 1,013 | $ | 1,059 | $ | (46 | ) | (4 | )% | |||||||||||
EMEA |
163 | 245 | 408 | 469 | (61 | ) | (13 | )% | ||||||||||||||||
Asia |
38 | 85 | 123 | 142 | (19 | ) | (13 | )% | ||||||||||||||||
Corporate expenses |
(39 | ) | (50 | ) | (89 | ) | (85 | ) | (4 | ) | 5 | % | ||||||||||||
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$ | 594 | $ | 861 | $ | 1,455 | $ | 1,585 | $ | (130 | ) | (8 | )% | ||||||||||||
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Americas: Adjusted EBITDA decreased $46 million to $1,013 million for the year ended September 30, 2019 from $1,059 million for the year ended September 30, 2018, primarily due to higher operating costs of $75 million including higher transportation costs, higher SG&A of $14 million, lower volumes of $14 million and the unfavorable impact of foreign currency translation of $11 million, partially offset by favorable pricing and product mix of $67 million, and an increase in equity income of $1 million.
EMEA: Adjusted EBITDA decreased $61 million to $408 million for the year ended September 30, 2019 from $469 million for the year ended September 30, 2018, primarily due to unfavorable pricing and channel mix of $60 million, the unfavorable impact of foreign currency translation of $22 million, higher operating costs of $4 million, and a decrease in equity income of $4 million, partially offset by lower SG&A of $20 million, and higher volumes of $9 million.
Asia: Adjusted EBITDA decreased $19 million to $123 million for the year ended September 30, 2019 from $142 million for the year ended September 30, 2018, primarily due to higher operating costs of $16 million, lower volumes of $14 million and the unfavorable impact of foreign currency translation of $5 million, partially offset by favorable pricing and product mix of $13 million and lower SG&A of $3 million.
Corporate expenses: Corporate expenses increased $4 million to ($89) million for the year ended September 30, 2019 from ($85) million for the year ended September 30, 2018 primarily due to incremental costs related to operating as a stand-alone Successor company.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations and bank borrowings. At March 31, 2021 we had cash and cash equivalents of $550 million to fund our general working capital needs.
Managing our balance sheet prudently and maintaining appropriate liquidity are high priorities. We have taken a number of actions to preserve liquidity. As described more fully below, in March 2020 we entered into an incremental amendment to the ABL Facility to increase the aggregate commitments thereunder by $250 million to $750 million in the aggregate (subject to borrowing base availability). As of March 31, 2021, there were no outstanding borrowings under the Revolving Facility and the ABL Facility, and approximately $750 million of additional borrowings would have been available under the Revolving Facility and $598 million of additional borrowings would have been available under the ABL Facility (after giving effect to $73 million of outstanding letters of credit). In addition, on May 20, 2020, we issued $500 million aggregate principal amount of 6.750%
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Senior Secured Notes due 2025 (the 2025 Secured Notes). We used the net proceeds from the issuance of the 2025 Secured Notes for general corporate purposes. In March 2021 and October 2020, we used our available liquidity to pay down approximately $100 million and $150 million, respectively, of the outstanding principal balance of the Term Loan Facility. In May 2021, we made $50 million in voluntary principal payments on the Term Loan Facility. In June 2021, we used our available liquidity to redeem $100 million of our outstanding 2026 Secured Notes and $50 million of our outstanding 2025 Secured Notes. In June 2021, we also made $180 million in voluntary principal payments on the Term Loan Facility.
Our primary cash needs are for working capital, capital expenditures, operating expenses, acquisitions, the repayment of principal and the payment of interest on our indebtedness. Our capital expenditures have been primarily related to investments in capacity for advanced battery production, growth in China, environmental upgrades, continuous improvement and maintenance, and were $113 million and $165 million for the six months ended March 31, 2021 and 2020, respectively.
Refer to Note 16, Commitments and Contingencies, Note 8, Debt and Financing Arrangements, and Note 7, Leases, of the notes to the unaudited consolidated financial statements included elsewhere in this prospectus for further information regarding the Companys purchase obligations, long term debt obligations and lease obligations, respectively.
Cash Flows
The following table presents a summary of cash flows from operating, investing and financing activities for the periods presented:
For the Six Months Ended March 31, 2021 compared to the Six Months Ended March 31, 2020 (in millions; unaudited)
Six Months Ended March 31, | ||||||||||||
2021 | 2020 | Change | ||||||||||
Net cash provided by (used by): |
||||||||||||
Operating activities |
$ | 321 | $ | 50 | $ | 271 | ||||||
Investing activities |
(161 | ) | (166 | ) | 5 | |||||||
Financing activities |
(296 | ) | 111 | (407 | ) | |||||||
Capital expenditures (included in investing activities) |
(113 | ) | (165 | ) | 52 |
Cash provided by operating activities increased by $271 million to a $321 million inflow for the six months ended March 31, 2021 compared to a $50 million inflow for the six months ended March 31, 2020. The increase in cash provided by operations for the six months ended March 31, 2021 compared to the six months ended March 31, 2020 was primarily due to fluctuations in working capital, including timing of accounts payable and lower interest payments on the Companys debt, partially offset by the timing to income tax payments in the six months ended March 31, 2021.
Cash used by investing activities decreased by $5 million to a $161 million outflow for the six months ended March 31, 2021 compared to a $166 million outflow for the six months ended March 31, 2020. The decrease in cash used by investing activities primarily related a decrease in capital expenditures partially offset by cash paid for the China Transaction in the six months ended March 31, 2021. See Note 2, Acquisitions, of the notes to the unaudited consolidated financial statements included elsewhere in this prospectus for further information.
Cash used by financing activities changed by $407 million to a $296 million outflow for the six months ended March 31, 2021 compared to a $111 million inflow for the six months ended March 31, 2020. The change
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in cash used by financing activities was primarily due to an approximately $150 million voluntary principal payment of the Term Loan Facility, $100 million principal payment related to Debt Repricing, and a change in noncontrolling interest share related to the China Transaction in the six months ended March 31, 2021, compared to increased borrowings on the ABL Facility and Revolving Facility partially offset by a change in noncontrolling interest share related to the Bosch Transaction in the six months ended March 31, 2020. See Note 2, Acquisitions, and Note 8, Debt and Financing Arrangements, of the notes to the unaudited consolidated financial statements included elsewhere in this prospectus for further information.
For the Year Ended September 30, 2020 compared to the Year Ended September 30, 2019 (in millions)
Successor | Predecessor | Combined | ||||||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2019 |
Change | ||||||||||||||||
Net cash provided by (used by): |
||||||||||||||||||||
Operating activities |
$ | 617 | $ | 510 | $ | 217 | $ | 727 | $ | (110 | ) | |||||||||
Investing activities |
(202 | ) | (12,915 | ) | (169 | ) | (13,084 | ) | 12,882 | |||||||||||
Financing activities |
(74 | ) | (12,792 | ) | (50 | ) | 12,742 | (12,816 | ) | |||||||||||
Capital expenditures (included in investing activities) |
$ | (314 | ) | $ | (181 | ) | $ | (192 | ) | $ | (373 | ) | $ | 59 |
Cash provided by operating activities decreased by $110 million, to $617 million for the year ended September 30, 2020 compared to $727 million for the year ended September 30, 2019. The decrease in cash provided by operations for the year ended September 30, 2020 compared to the year ended September 30, 2019 was primarily due to a full year of interest payments in the year ended September 30,2020 on the Companys debt entered into in connection with the Acquisition. See Note 8, Debt and FinancingArrangements, of the notes to the audited consolidated and combined financial statements included elsewhere inthis prospectus for further information. Fluctuations in working capital included a decrease in accounts receivabledue to lower sales levels and timing of customer receipts, a decrease in inventory due to customer demand levelsexceeding production levels and a decrease in accounts payable due to timing and mix of supplier payments in the year ended September 30, 2020.
Cash used by investing activities decreased by $12,882 million, to a $202 million outflow for the year ended September 30, 2020 compared to a $13,084 million outflow for the year ended September 30, 2019. The decrease in cash used by investing activities primarily related to cash paid to JCI related to the Acquisition in the year ended September 30, 2019.
Cash used by financing activities changed by $12,816 million, to a $74 million outflow for the year ended September 30, 2020 compared to a $12,742 million inflow for the year ended September 30, 2019. The change in cash used by financing activities was primarily due to an increase in third-party debt and an equity injection related to the Acquisition in the year ended September 30, 2019. In the year ended September 30, 2020, the cash used by financing activities was primarily due to a change in noncontrolling interest share related to the Bosch Transaction, partially offset by a net increase in long-term debt. See Note 2, Acquisitions, and Note 8, Debt and Financing Arrangements, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information.
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For the Year Ended September 30, 2019 compared to the Year Ended September 30, 2018 (in millions)
Successor | Predecessor | Combined | Predecessor | |||||||||||||||||
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2019 |
Year Ended September 30, 2018 |
Change | ||||||||||||||||
Net cash provided by (used by): |
||||||||||||||||||||
Operating activities |
$ | 510 | $ | 217 | $ | 727 | $ | 745 | $ | (18 | ) | |||||||||
Investing activities |
(12,915 | ) | (169 | ) | (13,084 | ) | (359 | ) | (12,725 | ) | ||||||||||
Financing activities |
12,792 | (50 | ) | 12,742 | (389 | ) | 13,131 | |||||||||||||
Capital expenditures (included in investing activities) |
(181 | ) | (192 | ) | (373 | ) | (372 | ) | (1 | ) |
Cash provided by operating activities decreased by $18 million to $727 million for the year ended September 30, 2019 compared to $745 million for the year ended September 30, 2018. The decrease in cash provided by operations for the year ended September 30, 2019 compared to the year ended September 30, 2018 was primarily due to fluctuations in working capital, including increased prepayments made in the Successor period, partially offset by decreases in accounts receivable due to timing of cash receipts.
Cash used by investing activities increased by $12,725 million to $13,084 million for the year ended September 30, 2019 compared to $359 million for the year ended September 30, 2018. The increase in cash used by investing activities for the year ended September 30, 2019 related to cash paid to JCI related to the Acquisition, partially offset by the collection of a loan to an affiliate.
Cash provided by financing activities increased by $13,131 million to $12,742 million for the year ended September 30, 2019 compared to $389 million outflow for the year ended September 30, 2018. The increase in cash provided by financing activities in the year ended September 30, 2019 was primarily due to an increase in third-party debt and an equity injection related to the Acquisition.
Total Adjusted EBITDA and Indenture EBITDA
Total Adjusted EBITDA
We use Total Adjusted EBITDA to analyze and evaluate the performance of our business and to provide a greater understanding with respect to our results of operations, including within each of our segments. We believe that Total Adjusted EBITDA is an important measure that excludes many of the costs associated with our existing capital structure and excludes costs that management believes do not reflect our ongoing operating performance. Accordingly, Total Adjusted EBITDA is a key metric that management uses to assess the period-to-period performance of our core business operations and our segments.
Required Reported DataIndenture EBITDA
We are required to report Indenture EBITDA, which is defined as Consolidated EBITDA and EBITDA under our credit agreements that govern the Senior Secured Credit Facilities and the ABL Facility and the indentures governing our outstanding notes. In addition, the credit agreements that govern the Senior Secured Credit Facilities and the ABL Facility and the indentures governing our outstanding notes contain certain restrictive covenants that govern debt incurrence and the making of restricted payments, among other matters. These restrictive covenants utilize Indenture EBITDA as a primary component of the compliance metric governing our ability to undertake certain actions otherwise proscribed by such covenants.
Our management considers Indenture EBITDA to be relevant to the operation of our business because Indenture EBITDA is required pursuant to the terms of the reporting covenants under the credit agreements that govern the Senior Secured Credit Facilities and the ABL Facility and the indentures governing our outstanding notes and because these metrics are relevant to lenders and noteholders.
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Indenture EBITDA is calculated under the credit agreements that govern the Senior Secured Credit Facilities and the ABL Facility and the indentures governing our outstanding notes as net income before income tax provision, net financing charges, restructuring and impairment costs, allocation for support functions and other costs and intangible asset amortization and depreciation adjusted to exclude certain items which we believe are not reflective of ongoing performance, including the effects related to (i) non-cash items, (ii) costs and charges that do not relate to our ongoing operations and (iii) certain other adjustments including the run-rate effect of certain cost savings and synergies.
The following tables reconcile net income (loss) to Total Adjusted EBITDA and Indenture EBITDA for the periods presented (in millions):
Six Months Ended March 31, | Twelve Months Ended March 31, 2021 |
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2021 | 2020 | |||||||||||
Net loss attributable to the Company |
$ | (249 | ) | $ | (85 | ) | $ | (563 | ) | |||
Income (loss) attributable to noncontrolling interests |
1 | (1 | ) | (1 | ) | |||||||
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Net loss |
(248 | ) | (86 | ) | (564 | ) | ||||||
Income tax provision (benefit) |
137 | (19 | ) | 139 | ||||||||
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Loss before income taxes |
(111 | ) | (105 | ) | (425 | ) | ||||||
Net financing charges |
366 | 339 | 744 | |||||||||
Restructuring and impairment costs |
253 | | 264 | |||||||||
Intangible asset amortization |
200 | 193 | 401 | |||||||||
Depreciation |
183 | 171 | 358 | |||||||||
Deal and stand up costs (1) |
17 | 7 | 39 | |||||||||
Impacts of purchase accounting (2) |
7 | 7 | 13 | |||||||||
Pension mark-to-market adjustment (3) |
| | 66 | |||||||||
Core valuation change (4) |
(32 | ) | 46 | (29 | ) | |||||||
Factoring fees (5) |
(9 | ) | (15 | ) | (20 | ) | ||||||
Other items (6) |
3 | 45 | 38 | |||||||||
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Total Adjusted EBITDA |
$ | 877 | $ | 688 | $ | 1,449 | ||||||
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Net contribution from non-controlling interests, equity method investments, and unrestricted subsidiary earnings (7) |
8 | (8 | ) | 16 | ||||||||
Pension service cost (8) |
(7 | ) | (8 | ) | (14 | ) | ||||||
Transportation and launch costs (9) |
47 | 18 | 55 | |||||||||
Lithium-ion losses (10) |
18 | 18 | 39 | |||||||||
Cost savings already realized and new pricing impact (11) |
45 | 44 | 116 | |||||||||
Other adjusting items (12) |
| 2 | | |||||||||
Additional expenses related to COVID-19 (13) |
36 | 16 | 155 | |||||||||
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Indenture EBITDA |
$ | 1,024 | $ | 770 | $ | 1,816 | ||||||
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(1) | Expenses related to the Acquisition and costs to establish standalone business functions. |
(2) | The amortization of the step-up in value of our equity method investments resulted in a reduction in equity income. |
(3) | Non-cash accounting impact of net mark-to-market losses related to pension and other postretirement benefit plans. |
(4) | Represents the non-cash change in value of battery cores primarily due to the change in the value of lead. |
(5) | Includes costs associated with ongoing receivable factoring programs. To mitigate long collection terms for accounts receivable from certain aftermarket customers, the Company actively engages in receivable factoring programs, through which accounts receivable are sold to third-party intermediaries in exchange for a fee based on LIBOR plus a spread. |
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(6) | Consists of other items including: (i) consulting costs related to operational improvement initiatives ($7 million and $24 million for the six and twelve months ended March 31, 2021, respectively, and $27 million for the six months ended March 31, 2020), (ii) transaction costs associated with the Bosch Transaction ($9 million for the six months ended March 31, 2020), (iii) severance costs ($12 million for the twelve months ended March 31, 2021 and $7 million for the six months ended March 31, 2020), (iv) mark-to-market adjustments for investments in marketable common stock ($6 million and $7 million gain for the six and twelve months ended March 31, 2021, respectively, and $2 million loss for the six months ended March 31, 2020), (v) insurance recovery on disposal of certain assets ($1 million for both the six and twelve months ended March 31, 2021), (vi) equipment moving and installation costs related to discontinuing assembly operations of one of the Companys U.S. plants ($5 million and $11 million for the six and twelve months ended March 31, 2021, respectively), (vii) stranded fixed costs and inefficiencies related to the ramp down in operations at one of the Companys North America recycling plants ($4 million for both the six and twelve months ended March 31, 2021), (viii) loss on disposal of certain assets ($1 million and $2 million for the six and twelve months ended March 31, 2021, respectively), (ix) remeasurement gains related to the consolidation of certain partially-owned affiliates ($6 million for both the six and twelve months ended March 31, 2021), and (x) mark-to-market adjustments related to fuel forward contracts which do not qualify for hedge accounting treatment ($1 million gain for both the six and twelve months ended March 31, 2021). |
(7) | Reflects net adjustments relating to (i) the exclusion of the portion of earnings that are attributable to non-controlling interests from consolidated investments that are not 100% owned by the Company (($3) million for both the six and twelve months ended March 31, 2021, and ($10) million for the six months ended March 31, 2020), (ii) the inclusion of the proportionate share of EBITDA from significant equity method investments ($23 million and $36 million for the six and twelve months ended March 31, 2021, respectively, and $15 million for the six months ended March 31, 2020), and (iii) removal of earnings from an equity method investment that is an unrestricted subsidiary following the consummation of the Acquisition (($12) million and ($17) million for the six and twelve months ended March 31, 2021, respectively, and ($13) million for the six months ended March 31, 2020). |
(8) | Adjustment for non-cash accounting impact of interest, settlement losses and expected return on assets related to pension and other postretirement benefits. |
(9) | Adjustments for (i) the reversal of launch costs incurred primarily in connection with capacity improvements in the U.S. and China and other inefficiencies, and (ii) transportation costs relating to one-time intracompany inventory transfers. |
(10) | Reversal of losses from the lithium-ion division of the Company. |
(11) | Adjustments to reflect (i) cost savings initiatives ($43 million and $110 million pro forma for the six and twelve months ended March 31, 2021, respectively, and $27 million pro forma for the six months ended March 31, 2020) and (ii) the impact of new pricing ($2 million and $6 million pro forma for the six and twelve months ended March 31, 2021, respectively, and $17 million pro forma for the six months ended March 31, 2020). |
(12) | Consists of additional individually insignificant adjusting items. |
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(13) | Represents additional expenses resulting from the COVID-19 pandemic, including stranded fixed costs and higher transportation rates as we adjusted production levels to align with changing market demand - including the temporary complete closure of select facilities - and implemented enhanced safety and cleaning measures to protect the health of our employees. See Material Trends Affecting Our Results of OperationsCOVID-19. |
Year Ended September 30, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Net income (loss) attributable to the Company |
$ | (399 | ) | $ | 25 | $ | 592 | |||||
Income (loss) attributable to noncontrolling interests |
(3 | ) | 15 | 47 | ||||||||
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Net income (loss) |
(402 | ) | 40 | 639 | ||||||||
Income tax provision (benefit) |
(17 | ) | 147 | 601 | ||||||||
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Income (loss) before income taxes |
(419 | ) | 187 | 1,240 | ||||||||
Net financing charges |
717 | 297 | 40 | |||||||||
Restructuring and impairment costs |
11 | | 11 | |||||||||
Allocation for JCI support functions and other(1) |
| 62 | 94 | |||||||||
Intangible asset amortization |
394 | 165 | 8 | |||||||||
Depreciation |
346 | 280 | 243 | |||||||||
Deal and stand up costs(2) |
29 | 142 | | |||||||||
Impacts of purchase accounting(3) |
13 | 302 | | |||||||||
Pension mark-to-market adjustment(4) |
66 | 50 | 14 | |||||||||
Core valuation change(5) |
49 | (14 | ) | | ||||||||
Factoring fees(6) |
(26 | ) | (34 | ) | (27 | ) | ||||||
Other items(7) |
80 | 18 | (38 | ) | ||||||||
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Total Adjusted EBITDA |
$ | 1,260 | $ | 1,455 | $ | 1,585 | ||||||
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Non-cash compensation and pension service cost(8) |
(15 | ) | 1 | 13 | ||||||||
Net contribution from non-controlling interests, equity method investments, and unrestricted subsidiary earnings(9) |
10 | (43 | ) | (43 | ) | |||||||
Transportation and launch costs(10) |
26 | 37 | 58 | |||||||||
Lithium-ion losses(11) |
39 | 40 | 38 | |||||||||
Cost savings already realized and new pricing |
65 | 82 | | |||||||||
Other adjusting items(13) |
2 | 16 | 4 | |||||||||
Incremental standalone costs(14) |
| (21 | ) | (35 | ) | |||||||
Additional expenses related to COVID-19(15) |
135 | | | |||||||||
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Indenture EBITDA |
$ | 1,522 | $ | 1,567 | $ | 1,620 | ||||||
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(1) | General corporate expenses and other allocations for certain support functions provided by JCI prior to the Acquisition. |
(2) | Expenses related to the Acquisition and costs to establish standalone business functions. Acquisition related expenses were $128 million for the year ended September 30, 2019. Costs to establish standalone business functions were $29 million for the year ended September 30, 2020 and $14 million for the year ended September 30, 2019. |
(3) | Impacts of purchase accounting adjustments related to the Acquisition. The sell through of inventory at fair value resulted in increased cost of sales of $296 million for the year ended September 30, 2019. The amortization of the step-up in value of our non-consolidated joint ventures resulted in a reduction in equity |
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income of $13 million for the year ended September 30, 2020 and $6 million for the year ended September 30, 2019. |
(4) | Non-cash accounting impact of net mark-to-market losses related to pension and other postretirement benefit plans. |
(5) | Represents the non-cash change in value of battery cores primarily due to the change in the value of lead. |
(6) | Includes costs associated with ongoing receivable factoring programs. To mitigate long collection terms for accounts receivable from certain aftermarket customers, the Company actively engages in receivable factoring programs, through which accounts receivable are sold to third-party intermediaries in exchange for a fee based on LIBOR plus a spread. |
(7) | Consists of items including, among others: (i) restructuring costs and discontinued operation losses at certain equity method investments ($3 million for the year ended September 30, 2019 and $7 million for the year ended September 30, 2018), (ii) consulting costs related to operational improvement initiatives ($44 million for the year ended September 30, 2020 and $15 million for the year ended September 30, 2019), (iii) transaction costs associated with our acquisition from Bosch of the 20% interests held by Bosch in a joint venture in which we hold the remaining interests the (Bosch Transaction) ($9 million for the year ended September 30, 2020), (iv) severance costs ($19 million for the year ended September 30, 2020), (v) mark-to-market adjustments for investments in marketable common stock ($1 million loss for the year ended September 30, 2020), (vi) loss on disposal of certain assets ($1 million for the year ended September 30, 2020), (vii) equipment moving and installation costs related to discontinuing assembly operations of one of the Companys U.S. plants ($6 million for the year ended September 30, 2020), (viii) adjustment to asset retirement obligations due to a modification in the underlying calculation assumptions (($13) million for the year ended September 30, 2018), (ix) gain on deconsolidation of a subsidiary (($15) million for the year ended September 30, 2018), (x) gain on partial divestiture of equity interests in a non-consolidated subsidiary (($7) million for the year ended September 30, 2018) and (xi) reversal of a license fee received in connection with the renegotiation of an existing IP agreement (($10) million for the year ended September 30, 2018). |
(8) | Adjustments to remove: (i) non-cash compensation expense related to stock incentive and long-term incentive plans ($16 million and $28 million for the years ended September 30, 2019 and 2018, respectively), and (ii) non-cash accounting impact of interest, settlement losses and expected return on assets related to pension and other postretirement benefits (($15) million for each of the years ended September 30, 2020, 2019 and 2018). |
(9) | Reflects net adjustments relating to (i) the exclusion of the portion of earnings that are attributable to non-controlling interests from consolidated investments that are not 100% owned by the Company (($10) million offset by $10 million pro forma adjustment to reverse the annualized impact on non-controlling interest of the Bosch Transaction for the year ended September 30, 2020, ($57) million for the year ended September 30, 2019 and ($69) million for the year ended September 30, 2018), (ii) the inclusion of the proportionate share of Total Adjusted EBITDA from significant equity method investments ($28 million, $33 million and $45 million for the years ended September 30, 2020, 2019 and 2018, respectively) and (iii) removal of earnings from an equity method investment that is an unrestricted subsidiary following the consummation of the Acquisition (($18) million, ($19) million and ($19) million for the years ended September 30, 2020, 2019 and 2018, respectively). |
(10) | Adjustments for (i) the reversal of launch costs incurred primarily in connection with capacity improvements in the U.S. and China and other inefficiencies, and (ii) transportation costs relating to one-time intracompany inventory transfers. |
(11) | Reversal of losses from the lithium-ion division of the Company. |
(12) | Adjustments to reflect (i) cost savings initiatives ($44 million pro forma for the year ended September 30, 2020 and $65 million pro forma for the year ended September 30, 2019) and (ii) the impact of new pricing ($21 million pro forma for the year ended September 30, 2020 and $17 million pro forma for the year ended September 30, 2019). |
(13) | Consists of additional adjusting items, including, among others: (i) adjustments to reflect insurance proceeds relating to hurricane damage ($10 million and $9 million for the years ended September 30, 2019 and 2018, |
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respectively) and (ii) reversal of non-operating external reporting adjustments ($6 million and ($3) million for the years ended September 30, 2019 and 2018, respectively). |
(14) | Adjustments to reflect estimated incremental costs related to operating as a stand-alone company. |
(15) | Represents additional expenses resulting from the COVID-19 pandemic, including stranded fixed costs and higher transportation rates as we adjusted production levels to align with changing market demandincluding the temporary complete closure of select facilitiesand implemented enhanced safety and cleaning measures to protect the health of our employees. See Material Trends Affecting Our Results of OperationsCOVID-19. |
Senior Notes
In connection with the Acquisition, our wholly-owned subsidiaries, Clarios Global LP (the Borrower) and Clarios US Finance Company, Inc. (the Co-Borrower and, together with the Borrower, the Borrowers) issued $1,000 million aggregate principal amount of 6.250% Senior Secured Notes due 2026 (the 2026 USD Secured Notes), 700 million aggregate principal amount of 4.375% Senior Secured Notes due 2026 (the Euro Secured Notes and, together with the 2026 USD Secured Notes, the 2026 Secured Notes) and $1,950 million aggregate principal amount of 8.500% Senior Notes due 2027 (the Unsecured Notes and, together with the 2026 Secured Notes, the Acquisition Financing Notes). We used the net proceeds from the issuance of the Acquisition Financing Notes to finance the Acquisition.
In addition, on May 20, 2020, the Borrowers issued $500 million aggregate principal amount of 6.750% Senior Secured Notes due 2025 (the 2025 Secured Notes and, together with the Secured Notes, the Secured Notes). We used the net proceeds from the issuance of the 2025 Secured Notes for general corporate purposes.
The Secured Notes
The 2026 Secured Notes were issued pursuant to the indenture, dated as of April 1, 2019, among Holdings, the Borrowers, the guarantors party thereto, Citibank, N.A. as trustee, dollar paying agent and collateral agent and Citibank, N.A., London Branch as euro paying agent. The 2026 USD Secured Notes bear interest at a rate of 6.250% per year and the Euro Secured Notes bear interest at a rate of 4.375% per year. Interest on the 2026 Secured Notes is payable semi-annually in arrears on May 15 and November 15 of each year. The 2026 Secured Notes will mature on May 15, 2026.
The 2025 Secured Notes were issued pursuant to the indenture, dated as of May 20, 2020, among Holdings, the Borrowers, the guarantors party thereto and Citibank, N.A. as trustee, paying agent and collateral agent. The 2025 USD Secured Notes bear interest at a rate of 6.750% per year. Interest on the 2025 Secured Notes is payable semi-annually in arrears on May 15 and November 15 of each year. The 2025 Secured Notes will mature on May 15, 2025.
We are entitled to redeem some or all of the Secured Notes at any time at the redemption prices set forth in the applicable indenture.
The Secured Notes contain customary representations and warranties, affirmative and negative covenants and events of default. For additional information, see Description of Material IndebtednessThe Secured Notes6.250% Senior Secured Notes due 2026, 4.375% Senior Secured Notes due 2026 and 6.750% Senior Secured Notes due 2025.
The Unsecured Notes
The Unsecured Notes were issued pursuant to the indenture, dated as of April 1, 2019, among Holdings, the Borrowers, the guarantors party thereto and Citibank, N.A., as trustee. The Unsecured Notes bear interest at a rate of 8.500% per year. Interest on the Unsecured Notes is payable semi-annually in arrears on May 15 and November 15 of each year. The Unsecured Notes will mature on May 15, 2027.
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The Unsecured Notes and the related guarantees are the Borrowers and the guarantors senior unsecured obligations.
We are entitled to redeem some or all of the Unsecured Notes at any time at the redemption prices set forth in the applicable indenture.
For additional information, see Description of Material IndebtednessThe Unsecured Notes8.500% Senior Notes due 2027.
Credit Facilities
Concurrently with the closing of the Acquisition, on April 30, 2019, the Borrower entered into (i) a first lien credit agreement with, among others, the Co-Borrower, Holdings, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the lenders party thereto, providing for the Senior Secured Credit Facilities (the First Lien Credit Agreement) and (ii) an ABL credit agreement with, among others, the Co-Borrower, Clarios Recycling GmbH, each of the other borrowers from time to time party thereto, Holdings, Citibank, N.A. and/or its affiliates, as administrative agent and collateral agent, and the lenders and issuing banks party thereto, providing for the ABL Facility (the ABL Credit Agreement). On March 5, 2020, the Company entered into an incremental amendment to the ABL Facility, which increased the aggregate commitments thereunder. On March 5, 2021, the parties thereto entered into a repricing amendment to the Senior Secured Credit Facilities (the Repricing Amendment), which lowered the applicable margins related to the term loans thereunder.
Senior Secured Credit Facilities
On April 30, 2019, the Borrower borrowed $6,409 million equivalent principal amount under the Term Loan Facility consisting of (i) borrowings of $4,200 million under the USD Term Loan and (ii) borrowings of 1,955 million under the Euro Term Loan. We used the proceeds of the borrowings under the Term Loan Facility and the ABL Facility to pay the cash consideration for the Acquisition and pay related fees and expenses. The maturity date for the Term Loan Facility is April 30, 2026.
Amounts borrowed under the Senior Secured Credit Facilities are subject to interest at a rate per annum equal to an applicable margin plus, at our option, either (a) for base rate loans denominated in U.S. Dollars, a base rate determined by reference to the highest of (i) the rate last quoted by The Wall Street Journal (or, if such rate is not quoted by The Wall Street Journal, another national publication selected by the administrative agent in consultation with the Borrower) as the U.S. Prime Rate in effect on such day, (ii) the Federal Funds Effective Rate plus 0.50% per annum and (iii) the one month U.S. Dollar LIBOR rate (which shall not be less than 0.00%) plus 1.00% per annum or (b) for Eurodollar rate loans, a rate determined by reference to the highest of (i) the U.S. Dollar LIBOR rate (in the case of the USD Term Loan) or the EURIBOR rate (in the case of the Euro Term Loan) based on the interest period of the applicable borrowing and (ii) 0.00%.
After the Repricing Amendment, the applicable margin for the USD Term Loan is 2.25% per annum in the case of base rate loans and 3.25% per annum in the case of Eurodollar rate loans and the applicable margin for the Euro Term Loan is 3.25% per annum for EURIBOR rate loans. The applicable margin under the Revolving Facility is based on a leverage-based pricing grid which does not exceed 3.25% per annum (in the case of Eurodollar rate loans) and 2.25% per annum (in the case of base rate loans). In addition, immediately after giving effect to the Repricing Amendment, the principal amount of the USD Term Loan was $3,972.5 million and the principal amount of the Euro Term Loan was 1,890 million.
Following the Repricing Amendment, the Senior Secured Credit Facilities include certain provisions that provide for an automatic transition to a replacement benchmark to the U.S. Dollar LIBOR rate upon certain future events.
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We are required to pay an unused line fee to the lenders under the Revolving Facility on the committed but unutilized balance of the Revolving Facility at a rate of, initially, 0.50% per annum, subject to stepdowns upon the achievement of certain first lien net leverage ratios.
The credit agreement governing the Senior Secured Credit Facilities contains customary representations and warranties, affirmative and negative covenants and events of default. The covenants include a maximum first lien net leverage ratio in relation to the Revolving Facility, applicable if certain exposures thereunder exceed a threshold amount on the last day of a fiscal quarter. There were no outstanding borrowings under the Revolving Facility as of September 30, 2020.
For additional information, see Description of Material IndebtednessSenior Secured Credit Facilities.
ABL Facility
The ABL Facility allows us to draw up to $750 million pursuant to an incremental amendment on March 5, 2020, subject to borrowing base availability, and will mature on April 30, 2024. We have the ability to request the issuance of letters of credit up to a maximum aggregate amount of $273.0 million.
Amounts borrowed under the ABL Facility are subject to interest at a rate per annum equal to an applicable margin plus, at our option, either (a) for base rate loans denominated in U.S. Dollars, a base rate determined by reference to the highest of (i) the rate of interest announced publicly by Citibank, N.A. in New York, from time to time, as its prime rate, (ii) the Federal Funds Effective Rate plus 0.50% per annum and (iii) the one month U.S. Dollar LIBOR rate (which shall not be less than 0.00%) plus 1.00% per annum or (b) for Eurodollar rate loans denominated in U.S. Dollars or Euros, a rate determined by reference to the highest of (i) the U.S. Dollar LIBOR rate (in the case of U.S. Dollar denominated loans) or the EURIBOR rate (in the case of Euro denominated loans) based on the interest period of the applicable borrowing and (ii) 0.00%. Asset-based revolving loans denominated in other currencies are subject to interest at a rate per annum equal to an applicable margin plus the customary equivalent to the Eurodollar rate.
The applicable margin percentages with respect to borrowings under the ABL Facility are subject to adjustments based on historical excess availability as further described in the credit agreement for the ABL Facility. We also are required to pay an unused line fee to the lenders under the ABL Facility on the committed but unutilized balance of the ABL Facility at a rate of 0.375% or 0.250% per annum, which varies depending on utilization.
The credit agreement governing the ABL Facility contains customary representations and warranties, affirmative and negative covenants, and events of default. The covenants include a minimum fixed-charge coverage ratio, applicable only if utilization of the ABL Facility exceeds a certain threshold. There were no outstanding borrowings under the ABL Facility as of September 30, 2020.
For additional information, see Description of Material IndebtednessABL facility.
Liquidity Outlook
We believe that our current cash and equivalents, along with cash flows from operations and unused availability under the ABL Facility and the Revolving Facility will be sufficient to fund our current operating requirements over the next twelve months. Our liquidity and our ability to meet our obligations and fund our capital and other requirements are also dependent on our future financial performance, which is subject to general economic and market conditions and other factors that are beyond our control. Accordingly, we cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings or equity financings will be available to meet our liquidity needs. If we were unable to generate new contracts with existing and new customers, if the level of contract cancellations increased, or if contract delays lengthen or
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increase, our cash flow from operations would be materially adversely affected. We anticipate that to the extent we need additional liquidity, it will be funded through the incurrence of additional indebtedness, equity financings or a combination thereof. We cannot assure you that we will be able to obtain this additional liquidity on reasonable terms or at all. If we decide to pursue one or more significant acquisitions or significant internal growth initiatives, we may incur additional debt or sell additional equity to finance such acquisitions or initiatives.
Off-Balance Sheet Arrangements
The Company has obtained letters of credit securing our subsidiaries obligations pertaining to insurable risks, banking relationships, lease arrangements, and environmental matters. The maximum liability under such letters of credit as of March 31, 2021 was $73 million. These letters of credit have various expiration dates through March 2022. We do not anticipate that the counterparties will draw upon these letters of credit, and we expect that they will be renewed to the extent necessary in the future. Additional information is presented in Note 16, Commitments and Contingencies, of the notes to the unaudited consolidated financial statements included elsewhere in this prospectus.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon the financial statements of the Company, which have been prepared in conformity with U.S. GAAP. During the preparation of the financial statements of the Company in conformity with U.S. GAAP, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, fair value measures, goodwill and intangible assets and related disclosures of assets and liabilities. On an ongoing basis, we evaluate such estimates and assumptions. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
Accounting estimates and assumptions discussed in this section do not reflect a comprehensive list of all of our accounting policies, but are those that we consider to be the most critical to an understanding of the financial statements of the Company because they involve significant judgments and uncertainties.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. The Company reviews goodwill for impairment during the fourth fiscal quarter or more frequently if events or changes in circumstances indicate the asset might be impaired. The Company performs impairment reviews for its reporting units using a fair value method based on managements judgments and assumptions or third-party valuations. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. In estimating the fair value, the Successor Company uses a present value technique based on discounted cash flows to estimate the fair value of our reporting units. In estimating the fair value, the Predecessor Company used a multiples of earnings based on the average of published multiples of earnings of comparable entities with similar operations and economic characteristics and applied to the Companys average of historical and future financial results. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, Fair Value Measurement. The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill. The Company is subject to financial statement risk to the extent that the carrying amount exceeds the estimated fair value. This risk was meaningfully increased for the Successor Company as a result of the new basis of accounting created by the application of acquisition accounting as described in Note 2, Acquisitions, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus. Due to the recency of the Acquisition Date, the Company had limited cushion in each of its reporting units as of its most recent goodwill impairment review. As a result of the
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Acquisition, the carrying amount of the Companys consolidated net assets increased by $6,971 million, of which $5,890 million was allocated to definite-lived intangible assets for which the Company has recorded $555 million in amortization expense since the Acquisition Date and expects go-forward amortization expense of approximately $386 million per year. As such, it is the Companys expectation that the increased financial statement risk created by the application of acquisition accounting will be reduced over time as a result of ordinary amortization expense.
As of July 1, 2020, the Company performed its annual impairment tests for goodwill. The assumptions included in the impairment tests require judgment and changes to these inputs could impact the results of the calculations. The primary assumptions used in estimating fair value for the impairment tests were the business growth rates and discount rates. These assumptions were developed taking into account ongoing market conditions, including uncertainty of timing of the recovery in sales volumes as a result of the COVID-19 pandemic. The result of the July 1, 2020 impairment test for goodwill indicated that the fair value of the Americas, EMEA, and Asia reporting units exceeded their carrying values by 7%, 2%, and 15%, respectively. A hypothetical 25 basis point decline in the compounded annual growth rate of revenue would have decreased the percentage by which the fairvalue of the Americas, EMEA, and Asia reporting units exceeded their carrying value by 2%, 2%, and 0%, respectively. A hypothetical 25 basis point increase in the assumed discount rate would have decreased the percentage by which the fair value of the Americas, EMEA, and Asia reporting units exceeded their carrying valueby 2%, 2%, and 2%, respectively. As of September 30, 2020, goodwill of $426 million, $1,076 million, and $240 million was allocated to the Americas, EMEA, and Asia reporting units, respectively. Refer to Note 6, Goodwill and Other Intangible Assets, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus.
Although the Companys forecasts are based on assumptions that are considered reasonable by management and consistent with the plans and estimates management is using to operate the underlying businesses, there are significant judgments in determining the expected future growth rates of a reporting unit. The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining fair value, including long-term revenue growth projections, profitability, discount rates, recent market valuations from transactions by comparable companies and general industry, market and macro-economic conditions. It is possible that future changes in such circumstances, or in the variables associated with the judgments, assumptions and estimates used in assessing the fair value of the reporting unit, would require the Company to record a non-cash impairment charge which may be material.
Indefinite-lived intangible assets are subject to at least annual impairment testing. Indefinite-lived intangible assets primarily consist of trademarks and are tested for impairment using a relief-from-royalty method. A significant amount of management judgment and assumptions are required in performing the impairment tests. The key assumptions used in the impairment tests were long-term revenue growth projections, royalty rates, discount rates and general industry, market and macro-economic conditions. It is possible that future changes in such circumstances, or in the variables associated with the judgment assumption and estimates used in assessing the fair value of indefinite-lived intangible assets, would require the Company to record a non-cash impairment charge which may be material.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property, plant and equipment and other intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the assets carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets. ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair
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value based on discounted cash flow analysis or appraisals. The inputs utilized in the analyses are generally classified as level 3 inputs within the fair value hierarchy as defined in ASC 820, Fair Value Measurement. Refer to Note 15, Restructuring and Impairment Costs, and Note 20 Subsequent Events, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for information regarding impairments recorded.
Revenue Recognition
Net sales consist of gross sales less sales adjustments related to provisions for customer returns, allowances and rebates. The Companys revenue is generated through the manufacture and sale of automotive battery products to OEM and aftermarket customers globally, of which the delivery of goods ordered typically represents the Companys sole performance obligation with respect to distinct goods and services offered to customers. The Company recognizes revenue typically at the point in time when control over the goods transfers to the customer as specified by the shipping terms agreed upon with the customer.
The transaction price includes the total consideration expected to be received under the contract, which may include both cash and noncash components. The calculation of the transaction price for contracts containing noncash consideration includes the fair value of the noncash consideration to be received as of the contracts inception date. Noncash consideration received from customers consists of spent battery cores for which the Company estimates fair value based on the lead content to be obtained from their reclamation and the market price of the relevant lead index as of the contracts inception date. Noncash consideration is considered to be a level 2 fair value measurement. Certain agreements contain price arrangements that represent material rights to customers for battery core returns. Material rights are accounted for as separate performance obligations and recognized as a deferred revenue within other current liabilities in the consolidated statements of financial position. Material rights are recognized as revenue as the option is exercised or expires.
The Company considers the contractual consideration payable by the customer and assesses variable consideration that may affect the total transaction price, including discounts, rebates, refunds, credits or other similar sources of variable consideration, when determining the transaction price of each contract. The Company includes variable consideration in the estimated transaction price when it is probable that significant reversal of revenue recognized would not occur when the uncertainty associated with variable consideration is subsequently resolved. These estimates are based on the amount of consideration that the Company expects to be entitled to.
Shipping and handling costs billed to customers are included in sales and the related costs are included in cost of sales when control transfers to the customer. The Company has elected to present amounts collected from customers for sales and other taxes net of the related amounts remitted. Refer to Note 3, Revenue, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for disclosure of the Companys revenue recognition activity.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates, foreign currency exchange rates and commodity price.
Interest Rate Exposure
We will incur variable interest expense with respect to our Senior Secured Credit Facilities and any outstanding borrowings under our ABL Facility and Revolving Credit Facility. As of March 31, 2021, we had approximately $10.5 billion aggregate principal amount of variable and fixed rate indebtedness, with a weighted-average interest rate of approximately 4.9% per year. Refer to Note 8, Debt and Financing Arrangements, of the notes to the unaudited consolidated financial statements included elsewhere in this prospectus for further information regarding the Companys outstanding debt. A change of 0.125% in the assumed weighted-average interest rate of such debt would increase or decrease our estimated annual interest expense by approximately $13 million.
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Derivative Instruments and Hedging Activity
The Company selectively uses derivative instruments to reduce the Companys market risk associated with changes in interest rates, foreign currency and commodities. Refer to Note 9, Derivative Instruments and Hedging Activities, of the notes to the audited consolidated and combined financial statements and unaudited consolidated financial statements included elsewhere in this prospectus for further information.
Subsequent to the Acquisition, the Company has USD denominated variable-rate debt obligations and selectively enters into variable to fixed interest rate swaps to minimize variability in cash flows for interest payments associated with the designated proportion of the hedged debt. As cash flow hedges under ASC 815, Derivatives and Hedging, the hedge gains or losses due to changes in fair value are initially recorded as a component of AOCI and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in interest rates during the six months ended March 31, 2021 and the year ended September 30, 2020.
Subsequent to the Acquisition, the Company has Euro denominated variable-rate debt obligations and selectively enters into interest rate caps to minimize extreme adverse variability in cash flows for interest payments associated with the designated proportion of the hedged debt. As cash flow hedges, the hedge gains or losses due to changes in fair value are initially recorded as a component of AOCI and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. The option premiums paid for the caps are recorded to interest expense over the life of the cap on a straight-line basis. The foreign currency transaction gains and losses on the Euro caps are recognized in earnings each period. The hedged interest rate was below the strike price on the caps during the six months ended March 31, 2021 and the year ended September 30, 2020.
The Company has global operations and participates in the foreign exchange markets to minimize its risk of loss from fluctuations in foreign currency exchange rates. The Company selectively hedges the Companys anticipated transactions that are subject to foreign exchange rate risk primarily using foreign currency exchange hedge contracts. Prior to the Acquisition, the Parent Company hedged 70% to 90% of the nominal amount of each of the Companys known foreign exchange transactional exposures. As cash flow hedges under ASC 815, Derivatives and Hedging, the hedge gains or losses due to changes in fair value were initially recorded as a component of AOCI and were subsequently reclassified into earnings when the hedged transactions occurred and affected earnings. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates during the Predecessor periods presented. As of March 31, 2021, the Company does not have any outstanding foreign currency exchange hedge contracts designated as hedging instruments.
Prior and subsequent to the Acquisition, the Company selectively hedged anticipated transactions that were subject to commodity price risk, primarily using commodity hedge contracts, to minimize overall price risk associated with the Companys purchases of lead, tin and polypropylene in cases where commodity price risk cannot be naturally offset or hedged through supply base fixed price contracts. Commodity risks were systematically managed pursuant to policy guidelines. As cash flow hedges, the hedge gains or losses due to changes in fair value were initially recorded as a component of AOCI and were subsequently reclassified into earnings when the hedged transactions, typically sales, occurred and affected earnings. The maturities of the commodity hedge contracts coincided with the expected purchase of the commodities. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in commodity prices during all periods presented.
Recently Adopted Accounting Pronouncements
Refer to Note 1, Summary of the Business and Significant Accounting Policies, of the notes to the unaudited consolidated financial statements, as well as Note 1, Summary of the Business and Significant Accounting Policies, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for discussion of recently adopted accounting pronouncements.
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Our History and Brookfields Ownership
Our Company was founded over a century ago and re-defined as a new company, Clarios, upon acquisition by Brookfield Business Partners and CDPQ and others on May 1, 2019. Since our acquisition by Brookfield and CDPQ, we have transformed our business through a combination of growth and business improvement initiatives. From a products and engineering perspective, we have re-positioned the business to more successfully pursue the significant opportunity we see in Advanced Battery growth in the future. Our organization has also become leaner and more nimble with a run-rate of $175 million in cost savings out of a targeted total of over $400 million as of January 2021, including the annualized impact of facility closures and headcount reductions.
The following summary illustrates current industry dynamics, our focused strategic priorities and key financial metrics to drive accountability to our progress:
Company Overview
Clarios is one of the worlds largest suppliers of energy storage solutions. We design and manufacture advanced, low-voltage battery technologies for global mobility and industrial applications, offering reliability, safety and comfort to everyday lives. Our batteries power cars, commercial vehicles, motorcycles, marine vehicles, powersports vehicles and industrial products. In our core low-voltage mobility battery markets, we are the only global manufacturer and are significantly larger than our nearest competitor by revenue. We believe we are unique in terms of our global capabilities, with the number one market position in both the Americas and EMEA, and the number three market position in Asia. The majority of demand for our products comes from the aftermarket channel, driven by consumer replacements. We sell more than 140 million batteries annually that are distributed to OEM and aftermarket customers into over 140 countries. Our scale, global footprint and vertical integration allow us to operate with a best-in-class cost structure, lead the industry in technological innovation and deliver greater value to customers and consumers. We have established one of the worlds most successful examples of a circular economy. We design, manufacture, transport, recycle and recover the materials in vehicle batteries using a closed-loop system. Our batteries are designed so that up to 99% of the materials can be responsibly recovered, recycled and repurposed directly into new batteries.
Our batteries provide reliable, low-voltage power to a full range of propulsion technologies and will remain critical with the transition of the global transportation network from ICE to hybrid and EVs. Our batteries support a range of functions critical to vehicle performance ranging from the more traditional roles of engine starting and ignition and supporting key-off loads, to more demanding emerging functions such as start-stop, ADAS, over-the-air software updates and autonomous driving. Importantly, our batteries provide the fail-safe power required to support electric and autonomous vehicles. Our advanced products are well-positioned to enable the increasing electrical load requirements seen in nearly all vehicles entering the market today, and especially the technologies of start-stop, EV and AV, which require more robust, advanced energy solutions. We believe the
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battery mix shift towards higher-margin advanced products represents a significant opportunity for Clarios as we deliver a compelling value proposition to our consumers by combining advanced technology solutions for mission critical systems with a lower cost solution than competing technologies.
Our product portfolio includes standard SLI and Advanced Batteries, which include EFB and AGM. We believe our products have differentiating factors, such as PowerFrame, which reduces lead usage and bolsters corrosion resistance, our patented EFB design and our certified non-spillable AGM battery technology. We also develop and manufacture low-voltage lithium-ion battery technologies for select markets. We distribute our products primarily through the aftermarket and OEM channels. We sell our products through a number of well-recognized global and regional brands such as VARTA®, LTH®, Heliar®, OPTIMA®, Delkor® and MAC®. Principally outside of North America we go to market with these owned brands which, based on consumer awareness studies, are consistently #1 or #2 in nearly every major market in which we participate. We also provide private label brands to our aftermarket customers including DieHard, Interstate, Duralast, Bosch and EverStart.
For the twelve months ended September 30, 2020, approximately 80% of our unit volume and an even larger share of our gross profit was generated through the replacement aftermarket channel. In the automotive market, our batteries have an average life of three to six years and the battery is replaced, on average, two to four times over a vehicles useful life, depending on the battery technology, application, driving habits and geography. Given aftermarket customers require not only a high-quality product but also outstanding service and support, we deliver value far beyond the supply of batteries. We have developed deep channel partnerships and have longstanding relationships with large domestic and international aftermarket customers such as Interstate, AutoZone, Bosch, Advance Auto Parts, Walmart and LKQ, serving as a critical partner in one of their largest and most important sales categories. We operate an entire logistics network for battery delivery (in some cases, direct to store) and for the return of spent batteries to be recycled, often through our owned recycling network. We benefit from our scale and technology developed with OEMs, which allow us to deliver a high level of expertise to the replacement channel, including training, technical and system expertise and category management. Our scale also allows us to fulfill store level demand in a timely fashion and at competitive cost. These differentiators are increasingly important as the complexity of monitoring and installing Advanced Batteries continues to rise. Additionally, we continue to innovate around aftermarket distribution through point of sale and digital channels, particularly in China.
The remaining roughly 20% of our unit volume is generated through the OEM channel, which is comprised of sales to major car, commercial vehicle, motorcycle, marine, powersports vehicle and industrial manufacturers globally. Our capabilities and expertise have also positioned us as the partner of choice for our OEM customers, including Ford Motor Company, General Motors Company, Volkswagen, Tesla, Inc., BYD Auto Co., Ltd, Li Auto Inc., The Daimler Motor Company Limited, BMW, PACCAR Inc., Polaris, Toyota Motor Corporation and Caterpillar Inc. Our OEM business is driven by global demand for new vehicles and equipment but serves as a key driver of our future aftermarket replacement business. Our focus is to be sourced as first fit with both leading traditional OEMs and emerging EV OEMs globally, which in turn bolsters our replacement business in the aftermarket channel. Our customers look to us to provide low-voltage systems integration expertise and drive technological innovation. We work closely with OEMs during development of future platform launches, designing energy storage technologies that will cost-effectively help them meet increasing environmental, safety and vehicle electrification requirements. Our leading global position in the OEM channel allows us to collaborate with a wide range of customers in bringing to market new technologies that can support and accelerate advancements in powertrain technology and autonomy. In addition, our global footprint allows us to serve OEMs
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with the same product in multiple regions with localized production, which simplifies their procurement processes on global vehicle platforms. No customer accounted for more than 10% of total volume for the twelve months ended September 30, 2020.
Our global scale and market position allow us to be a driving force in shaping environmental policy within our industry. We seek to be a leader in sustainability principles in both strategy and day-to-day operations by pursuing sustainable growth opportunities and investments in our business, reducing waste and ensuring the reuse of materials through a closed-loop recycling system. Our investments in sustainable operations create value for all stakeholders in our business. They are both a source of pride for our employees and a competitive advantage allowing us to deliver higher production volumes, limit commodity supply risk and price exposure, and generate higher margins, all while minimizing impacts on the environment. By collaborating closely with our customers to manage used batteries responsibly, we seek to help our customers meet their sustainability goals. As our recycling services translate directly to value to our customers, we deepen our relationships, position ourselves as a supplier of choice and establish our company as a future-focused leader. We have helped to shape environmental policy around the world, working with local regulatory bodies in regions where we operate to improve applicable regulatory standards, resulting in significant improvements over the past two decades within our industry. We believe that our efforts to exceed industry-leading environmental and safety standards globally have been a key driver of our success.
Our business has a long history of organic growth. In the future, we believe we will benefit from top-line and bottom-line growth through an expanding global car parc and favorable mix shift to Advanced Batteries driven by replacement batteries for the large number of start-stop vehicles already on the road. We also expect our business to benefit from increasing power demands in electrified and autonomous vehicles, increased penetration in high-growth regions around the world, particularly in China, expansion to adjacent end markets and successful execution of significant cost-saving and margin enhancement initiatives already underway. Our strong cash flow provides the opportunity to redeploy capital and explore acquisition opportunities. The strength and resilience of our business model is exhibited in our track record of solid financial performance. For the fiscal year ended September 30, 2020, our business generated $7,602 million in revenue and sold 143 million batteries and for the fiscal year ended September 30, 2019, our business generated $8,528 million in revenue and sold 153 million batteries. As of March 31, 2021, we had approximately $10.3 billion of long-term debt outstanding, including deferred financing costs and finance leases, and $550 million of cash and cash equivalents. The following chart reflects certain operating data for the year ended September 30, 2020.
Product Overview
Our batteries provide reliable, low-voltage essential power to a full range of propulsion technologies and will remain critical with the transition of the global transportation network from internal combustion engines to hybrid and EVs. Our batteries support a range of functions critical to vehicle performance ranging from the more traditional roles of engine starting and ignition and supporting key-off loads, to more demanding emerging functions such as start-stop, ADAS, over-the-air software updates and autonomous driving. Importantly, our
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batteries provide the fail-safe power required to support electric and highly autonomous vehicles. Our advanced products are well-positioned to enable the increasing electrical load requirements seen in nearly all vehicles entering the market today, and especially the technologies of start-stop, EV and AV, which require more robust, advanced energy solutions. We believe the battery mix shift towards higher-margin advanced products represents a significant opportunity for Clarios as we deliver a compelling value proposition to our consumers by combining advanced technology solutions for mission critical systems with a lower cost solution than competing technologies.
Industry Overview
We compete in the large, attractive and global mobility and industrial energy storage market and are a leading player in a significant subset of that market the low-voltage lead battery industry. According to AVICENNE Energy, our subset of the market was approximately $38 billion in 2019 and is part of the larger $89 billion global rechargeable battery market. The players that compete successfully in this market possess a range of capabilities including a command of electrochemistry, excellent process-driven manufacturing, deep channel relationships and extensive research and product development expertise. We possess the same skills and abilities as many of the largest and most successful players in the broader rechargeable battery industry and believe that we can compete in other attractive pieces of the larger industry if we chose to do so.
Source: AVICENNE Energy
The global low-voltage battery market is large and serves multiple strategic end markets including the automotive, commercial vehicle, industrial, marine and powersports markets. In many of these markets, the low-voltage battery serves a similar function providing safety-critical and standby power for equipment and vehicles which are primarily powered from another source of energy. Batteries in these applications primarily use a lead-based electrochemistry due to its low cost, reliability, cycle life and safety. For batteries utilizing a lead-based electrochemistry, 73% of 2019 volume was devoted to conventional flooded batteries, while 3% and 24% were devoted to EFB and AGM, respectively, according to AVICENNE Energy. Approximately 71% of the installed production capacity in the battery market is for the production of batteries deployed as auxiliary batteries in vehicle and equipment applications, while 17% is for industrial and energy storage system applications. The remaining capacity manufactures batteries for e-bikes, low-speed electric vehicles (e.g., golf carts) and other applications. As the aftermarket automotive industry is our largest end market, we expect for the industry to generally grow in line with the global car parc. IHS Markit estimates the current global car parc consists of approximately 1.3 billion vehicles and anticipates it to grow to 1.6 billion vehicles by 2030.
In the transportation end market, there are three predominant low-voltage battery technologies SLI, EFB and AGM. Our customers choice of technology is informed primarily by four factors: economics, support for increased electrical loads, safety and the ability to monitor and diagnose battery health.
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Functions performed by low-voltage batteries in vehicle applications
Low-voltage batteries serve several key functions in vehicle applications. Every vehicle requires a low-voltage system to function properly and safely. One of the most important functions of the low-voltage battery is to provide power to a vehicles electric system even when the vehicle is turned off, in both ICE and electric vehicles. In an ICE-powered vehicle, the low-voltage battery provides the initial force to turn the crankshaft and heat the spark plugs in order to initiate combustion within the engines cylinders. Similarly, when a BEV is started, the low-voltage battery activates the high-voltage circuit. In both ICE and BEVs, once the vehicle is on, it primarily relies upon the powertrain to supply many of its electrical loads. In an ICE vehicle, this is accomplished via the alternator, which is a small generator attached to the combustion engine. Electric vehicles use a DC/DC converter to accomplish a similar function, stepping down the voltage from the high-voltage battery circuit to a level that can be utilized by the vehicles various accessory and auxiliary loads.
In addition to starting the vehicle, low-voltage batteries provide power to lights and turn indicators, infotainment systems, vehicle computers, small motors that power locks and windows, power steering systems, seat controls and heating and ADAS features such as Automatic Emergency Braking (AEB) and lane-change warning systems. The low-voltage battery performs these functions regardless of the primary source of motive power for the vehicle.
Mild hybrid vehicles utilize low-voltage batteries largely the same way as conventional ICE-powered vehicles. Despite additional batteries being present in the powertrain, they are primarily focused on improving the vehicles fuel economy, rather than to power accessory loads or provide starting energy to the engine.
Technology comparison
While each of SLI, EFB and AGM batteries serve similar functions in the vehicle, their capabilities differ significantly. Battery technology is evaluated along four key elements: underlying economics, monitoring and diagnostics, safety and the ability to support increased power loads. Historically, SLI batteries were selected for their low cost and reliability and used only to power the starting, lighting and ignition systems and a small number of additional features. However, as vehicles have become more complex and fuel economy regulations have tightened, OEMs have increasingly looked to utilize a vehicles low-voltage battery to provide more power for peak loads in an effort to reduce electrical demands on the powertrain and avoid increasing the size of the alternator or DC/DC converter capacity. The increased power demands and higher degree of cycling that accompany these design choices work to limit the life of a conventional SLI battery.
EFBs provide a more reliable alternative to SLI batteries at a modest price premium. An EFB typically has improvements in materials composition, component selection and mechanical construction and, as a result, benefits from higher cycling performance versus SLI batteries. This improved performance translates into an EFB being able to support greater loads and more aggressive duty cycle in the vehicle while maintaining the normally expected life of an automotive battery.
AGM batteries are the highest-performing lead-acid battery type across all dimensions. AGM batteries provide superior voltage monitoring and diagnostic capabilities resulting in much more stable voltage over time. Cycling performance, the batterys ability to charge and discharge over time and to a greater depth, in AGM batteries is also superior to EFB and SLI batteries. This enables OEM customers to optimize their electrical management system to incorporate peak shaving (the ability to utilize the low-voltage battery to provide power beyond the capability of the alternator or DC/DC converter for periods of outsized demand). Finally, AGM is the safest lead-acid battery technology. The absorbent mat eliminates the liquid electrolyte found in traditional flooded batteries (SLI and EFB) and the inherent risk of spills. More importantly, we believe the ability to closely monitor the batterys health over time means that AGM batteries will be able to meet the Automotive Safety Integrity Level (ASIL) B standard, which EFB and SLI products cannot satisfy. Achieving ASIL B standards will make AGM products more attractive for use as safety critical backup power for AVs. AGM
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batteries also compare favorably to SLI and EFB on a total cost of ownership basis. Although their upfront cost is higher, the stability and vibration resistance of AGM batteries results in significantly lower warranty costs for OEMs.
Finally, while there are applications where lithium-ion batteries are being used in low-voltage applications, they are predominantly restricted to use-cases that are highly sensitive to weight reduction or where consumers are not sensitive to price. For example, high-performance and low volume sports cars will sometimes utilize low-voltage lithium-ion batteries. In the broader market however, low-voltage AGM provides multiple clear benefits over lithium-ion. First, AGM batteries are significantly more cost-effective than lithium-ion. We estimate AGM batteries are one-fourth the cost of lithium-ion batteries today. AGM batteries are cheaper to purchase and have lower warranty costs than low-voltage lithium-ion batteries. AGM batteries experience lower warranty costs as compared to lithium-ion. The electronics in low-voltage lithium-ion batteries introduce additional failure modes beyond those present in AGM batteries. Additionally, beyond lithium-ions weight advantage versus AGM, lithium-ions benefits are relatively muted in low-voltage applications. Both AGM and lithium-ion technologies can adequately bear the increased cycling and electrical loads which accompany many of todays vehicle architectures and designs.
Competition
The competitive landscape is consolidated in developed markets and is composed of smaller regional players in emerging economies. The top five competitors in this industry globally accounted for 54% market share in 2019 according to AVICENNE Energy and include Clarios, GS Yuasa, Exide Technologies, EastPenn and C&D. Additionally, competition in our industry is highly regional due to the costs required to ship heavy batteries long distances. The largest competitors in EMEA are different than the largest competitors in the Americas and from the largest competitors in Asia.
Commodity prices
We rely on a select set of key commodities to manufacture batteries, including lead, tin, plastic and acid. These inputs represent a material portion of our overall cost structure. Like any manufacturer, we face potential exposure to supply, demand and price volatility from these select commodities. We continuously manage our exposure to supply variability by following standard supply chain practices focused on maintaining appropriate levels of safety and cycle stock in inventory for each of these commodities by plant. These days-on-hand levels vary depending on lead times and battery forecasting expectations.
When commodity pricesparticularly leadare widely expected to reset at fundamentally higher levels in some future point, customers may occasionally accelerate purchases and hold more inventory. If prices are
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expected to drop meaningfully, they may postpone purchases. This behavior does occasionally create some movements across months or quarters, but they are not pronounced and tend to normalize over the course of a complete year. This is because batteries are largely a required purchase at the time of failure, which results in a relatively consistent demand pattern over a 12 month period.
We manage our exposure to commodity pricing changes in a variety of ways, but with the common approach of flowing commodity costs to our customers in active and passive ways to ensure stability in our profit margins. In the Americas aftermarket, we operate a closed-loop system through which we typically collect one spent battery core for every new battery we sell. This used spent battery core is disassembled and its core elements are reprocessed to make new batteries. This loop allows us to bypass the majority of our commodity price volatility within these regions. In other geographic segments and channels, we typically treat lead as a pass-through cost to our customers with a lag between the price we charge our customers and the market price of lead to match the cost of the commodity reflected in our cost of goods sold. Lead pricing in particular has specific reference indices that are used to adjust battery pricing on a monthly basis
Industry trends
In the broader transportation industry, three major forces are contributing to a meaningful acceleration in the electrical power consumption requirements of todays vehicles: policy and regulatory changes focused on the environment; increasing consumer demands focused on comfort, safety, and convenience; and economic considerations that govern technology choices. The increased electrical power consumption in vehicles has driven a shift toward more capable, higher-margin Advanced Batteries that can help vehicles meet regulatory standards and consumer expectations in a cost-effective way. We sit at the forefront of this industry transformation and enable these shifts with our leading Advanced Battery portfolio and best-in-class product development expertise. As the low-voltage solution provider of choice for OEMs, we inform their system architecture requirements and help define the future of our industry.
Governments and global regulatory bodies are placing an increased emphasis on environmental, material and safety practices. In light of policy changes, OEMs have continued to focus on improving fuel efficiency and reducing greenhouse gas emissions in order to meet increasingly stringent regulatory requirements in various markets. Advanced Battery technologies have been critical to enabling the industrys response to satisfy these new requirements from powering critical systems in start-stop vehicles to ensuring reliable performance and functional safety in BEVs.
Consumers are also seeking additional comfort, connectivity and safety features in their vehicles, increasing vehicle electrical loads significantly. Based on our estimates and analysis, computing and electrical requirements
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have grown meaningfully in the last decade. The number of electrical devices in vehicles is expected to triple from 2009 to 2025 and potential peak power requirements have increased approximately 50% over the last ten years. We expect these increasing power demands to further accelerate, particularly with the advent and advancement of partially and fully autonomous vehicles.
As electrical power consumption requirements have increased, there has consequently been significant demand for innovation in battery technology. These trends are driving the sales mix of batteries towards Advanced Battery technologies as start-stop powertrains are further developed and additional safety and autonomous features are built into all cars. As the role of autonomous functions continues to move from sensing and indication to control of the vehicle, reliable power management in the vehicle becomes increasingly critical. This technological shift places additional requirements on the low-voltage battery to ensure there is sufficient power available for safe vehicle operation, particularly in the event of a failure or loss of the primary power source. This challenge has increasingly been addressed by using multiple low-voltage batteries to provide redundancy and meet the relevant automotive functional safety standards, with increased reliance on Advanced Batteries.
The increasing electrification of vehicles has driven a rapid shift towards Advanced Batteries to support next-generation vehicles, those powered by something other than a traditional ICE powertrain without electrification technology. Next-generation vehiclesthose with start-stop, mild hybrid, full hybrid, plug-in hybrid or fully electric technologiesnow account for approximately 20% of the global car parc and will reach more than 50% by 2030, according to IHS Markit. In a BEV, batteries are categorized as either high-voltage or low-voltage. A high-voltage lithium-ion propulsion battery typically replaces the internal combustion engine and provides power to generate the torque needed for directional movement. However, all EVs, including BEVs, require a low-voltage battery to work in tandem with the high-voltage battery to provide critical functionality during all stages of use when the vehicle is driving, when the engine or high-voltage battery is off and when an emergency occurs. While the vehicle is in motion, the battery supports peak power demands that exceed the DC/DC converters capabilities, such as power steering and seat heaters. While the vehicle is at rest, the low-voltage battery provides power to engage the primary high-voltage battery, both during charging and to initiate driving. The low-voltage battery also supports key-off functions such as theft-protection, entertainment, and connected-vehicle technologies such as over-the-air updates. Perhaps most importantly, when a failure occurs resulting in a loss of power from the high-voltage battery or DC/DC converter, the low-voltage battery supplies power to safety-critical systems, providing a crucial layer of redundancy necessary to ensure the vehicle can be safely navigated.
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OEMs face evolving pressures of both environmental regulation and consumer expectations and they look to us as key advisors in shaping their strategies for next-generation power supply architectures. The choices around battery technology, sizing and utilization are key factors for them in finding the right balance of performance, quality and cost. We are uniquely positioned to provide that support due to our broad, global relationships with nearly all OEMs, our engagement with other key Tier 1 suppliers, our vehicle and systems evaluation capabilities and our knowledge of all applicable battery technologies. As a trusted partner to our customers, we help shape the specification and operating strategy of the battery.
Advanced Battery technologies like AGM and EFB remain the preferred next-generation low-voltage solution by OEM customers and are currently specified into all powertrain configurations, including mild-hybrids, plug-in hybrids and BEVs. We believe the cost of our Advanced Batteries is approximately a quarter of that of low-voltage lithium-ion today. In low-voltage applications, AGM batteries provide a preferable alternative to lithium-ion, as they are able to handle the key-off and peak loads in electric vehicles, are inherently safe and have a superior cost structure. Based on IHS Markit projected electric vehicle platforms and production volumes through 2025, the vast majority of new vehicles will utilize lead battery technology for their low-voltage requirements. The superior performance of our products and our industry-leading AGM capacity position us well to capture additional market share in next-generation vehicle battery demand.
Source: IHS Markit and internally prepared estimates.
Overall, we anticipate the battery market to grow in line with the expansion of the global car parc and global GDP growth. IHS Markit estimates the current global car parc to consist of approximately 1.3 billion vehicles in 2020, growing to 1.6 billion vehicles in 2030. A significant amount of the global car parcs growth is expected to come from China, a region in which we continue to experience strong market penetration and have a runway for meaningful growth.
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Source: IHS Markit
Next-generation vehicles now account for approximately 61% of all new car sales and are expected to reach approximately 86% of new car sales by 2030, according to IHS Markit. This shift in OEM volumes, and the growing Advanced Battery replacement demand as the next-generation car parc grows, is expected to more than double demand for AGM batteries by 2030. Given increasing low-voltage system needs, we expect the replacement rate of two to four times over the life of a vehicle to remain consistent going forward. Advanced Batteries are approximately twice as profitable as an SLI battery, providing a meaningful tailwind for growth. Our installed manufacturing capacity positions us well to capitalize on meaningful growth. Our operations comprise more than 50% of installed AGM capacity globally, with leading market positions in the Americas, EMEA and Asia. Our leading position in AGM is a result of leveraging our significant scale to research and develop new technologies in a way and at a pace that our competitors find difficult to match. In comparison to flooded technologies, AGM is more difficult to manufacture due to key differentiating characteristics, such as plate compression and electrolyte saturation level. As a result, there is a wide variation in performance and quality across the global supply base. Innovations such as our proprietary continuous plate-making technology, our high-precision battery assembly process and our unique approach to filling and forming batteries have enabled a level of consistency and quality in our AGM products that significantly outperforms those of our competitors. Developing these technologies is both costly and complex. Our significant financial resources and deep bench of research professionals have helped us to become the market leader in manufacturing and developing AGM batteries globally.
The manufacture and distribution of products in our industry is a heavily regulated activity. Stringent environmental, material and safety regulations drive significant requirements for both battery manufacturers and automotive OEMs with respect to handling and manufacturing lead-based products. Industry regulators heavily scrutinize the construction of new battery manufacturing facilities. As such, we leverage our existing manufacturing footprint to maximize the efficiency of our existing plants, increasing our throughput and
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improving our favorable cost base. Used, spent batteries and their handling are also subject to regulation. The recovery of these batteries entails complex logistics networks and deep supply chain integration with players in the battery recycling industry, requiring scale and end-to-end solutions which are difficult to replicate. Permits to build greenfield battery recycling facilities are increasingly difficult to obtain. These facilities benefit from significant economies of scale, requiring a large capital commitment up front and significant commercial risk. Lastly, in terms of our go-to-market strategy, there are significant restrictions imposed on the shipment of flooded batteries direct-to-consumer. This regulatory restriction requires that competitors in our industry must develop their own distribution channels and commercial relationships, such as the ones we have developed with OEMs and our aftermarket customers over a long period of time.
Our Competitive Strengths
We are the global market leader in Advanced Battery technologies with unmatched scale and geographic reach
We are the largest and only global supplier of low-voltage mobility energy storage solutions. On a global basis, we are significantly larger than our second largest competitor by sales and have meaningful operations in every geographic region and sales of our products into over 140 countries. Within our reporting segments, we have a number one market position in both the Americas and EMEA and a number three position in Asia. In both the Americas and EMEA, our sales are far greater than our nearest competitor.
We sell our products to almost every major OEM in the world and work with emerging electric vehicle companies to support their low-voltage needs. Many of our global OEM customers design common global vehicle architectures. Our global supply chain provides us an advantage through our ability to support their common battery requirements across all regions. In the aftermarket, we go to market through private label brands, most notably in North America, and through our leading global first-line brands. We provide private label brands to many aftermarket customers, including DieHard through Advance Auto Parts; Duralast through AutoZone; and Bosch® in many markets globally. Our portfolio of leading global first-line brands includes the worlds most recognized battery brands, based on aided brand awareness and consumer preference studies in regions where we operate. These include OPTIMA®, VARTA®, LTH®, Heliar®, Delkor® and MAC®. In addition, we partner with our partially owned joint venture Interstate Batteries on manufacturing and distribution throughout North America. We believe consumers trust our brands to deliver best-in-class electrical and cycling performance and look for features offered by our batteries as the safest solution to power their vehicles.
We have a replacement-driven business model with meaningful scale that is focused on the attractive and recurring mobility aftermarket
Through stable, recurring demand for our products, combined with leading manufacturing capabilities, we consistently generate strong cash flows. Our significant aftermarket exposure, approximately 80% of total unit volumes in fiscal year 2020, provides a resilient and consistently growing base to our business. On average, automotive batteries are replaced two to four times in a vehicles life and purchases cannot be delayed due to the critical nature of the product. The importance of our products and our high-touch level of service have positioned us as a key supplier to large aftermarket retailers in one of their most significant product categories. We also benefit in this category through a first fit advantage given our relationships with leading OEMs that positions us well for the aftermarket replacement. Additionally, our aftermarket customers rely upon our expertise and extensive OEM relationships to understand how the car parc is evolving over time and provide direction in positioning themselves for the future. The insight and knowledge we are able to share fosters stickiness and loyalty with these customers.
The scale of our business enhances our competitiveness in the attractive and higher-margin aftermarket channel. Margins in the aftermarket are significantly higher than the OEM channel on similar products and our substantial aftermarket presence insulates the exposure of our earnings to more cyclical new vehicle sales. Given
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the complex logistics and high service levels required by our aftermarket retail and distribution customers, we believe the size and scale of our closed-loop, vertically integrated product distribution and recycling network is unique and difficult to replicate. Further, the size and footprint of our operations in the geographies where we compete enable us to optimize the distribution of our products to minimize logistics costs associated with an inherently heavy product that is difficult to ship.
We benefit from the secular tailwinds driving a mix-shift toward higher priced Advanced Batteries with rapid growth in the aftermarket
New car sales and the evolution of the existing car parc towards next-generation vehicles are expected to accelerate OEMs and consumers need for Advanced Batteries. Our extensive capabilities, backed by our 130+ year history in battery manufacturing, enable us to deliver innovative solutions to meet these demands. Our history of innovation and commitment to advancing our product and manufacturing technology is demonstrated by our more than 1,680 patents granted and more than 520 patents currently pending. As a result, we are at the forefront of technological development and are well-positioned to capture the growing mix-shift to Advanced Batteries. Our product development strategy is based on understanding OEM application needs and partnering with them to select the optimal low-voltage battery for each application. We maintain commercial relationships with almost all major OEMs and have active dialogue with them on both commercial and technological matters. Our team has developed a robust Advanced Battery pipeline to address future levels of autonomy and electrified powertrains and is well-positioned to be the leading low-voltage battery supplier to the next-generation of vehicles. We expect these new products to enhance our share of business with OEMs and to be higher-margin contributors to our bottom line.
Increasing electrical loads are driving OEMs to specify Advanced Batteries in a growing number of new vehicle platforms. We expect Advanced Batteries to be approximately half of low-voltage batteries sold by 2035, as more vehicles with first fit Advanced Batteries enter the typical aftermarket replacement cycle. Based on our extensive OEM relationships we believe we are well-positioned to capture the aftermarket growth occurring as a result of the mix shift to next-generation vehicles. Our OEM relationships benefit our aftermarket position in several ways. First, OES providers generally replace batteries on a like-for-like basis with the OEM specification. Second, our engagement and depth of relationship with most of the worlds OEMs provide us a differentiated amount of insight into the future of the car parc and how low-voltage battery needs will change over time. Our aftermarket retail customers depend on us for this expertise as we work collaboratively with them to define their product roadmaps, understand the evolving landscape and the tools needed to support it, and derive win-win solutions for our businesses. With our leading existing AGM manufacturing capacity, we believe we are well-positioned to fulfill this demand as volumes naturally accrue in the aftermarket.
We anticipate this shift in product mix to significantly enhance our financial profile. Currently, Advanced Batteries are approximately twice as profitable as SLI batteries. In particular, we expect that the continued
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penetration of AGM products into the higher-margin aftermarket will significantly enhance our profitability. While Advanced Battery volumes comprised 20% of our total unit sales in 2020, in the aftermarket they accounted for only 9%. We expect a wave of aftermarket Advanced Battery replacements in the coming years as these new batteries already sold through the OEM channel approach their first natural replacement cycle, particularly in the Americas. This would result in a higher penetration of Advanced Battery sales in the aftermarket in the future.
We have a strong and expanding position in China and are strategically positioned for growth in the highly profitable AGM product in that market
The Chinese automotive industry is large and attractive with more than 254 million vehicles in operation, according to IHS Markit. Over the past five years, the Chinese car parc has grown from 156 million to 254 million vehicles, representing a 10.3% CAGR, making it the fastest growing car parc in the world. We have a strong, competitive position with a more than 40% market share in BEVs and expect significant growth within the region given the proliferation of next-generation new vehicle sales and the relatively low age of the current car parc. These factors each contribute to growth in the aftermarket, driving favorable volume and product mix for our business. Approximately half of our sales in China are Advanced Batteries and we expect significant growth in Advanced Batteries throughout the region. Our existing AGM capacity currently comprises approximately 70% of total AGM capacity within the country. In order to keep up with the growth in the region, we have three state-of-the-art manufacturing facilities, including our latest facility that is coming online this year. We believe our installed capacity positions us to meet expected demand and to take advantage of significant growth in the worlds fastest growing car parc. We have seen our revenue increase significantly in China driven by increased sales of Advanced Batteries into both the OEM and aftermarket channels. We expect to continue this growth driven by both the expansion of the Chinese car parc and by increasing our market share in China.
Our scale and operational excellence provide us with a best-in-class cost structure
Our scale and vertical integration help us maintain a low-cost profile. Our technology leadership position drives a mix benefit for our business from higher-margin Advanced Batteries. These factors combined drive a meaningfully higher margin profile for our business relative to our competitors. We believe our cost structure benefits from superior design, scaled manufacturing plants, optimized footprint in low-cost countries, automation, plant efficiencies and purchasing synergies. The size of these advantages depends on the region and competitor, but we believe each is durable and together provide a strong base to continue to build our leadership position.
As an example of the benefits of our vertically integrated model, in fiscal year 2020, our Mexico recycling facilities were able to operate at a cost basis 70% less than the cost of our average third-party tolling contract when evaluated on a per-ton basis. Our recycling infrastructure, with facilities in Mexico, Colombia and Germany, and long-term tolling agreements with third-party recyclers, ensures a diversified supply of lead, thereby limiting our commodity exposure and supply risk. In our long-term tolling agreements, we provide independent recyclers used batteries collected through our expansive distribution network for processing and recycling. We then collect finished lead from those recyclers for a per-ton fee, providing us stable access to lead through the closed-loop recycling ecosystem.
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Note: 8,000 batteries recycled per hour figure includes batteries recycled through our third-party tolling partners.
Our management team, together with external advisors and Brookfield, CDPQ and others, identified over $400 million of cost-saving opportunities in connection with and from the date of the Acquisition. Approximately 50% of these initiatives are in the areas of manufacturing and recycling efficiencies. For example, we believe we can achieve significant cost-savings by reducing bottlenecks and increasing throughput countries in our plants in the United States, bringing them more in line with the performance of our plants in other. The remaining cost savings consist of opportunities within procurement; selling, general and administrative; and logistics, with minimal financial commitment required to achieve these cost savings initiatives. These initiatives include optimizing shipping routes and external services, consolidating spending and accelerating our transformation to a lean, regionally-focused organizational structure with increased accountability at the local level. To date, we believe we have achieved approximately $175 million of annualized cost savings since the Acquisition. We continue to pursue the remaining $225 million in incremental cost savings against our original $400 million plan, which we expect to realize over the next two to four yearsand intend to continue to identify new opportunities to further improve our global operations.
Our commitment to setting high ESG standards is core to both our business philosophy and operations and has created competitive differentiation
Our Clarios Sustainability Blueprint is our roadmap as we build a better, safer, stronger company. The Blueprints five pillars guide our ESG efforts: Value, Operational Excellence, Life-Cycle Stewardship, Transparency and Advocacy. Through these efforts, we work to unlock our capabilities in battery innovation, design, materials sourcing, manufacturing, distribution, circular economy and recycling. We believe that our efforts to exceed industry-leading environmental and safety standards globally have been a key driver of our success. Through our business practices, we have demonstrated a dedication to sustainability by continued improvement in our emissions performance. Core to our operations are the closed-loop recycling program and circular supply chain. Lead is one of the worlds most recycled materials with conventional batteries being the most recycled consumer product globally (up to 99% of the materials in batteries can be recovered, recycled and reused to make new batteries). The closed-loop encompasses more than the physical process of recycling. We manage all aspects of the supply chain including the delivery and collection of batteries. The holistic management of the entire program establishes a significant competitive advantage in that it provides an overall raw material cost advantage, ensures sustainability of supply, helps insulate the business from lead price fluctuations and strengthens ties with aftermarket customers. Furthermore, we believe our commitment to safe and sustainable practices helps mitigate potential environmental risks and associated compliance costs. We endeavor to pursue key growth opportunities at the intersection of sustainability and leading technology, including enabling the global car parcs electrification with Advanced Batteries, our involvement in expanding the recycling of lithium-ion batteries and our general pursuit of identifying solutions to improve fuel economy and reduce greenhouse gas emissions. In addition to these commercial goals, to help set global standards we
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founded the Responsible Battery Coalition, led the creation of the World Economic Forums Global Battery Alliance and have developed a unique public/private partnership with UNICEF and Pure Earth Protecting Every Childs Potential. These efforts are an extension of our Sustainability Blueprint and help us to continue advancing our industrys commitment to sustainable practices.
We have a strong financial profile and track record of growth that position us for sustained earnings power
We efficiently convert our revenue into cash flows while deploying capital to support ongoing operations and future growth. We continuously invest in our operations and technology which we believe helps us maintain our industry-leading operating excellence and product leadership. Since 2010, our company has undergone a significant investment cycle to support future growth, including building additional capacity for Advanced Battery technologies globally and market growth in China. Our past investments in China, including three state-of-the-art manufacturing facilities, position us to enjoy significant growth in the worlds fastest growing car parc.
Notes:
(1) | All periods presented for Clarios fiscal year-end basis ending September 30 |
(2) | 2019 and later periods reflect the adoption of ASC606, Revenue from Contracts with Customers |
(3) | Clarios fiscal 2019 is composed of two periods the Predecessor period, from October 1, 2019 to April 30, 2019 and the Successor period, from May 1, 2019 to September 30, 2019 |
(4) | 2018 and earlier periods reflect historical revenues of the Power Solutions Business. |
We have also demonstrated resiliency through our history with steady performance and market share gains during downturns. During the Financial Crisis in 2008 and 2009, our global aftermarket volumes were stable despite sharp declines in new vehicle sales in many of the markets in which we participate. More recently in 2020, the automotive aftermarket proved resilient in the face of the COVID-19 pandemic. Following temporary lockdowns and restrictions on mobility in March and April 2020 in North America and EMEA, aftermarket volumes outperformed prior year periods given pent-up replacement demand in May, June and July.
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Our Growth Strategies
Increasing demand for Advanced Battery technologies as a result of greater electrical loads, electric vehicle adoption and the rise of autonomous driving will drive significant growth
Next-generation vehicles today account for over 60% of all new car production but only 20% of the global car parc. By 2030, next-generation vehicles are expected to reach 86% penetration of new car sales and over 50% of the car parc, according to IHS Markit. We have been at the forefront of this technological shift since the beginning, and, in the case of OEMs, our AGM technology represents an integral part of such customers medium-term and long-term technology planning for next-generation platforms. We expect to experience a favorable mix shift in our revenue and profitability as electrification penetration accelerates with advanced technologies carrying a higher price point and approximately twice the profitability relative to a traditional SLI battery. While our current AGM technology already provides better electrical performance versus legacy technologies, including better functional safety, cycling ability and cold start technology, we intend to continue to drive innovation through our OEM and R&D partnerships on future platform development. We have several launches planned for our next-generation AGM technology in the coming years.
We have select emerging market growth opportunities underpinned by our strong positioning in China and other rapidly expanding car parcs
We have traditionally expanded globally into emerging markets in a phased and gradual approach. While each emerging market requires a unique approach, we typically begin by serving regional aftermarkets through exports of products with flagship brands like Optima and Varta. We also serve markets in conjunction with our global OEM customers, who often request our support for global vehicle platforms in additional regions. We then gradually establish distribution and retail relationships, introduce or strengthen brands, and look to embed closed loop structures. In some cases, we also elect to establish joint ventures and ultimately a fully localized footprint and commercial model. Today we see opportunities to execute this growth model in diverse and dynamic markets across Asia and Africa, as examples. We are particularly excited by the potential to leverage our current and in development advanced battery technologies as a platform for growth.
We are well-positioned to benefit from strong growth in emerging markets through our wholly owned and joint venture operations. China is the worlds fastest growing car parc with 254 million vehicles in operation and is experiencing a significant mix shift to Advanced Batteries. We have the largest AGM installed capacity in Chinaa market in which local manufacturing capabilities and expertise are critical. Given the newer age of the car parc, the rapidly expanding aftermarket channel represents an accelerating growth opportunity in China as the parc ages. Our recent investments in building out capacity, distribution infrastructure and regional management in China position us well to capitalize with both OEM and aftermarket customers.
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Profitable growth in any regional aftermarket demands a network of strong and solvent distributors able to provide effective coverage to a diverse range of workshops and battery retailers. This is especially critical in China given its rate of expansion, size and relative immaturity of the automotive aftermarket. Our approach to build out this network relies heavily on the experience, playbook and learnings of our business in Mexico, where we guided a fragmented collection of many undersized family businesses into a small set of professionalized operations, constantly expanding our reach within and beyond the auto segment. This approach, coupled with an aggressive digital strategy to simplify and drive supply chain efficiency, provides Clarios with a working blueprint to grow in the China aftermarket. E-commerce is a critical component of this digital strategy and our VARTA® brand is currently the #1 online brand in China.
We also see additional opportunities to grow in other emerging markets, including through our wholly owned significant operations in Korea and in Latin America. Today, our products reach customers in over 140 countries. Our products are used in rapidly expanding emerging car parcs globally, including those across all of Asia, the Middle East, Africa, Central and South America and Eastern Europe.
We have a long history of expanding our market share globally through joint ventures and distribution partnerships. As one such example, we are particularly excited about the long-term growth fundamentals of India. Indias car parc today is expected to grow at a CAGR of 5% through 2030, according to IHS Markit. We have operated in India for nearly 25 years through our interest in publicly traded ARBL. As of March 31, 2021, our 24% interest in ARBL had a market value of approximately $478 million. We sold a 10% stake in May 2021 and currently hold a 14% interest in ARBLs public shares. This remaining investment will be reclassified prospectively as an investment in marketable common stock within current assets on our balance sheet.
Given the attractive opportunity we see in-country, we will continue to approach the India market with an import to localized manufacturing strategy anchored to the timing of the advanced battery mix shift opportunity. Our business plan may contemplate expansions of advanced battery imports from other of our manufacturing regions, acquisitions and additional investment as the mix shift toward advanced batteries evolves. We believe our long operating history in India uniquely positions us to benefit from rapid long-term growth in the market.
We will continue to expand our business in developed markets through further engagement with both new and existing OEM and aftermarket customers
We continue to strengthen our relationships with our strong core base of over 3,200 aftermarket and OEM customers. We see substantial ability for further market penetration as we expand share across our existing customer base. We have consistently grown share in the developed aftermarket as demand increasingly shifts towards higher quality and more advanced batteries. We expect our leading cost structure, scale, capitalization and production to meet these quality standards and rising environmental standards to drive consolidation over time. In addition, we are well-positioned to serve the growing number of new entrants in our core sectors, including new electric vehicle OEMs and aftermarket customers. In 2020, ten new light vehicle and commercial vehicle OEMs entered the public equity markets in the U.S. alone, with an additional entrant in EMEA. Despite low current volumes, we have focused on growing relationships with the majority of these players. By embedding early with these auto market participants as the low-voltage battery solution provider of choice, we face an opportunity to grow in tandem with these emerging manufacturers as they scale. The new entrants are collectively expected to grow revenue at a CAGR of 111% from 2021 to 2024 according to broker consensus and industry estimates. We also see growing opportunities in emerging aftermarket service business models that act as service hubs for emerging OEMs and the expanding mobility platform sector. By growing capabilities through partnerships and the emerging online-to-offline e-commerce model, we have achieved outsized growth in China and aim to leverage these strategies to further our leadership in developed markets. In EMEA, we have the opportunity to grow through introducing battery software as a diagnostic and point of sale marketing influence tools as well as other digital strategies. We expect to capitalize on these and other secular changes in the aftermarket as next-generation vehicles become a larger portion of the aftermarket.
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We have the opportunity to extend our offerings to adjacent markets
As the largest supplier of low-voltage energy product storage solutions for the global mobility industry, we have consistently delivered innovation within our core offering. We have developed our technologies through in-house R&D capabilities, strategic partnerships and acquisitions of innovative concepts, which we are able to commercialize and scale quickly across our global manufacturing footprint. This experience has provided us with a perspective on the interplay of advanced technology and the economic considerations that drive their adoption. We believe our unique position allows us to leverage our capabilities and technology to extend into other applications and adjacencies, beyond traditional mobility. Just as increasing electrical loads impact core mobility markets, they are expected to impact off-highway equipment markets that also face a secular shift towards autonomy and electrification. Beyond vehicles, we also see growth opportunities across the telecommunications, uninterruptable power and various energy storage sub sectors, among others. We already serve a collection of diversified applications, including marine, military and powersports, among others. Our product offerings in these markets serve both mobile and stationary applications, and we have begun to evaluate technology and products in a range of new stationary applications, such as providing safe, high-power technology for data centers and electric vehicle charging. We believe, the market for these products is expected to grow to $6.1 billion by 2025. Many of these markets are either going through technology disruption or are in early stages of development, allowing us to leverage our scale and know-how. We also see the potential to utilize our existing capabilities in low-voltage system integration, in addition to our manufacturing and recycling footprint, to provide cost-effective solutions.
We are continuously identifying inorganic growth opportunities to expand our core business and leverage our technology and capabilities into new markets
Monitoring strategic assets within our core markets for opportunistic acquisitions and inorganic growth has become a higher priority under our new ownership. Our scale and technology capabilities provide unmatched synergy potential with acquisition targets and allows us to differentiate from other potential buyers. We have leading market positions in nearly every market globally, though emerging markets are more fragmented today than developed markets. Consistent with our organic growth strategy, we may also pursue acquisitions in emerging markets across Asia, the Middle East, Africa and Latin America. Our footprint today is partially a product of inorganic growth and this remains a core part of our strategy going forward.
Beyond our core markets, we see the potential to leverage our existing recycling network and knowhow into electric vehicle high-voltage lithium-ion battery recycling. We are working with the DOE and industry partners to leverage our closed-loop and logistics expertise and develop and apply innovative technologies to lithium-ion recycling in connection with low-voltage and high-voltage lithium-ion batteries. Through this work, Clarios was selected as a winner of the U.S. Department of Energy Office of Energy Efficiency and Renewable Energys Lithium-Ion Battery Recycling Prize competition. We see a future where we will recycle additional types of batteries for our customers, OEMs and aftermarket retailers. Despite the significant market opportunity, very few lithium-ion automotive batteries are currently available to be recycled and this initiative will take time to grow to scale as the market develops. However, we are planning for the long-term to ensure all batteries regardless of chemistry are responsibly recycled as well as working with local governments in their goal to secure domestic supply chains of critical minerals for the future.
In addition, we are beginning to explore strategies to leverage our expertise across battery management systems and may pursue partnerships, joint ventures or acquisitions to supplement our growth strategy. We have a history of acquiring, integrating and growing businesses as part of our broader organization and a track record of enhancing our scale and growth through joint ventures, including both equity investments and consolidated entities.
Distribution Channels and Customers
We distribute our products primarily to aftermarket and OEMs. We sell our products through a number of well recognized global and regional brands such as VARTA®, LTH®, Heliar®, OPTIMA®, Delkor® and MAC®.
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Principally outside of North America we go to market with these owned brands which, based on consumer awareness studies, are consistently #1 or #2 in every major market in which we participate. We also provide private label brands to our aftermarket customers including DieHard, Interstate, Duralast, Bosch and EverStart.
For the twelve months ended September 30, 2020, approximately 80% of our unit volume and an even larger share of our gross profit was generated through the replacement aftermarket channel. In the automotive market, our batteries have an average life of three to six years and the battery is replaced, on average, two to four times over a vehicles useful life, depending on the battery technology, application, driving habits and geography. Given aftermarket customers require not only a high-quality product but also outstanding service and support, we deliver value far beyond the supply of batteries. We have developed deep channel partnerships and have longstanding relationships with large domestic and international aftermarket customers such as Interstate, AutoZone, Bosch, Advance Auto Parts, Walmart and LKQ, serving as a critical partner in one of their largest and most important sales categories. We operate an entire logistics network for battery delivery (in some cases, direct to store) and for the return of spent batteries to be recycled, often through our owned recycling network. We benefit from our scale and technology developed with OEMs, which allow us to deliver a high level of expertise to the replacement channel, including training, technical and system expertise and category management. Our scale also allows us to fulfill store level demand in a timely fashion and at competitive cost. These differentiators are increasingly important as the complexity of monitoring and installing Advanced Batteries continues to rise. Additionally, we continue to innovate around aftermarket distribution through point of sale and digital channels, particularly in China.
The remaining roughly 20% of our unit volume is generated through the OEM channel, which is comprised of sales to major car, commercial vehicle, motorcycle, marine, powersports vehicle and industrial manufacturers globally. Our capabilities and expertise have also positioned us as the partner of choice for our OEM customers, including Ford Motor Company, General Motors Company, Volkswagen, Tesla, Inc., BYD Auto Co., Ltd, Li Auto Inc., The Daimler Motor Company Limited, BMW, Polaris, PACCAR Inc., Toyota Motor Corporation and Caterpillar Inc. Our OEM business is driven by global demand for new vehicles and equipment but serves as a key driver of our future aftermarket replacement business. Our focus is to be sourced as first fit with both leading traditional OEMs and emerging EV OEMs globally, which in turn bolsters our replacement business in the aftermarket channel. Our customers look to us to provide low-voltage systems integration expertise and drive technological innovation. We work closely with OEMs during development of future platform launches, designing energy storage technologies that will cost-effectively help them meet increasing environmental, safety and vehicle electrification requirements. Our leading global position in the OEM channel allows us to collaborate with a wide range of customers in bringing to market new technologies that can support and accelerate advancements in powertrain technology and autonomy. In addition, our global footprint allows us to serve OEMs with the same product in multiple regions with localized production, which simplifies their procurement processes on global vehicle platforms. No customer accounted for more than 10% of total volume for the twelve months ended September 30, 2020.
Sustainability
Our global scale and market position have allowed us to be a driving force in shaping environmental policy within our industry. We are a leader in sustainability principles in both strategy and day-to-day operations by pursuing sustainable growth opportunities and investments in our business, reducing waste and ensuring the reuse of materials through a closed-loop recycling system. Our investments in sustainable operations create value for all stakeholders in our business. They are both a source of pride for our employees and a competitive advantage allowing us to deliver higher production volumes, limit commodity supply and price exposure and generate higher margins, all while minimizing the impact of manufacture on the environment. By collaborating closely with our customers to manage used batteries responsibly, we help our customers meet their sustainability goals. As our recycling services translate directly to value to our customers, we deepen our relationships, position ourselves as a supplier of choice and establish our company as a future-focused leader. We have helped to shape environmental policy around the world, working with local regulatory bodies in regions where we operate to
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improve applicable regulatory standards, resulting in significant improvements over the past two decades within our industry. We believe that our efforts to exceed industry-leading environmental and safety standards globally have been a key driver of our success.
Our Segments and Key Product Offerings
We operate our business through three segments: (i) Americas, (ii) EMEA and (iii) Asia, which correspond to the global markets we participate in. In each of these segments, we service both automotive OEMs and the battery aftermarket by providing Advanced Battery technology.
Americas
Our Americas segment consists of manufacturing operations located in the United States, Mexico, Brazil and Colombia, with distribution operations that expand across the continents of North America and South America, and investments in non-consolidated partially owned affiliates which primarily operate within the United States.
EMEA
Our EMEA segment consists of manufacturing operations located in Germany, the Czech Republic and Spain, with distribution operations that expand across the continents of Europe, Africa and the transcontinental region of the Middle East, and investments in consolidated and non-consolidated partially owned affiliates which primarily operate in the Middle East.
Asia
Our Asia segment consists of manufacturing operations located in China and Korea, with distribution operations that expand across the countries making up the Asia Pacific region, and investments in non-consolidated partially owned affiliates which primarily operate in India and China.
Manufacturing Capabilities
As a leading supplier of advanced low-voltage batteries, we maintain significant industrial scale and a favorable cost structure relative to our largest competitors. We produce our batteries through 42 manufacturing operations located across 10 countries. Many of our manufacturing facilities are located near our end customers and battery demand. Our vertical integration and manufacturing presence in each of the regions where we operate allows us to minimize our logistical costs and exposure to potential tariffs. In addition to the assembly of car batteries, we believe we are the largest procurer of lead and have the most vertically integrated recycling operation globally among all battery manufacturers. Our aftermarket business supplies us with used batteries which we use as feedstock for our own recycling operations and provides us with a surplus that we send to third-party recyclers for tolling. Together with long-term tolling agreements, our lead recycling operation minimizes our commodity price exposure. This closed-loop recycling process enhances ties with our aftermarket customers and improves lead cost advantage.
Furthermore, our existing installed capacity helps to insulate our business from new entrants. Stringent environmental, material and safety regulations drive significant requirements for both battery manufacturers and the automotive OEMs with respect to handling and manufacturing of lead-based products. Expansion and construction of new battery manufacturing facilities are heavily scrutinized by industry regulators. Consequently, it is challenging for new entrants and current industry participants to meaningfully ramp up capacity in mature markets. We leverage our manufacturing scale to maximize the efficiency of our plants to take advantage of our favorable cost base and pursue expanded market share using our existing footprint.
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Research and Development
Continuous innovation is core to our business and enables us to deliver optimal solutions as increasing power requirements demand more Advanced Battery technology. We conduct research and development activities for the purpose of developing new products, enhancing the functionality, effectiveness, and reliability of our existing products and expanding the applications for which uses of our products are appropriate. We have seven global product testing locations with over 2,000 pieces of separate test equipment. This includes elemental, component, cell and full battery system testing. Capabilities across these sites include validation of new battery designs and process changes, routine performance screening, competitive benchmarking and warranty analysis. Clarios also has advanced battery integrated vehicle engineering capabilities with vehicle laboratories in Hannover, Milwaukee, and a partnership with Lawrence Technological University in Michigan. We are able to provide vehicle power net studies, fleet testing, benchmarking of in-vehicle application for batteries and advanced battery development support. Capabilities of these laboratories include diagnostic capabilities and access to on board diagnostics (OBD) of vehicles. We utilize these capabilities for joint development projects with our customers and continue to strengthen our partnerships with both our OEM and aftermarket customers on technology development. We have 1,689 active patents and an incremental 528 pending review. Research and development costs are expensed as incurred.
Note: Autonomous levels 0-5 refer to those defined by the Society of Automotive Engineers.
Raw Materials
We procure our raw materials from a variety of suppliers around the world. The most significant raw materials we use to manufacture our products include lead, polypropylene, separators and sulfuric acid. Generally, we seek to obtain materials in the region in which our products are manufactured in order to minimize transportation and other costs. As of March 31, 2021, we have not experienced any significant shortages of raw materials and normally do not carry inventories of such raw materials in excess of those reasonably required to meet our production and shipping schedules. Our performance throughout COVID-19 has also showcased the value of being the only truly global player in our industry as we leveraged worldwide sourcing capabilities to mitigate any unforeseen shortages.
Competition
We compete with a number of major U.S. and non-U.S. manufacturers and distributors of lead-acid batteries, as well as a large number of smaller, regional competitors. We primarily compete in the battery market with Exide Technologies, Stryten Manufacturing (formerly the U.S. operations of Exide Technologies), GS Yuasa Corporation, Camel Group Company Limited, East Penn Manufacturing Company and Banner Batteries GB Limited. The North American, European and Asian lead-acid battery markets are highly competitive. The manufacturers in these markets compete on price, quality, volume, technical innovation, service and warranty.
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Environmental, Health and Safety Matters
We are subject to numerous federal, foreign, international, state and local environmental, health and safety laws and regulations governing, among other matters, emissions to air and water, solid and hazardous waste storage, treatment, recycling, disposal and transportation, chemical exposure, worker and public health and safety and remediation of the presence or releases of hazardous materials, including as it pertains to decommissioning our facilities and lead/lead compounds and sulfuric acid, the primary materials used in the manufacture of lead-acid batteries, and to solvents and metal compounds used in the manufacture or repair of lithium-ion batteries. We have been subject to allegations, litigation, notices of violation, consent decrees and orders with governmental authorities, and failures to comply, particularly to the extent such noncompliance is determined to be part of a continuing pattern of noncompliance, with respect to such laws and regulations, including obtaining and complying with any permits required to conduct our operations, could subject us to civil or criminal liability, monetary damages, reputational damages, fines and/or a cessation or interruption of operations or an increase in costs to continue such operations in the future. In addition, certain environmental laws, including the U.S. Superfund law and state equivalents, make us potentially liable on a strict, joint and several basis for the investigation and remediation of contamination at, or emanating from, facilities that are currently or formerly owned or operated by us and third-party sites to which we send waste, along with related natural resources damages. Such liability may not be limited to the cleanup of contamination, particularly when such contamination is present in residential areas. We are and have been involved in investigation and remediation activities at our current or former, and third-party, sites and cannot provide any assurance that we will not incur liability relating to the investigation or remediation of contamination or natural resources damages in the future, including contamination we did not cause, which could adversely affect our business, financial condition, results of operation and reputation. See Note 16, Commitments and Contingencies, of the notes to the consolidated and combined financial statements included elsewhere in this prospectus for a discussion of the Companys accruals for potential environmental liabilities. In addition, we benefit from an exemption for lead-acid batteries from the European Unions End-of-Life Vehicle Directive (Directive 2000/53/EC). See Risk FactorsRisks Related to Our BusinessWe are subject to requirements and liabilities relating to environmental, health and safety laws and regulations and environmental remediation matters, including those related to the manufacturing and recycling of lead-acid batteries, which could adversely affect our business, financial condition, results of operation and reputation.
In addition, increased public awareness and concern regarding environmental and social corporate responsibility and any concerns or allegations around our environmental, health and safety practices and compliance with laws and regulations in connection with the manufacturing, use, collection and recycling of our products could negatively impact the reputation of our company and products and our business could be materially and adversely affected by any reduction in the market acceptance of our products, even where such concerns or allegations prove to be inaccurate or unfounded or do not relate to the performance of our products or the safety of our manufacturing, collection and recycling processes.
Human Capital
As of March 31, 2021, we employed approximately 16,505 people worldwide, of which approximately 5,384 were employed in the United States and approximately 11,121 were outside the United States. The table below sets forth our employees by segment as of March 31, 2021:
Americas | EMEA | Asia | ||||||||||
Management |
1,272 | 450 | 256 | |||||||||
General and administrative |
503 | 664 | 203 | |||||||||
Business and corporate development |
8 | 0 | 2 | |||||||||
Engineers |
416 | 220 | 77 | |||||||||
Direct Labor |
8,811 | 2,479 | 1,144 | |||||||||
|
|
|
|
|
|
|||||||
Total |
11,010 | 3,813 | 1,682 | |||||||||
|
|
|
|
|
|
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We recruit our employees primarily through our internal company website, external recruitment websites, internal recruiters, recruiting firms and advertising specific to each location, in each case based on their qualifications as compared to the job requirements. We promote cultural diversity and our employees come from around the world. The remuneration package of our U.S.-based employees includes salary and benefits. In addition, for certain qualifying positions there is a bonus opportunity and for certain of our executives there are long-term incentive awards. Our compensation programs are designed to remunerate our employees based on their performance and are measured against specified objective criteria. Certain members of our management team and other key employees are subject to restrictive covenants, which may include non-competition, customer non-solicitation and/or employee non-solicitation restrictions.
We provide new hire training and onboarding, for our employees and periodic on-the-job training to enhance the skills and knowledge of our employees. Approximately 9,700 employees are covered by collective bargaining agreements or works councils with expiry dates ranging from June 2021 to June 2025. We believe that our relations with the labor unions and non-unionized employees are generally good. We have not experienced any material labor disputes or strikes that may have a material and adverse effect on our business, financial condition or results of operations.
Seasonality
Our business is impacted by seasonal factors, as aftermarket replacements are highest in the winter months. Our net sales reflect our channel partners stocking patterns to meet this increased demand, and have historically been greatest between our fourth and first fiscal quarters (late summer through early winter). Global climate change may impact the seasonality of our business as the demand for our products, such as automotive replacement batteries, may be affected by unseasonable weather conditions.
Properties
As of March 31, 2021, we have a presence in 116 locations in 25 countries across the Americas, EMEA and Asia. Our corporate headquarters is located in Milwaukee, Wisconsin and we also maintain regional headquarters in Hannover, Germany; Monterrey, Mexico; and Shanghai, China.
As of March 31, 2021, the carrying amount of our property, plants and equipment was $3,281 million of which $48 million related to assets held under financing leases.
Included in property, plant and equipment are land and buildings with a total carrying value of $972 million as of March 31, 2021, representing manufacturing facilities, distribution centers and offices located in 25 countries throughout the world. As of March 31, 2021, we owned 51 of these facilities covering approximately 15.1 million square feet, including 42 manufacturing centers.
Clarios leases a further 65 locations. These leased locations cover approximately 2.5 million square feet and includes no manufacturing centers as of March 31, 2021.
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The table below provides an analysis of the geographic spread of Clarios material property, plant and equipment as of March 31, 2021.
Country |
Location | Square Footage | Activities | Owned / Leased | ||||
United States |
Toledo, OH | 576,000 | Manufacturing | Owned | ||||
St. Joseph, MO | 350,000 | Manufacturing | Owned | |||||
Kernersville, NC | 346,469 | Manufacturing | Owned | |||||
Florence, SC | 301,822 | Distribution/Warehouse | Owned | |||||
Mexico |
Garcia | 560,453 | Manufacturing | Owned | ||||
Torreon | 529,294 | Manufacturing | Owned | |||||
Cienega de Flores | 448,311 | Manufacturing | Owned | |||||
Cienega de Flores | 430,072 | Manufacturing | Owned | |||||
Germany |
Hannover | 1,076,391 | Manufacturing | Owned | ||||
Zwickau | 370,311 | Manufacturing | Owned | |||||
South Korea |
Gumi | 923,683 | Manufacturing | Owned | ||||
Brazil |
Sorocaba | 405,000 | Manufacturing | Owned | ||||
China |
Binzhou | 844,984 | Manufacturing | Owned | ||||
Huzhou | 489,099 | Manufacturing | Owned | |||||
Chongqing | 427,928 | Manufacturing | Owned | |||||
Czech Republic |
Ceska Lipa | 536,602 | Manufacturing | Owned |
Legal Proceedings
We are, from time to time, party to various legal proceedings arising out of our ordinary course of business. See Note 16, Commitments and Contingencies, of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for additional information regarding our assessment of contingencies related to environmental matters and insurable liabilities.
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Directors and Executive Officers
The following table sets forth the names, ages and positions of our directors and executive officers.
Name |
Age | Position | ||||
Mark Wallace |
54 | President and Chief Executive Officer and Director | ||||
Christopher J. Eperjesy |
53 | Chief Financial Officer | ||||
Anthony Moore |
58 | Vice President and General Manager, United States and Canada | ||||
Gerardo Gonzalez-Aleu |
51 | Vice President and General Manager, Latin America | ||||
Jennifer L. Slater |
46 | Vice President and General Manager, Original Equipment and Products | ||||
Leslie Wong |
55 | Vice President and General Manager, China, Asia Pacific | ||||
Dr. Werner Benade |
57 | Vice President and General Manager, Europe, Middle East, Africa | ||||
Claudio Morfe |
58 | Vice President, General Counsel and Corporate Secretary | ||||
Wendy Radtke |
51 | Chief Human Resources Officer | ||||
Becky Kryger |
46 | Vice President and Global Controller | ||||
Diarmuid OConnell |
57 | Chair and Director | ||||
John Barkhouse |
50 | Director | ||||
Ron Bloom |
66 | Director | ||||
Catherine Clegg |
61 | Director | ||||
Stephen Girsky |
59 | Director | ||||
Michael Norona |
57 | Director | ||||
Justin Shaw |
52 | Director | ||||
Maryrose Sylvester |
56 | Director | ||||
Bertrand Villon |
41 | Director | ||||
Mark Weinberg |
46 | Director |
Mark Wallace has served as President and Chief Executive Officer and a Director of Clarios since May of 2020. Mr. Wallace has nearly 30 years of experience in the automotive, commercial vehicle, off-highway and aftermarket industries. Prior to joining Clarios, Mr. Wallace served as Executive Vice President at Dana Incorporated, a world leader in providing power-conveyance and energy-management solutions that are engineered to improve the efficiency, performance and sustainability of light vehicles, commercial vehicles and off-highway equipment. His most recent responsibilities included the commercial vehicle business unit and the global aftermarket business. In his time at Dana Incorporated since 2008, Mr. Wallace also led the automotive and off-highway business units and global operations, with his tenure including revenue responsibilities of over $4 billion. Prior to Dana Incorporated, Mr. Wallace served as Chief Operating Officer and President and Chief Executive Officer of Webasto Roof Systems and Webasto Product North America from 2003 to 2008. Mr. Wallace has an MBA and a Bachelor of Science in Industrial Engineering from the University of Tennessee. We believe that Mr. Wallace is qualified to serve on our board of directors due to his experience leading our business and his insight into corporate matters as our President and Chief Executive Officer.
Christopher J. Eperjesy has served as Chief Financial Officer of Clarios since August of 2020. Mr. Eperjesy was previously Senior Vice President and Chief Financial Officer at Cooper Tire & Rubber Company, a global family of companies that specializes in the design, manufacture, marketing and sale of passenger car, light and medium truck, motorcycle and racing tires, from 2018 to 2020 and Chief Financial Officer at the IMAGINE Group, a full-service provider of visual marketing products for retailers, quick serve and fast casual restaurants, consumer product goods companies and more, from 2017 to 2018, and Arctic Cat, a company that designs, engineers, manufactures and markets all-terrain vehicles (ATVs), side-by-sides and snowmobiles, as well as related parts, garments and accessories, from 2015 to 2017. Prior to joining Arctic Cat, Mr. Eperjesy served as Vice President Finance, Chief Financial Officer, Treasurer and Secretary of Twin Disc, a heavy-duty off-highway power transmission equipment manufacturer, from 2002 to 2015. Mr. Eperjesy has an
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MBA from Indiana Universitys Kelley School of Business and a Bachelor in Business Administration from the University of Michigans Stephen M. Ross School of Business.
Anthony Moore has served as the Vice President and General Manager responsible for the United States and Canada markets and co-manages the Americas segment since October of 2020. Mr. Moore was previously President at White River Marine Group from 2019 to 2020 and Vice President of Global Operations at Stoneridge, Inc., a provider of highly engineered electrical and electronic systems, components and modules, from 2016 to 2019. Prior to joining Stoneridge, Mr. Moore served as Vice President of Global Operations and Integrated Supply Chain at Ingersoll Rand, Inc., a provider of air, fluid, energy, specialty vehicle and medical technologies, from 2015 to 2016. Mr. Moore has an MBA from Michigan State Universitys Eli Broad Graduate School of Management and a Bachelor of Science in Decision Science and Industrial Technology from the University of Kentucky.
Gerardo Gonzalez-Aleu has served as the Vice President and General Manager responsible for the Latin America market and co-manages the Americas segment since March of 2020. He previously served as Vice President and General Manager for the Global Aftermarket starting in May 2019. Mr. Gonzalez also held the position of Vice President and General Manager of JCI for Latin America from 2015 to 2019. Mr. Gonzalez-Aleu joined JCI in 1994 and has held a variety of leadership roles within the Power Solutions Business in production control, customer service, logistics, transportation and sales and marketing. Mr. Gonzalez-Aleu holds a certificate in Business Executive Programs from the Kellogg School of Management, a Master of Business Administration from IPADE in Mexico, a Master of Systems and Quality from ITESM and a Bachelor of Industrial and Systems Engineering from UDEM.
Jennifer L. Slater has served as the Vice President and General Manager of Original Equipment and Products at Clarios since May of 2019. Ms. Slater served in the same role at JCI starting in December 2018. Prior to this role, Ms. Slater was General Manager of Original Equipment Americas and APAC from August 2016 to 2018. In this role, she set global customer strategies for the North American and APAC OEMs and led execution of commercial activities for all other OEM customers in these regions. Ms. Slater re-joined JCI from the Woodbridge Group where she served as Vice President and General Manager, Americas for the Molded Foam business unit beginning in February 2016. Prior to the Woodbridge Group, Ms. Slater held various financial, engineering sales and strategy roles with increasing leadership responsibility across multiple functions within the Power Solutions and Automotive businesses of JCI since 2006. She holds an MBA from Walsh College and a Bachelor of Mechanical Engineering from the University of Michigan at Dearborn.
Leslie Wong has served as the Vice President and General Manager of the Asia segment since September of 2019. In this role, his responsibilities include enabling business growth, profitability and cash flow across all channels, including oversight of operations, strategy and people management. Mr. Wong is responsible for executing on our strategic pillar of expanding in megatrend markets in China. Prior to Clarios, from 2006 to 2019, he served in various positions for Goodyear, most recently as Vice President of Growth & Sales Initiatives, Asia Pacific. He holds a degree in Economics from the Universite de Provence in France.
Dr. Werner Benade has served as Vice President and General Manager for the EMEA segment since January of 2021. Prior to Clarios, he served as Member of the Management Board, Business Division Aftermarket and Special Applications of HELLA GmbH & Co. KGaA from 2017 to 2020. Prior to his time at HELLA, he spent more than 20 years at Robert Bosch GmbH, ultimately serving as CEO and President of Power Tools Accessories. Dr. Benade holds a Doctorate at the Chair of Applied Thermodynamics and A/C Technology Certification from the University GHS Essen and a Mechanical Engineering degree from Ruhr-Universität Bochum.
Claudio Morfe has served as Vice President, General Counsel and Corporate Secretary of Clarios since May of 2019. He has more than 30 years of experience as a legal executive at multiple large public companies. He was the Vice President and General Counsel of Power Solutions at Johnson Controls Inc., the predecessor to Clarios,
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from 2017 to 2019 and before that was Vice President and General Counsel of Power Solutions, Europe and Global OEM from 2015 to 2017. Mr. Morfe has experience working in the U.S., Latin America, China and Europe. He launched his legal career with Kelley, Drye & Warren LLP in 1988 and was in private practice until 1995 when he joined telecommunications technology provider, Nortel Networks, as Senior Counsel for the Caribbean & Latin America, based in Fort Lauderdale, Florida. At Nortel, he progressively assumed more senior and diverse roles leading to his appointment as General Counsel for Nortel Networks largest global division. In 2010, Mr. Morfe was the Vice President and General Counsel of Sweden-based Ericssons global CDMA wireless division. In 2014, he left Ericsson to become Of Counsel with Holland & Knight. Mr. Morfe has a BBA in Marketing from Loyola University and a Juris Doctor from Tulane University School of Law. He received a Certificate in Global Compliance & Ethics from Widener University School of Law and is admitted in Florida, Massachusetts and New Hampshire. He is a registered In-House Counsel with the Wisconsin Bar Association.
Wendy Radtke has served as Chief Human Resources Officer since November of 2020. Ms. Radtke has more than 25 years of experience in Global Human Resources and Talent Management at multiple Fortune 500 companies. Prior to joining Clarios, from 2017 to October of 2020, she was the Executive Vice President and Chief Human Resources Officer of TruGreen, Inc. and before that, from 2015 to 2017, she was the Senior Vice President and Chief Human Resources Officer at Babcock and Wilcox Enterprises, Inc. (Babcock & Wilcox). In that role, she led the Human Resources function as Babcock and Wilcox spun out and became a public company. She has held leadership roles at The Goodyear Tire & Rubber Company, Honeywell International, Inc., PepsiCo Inc. and 3M Company. Ms. Radtke has a Masters degree in Industrial Relations from Carlson School of Business at the University of Minnesota and Bachelors degrees in English and Psychology from Indiana University.
Becky Kryger has served as Vice President and Global Controller of Clarios since July of 2019. Ms. Kryger joined Johnson Controls in 2002 and has held various positions of increasing responsibility within Corporate, Building Solutions and Power Solutions divisions. Prior to this role, Ms. Kryger was the Executive Director Global Business Finance from 2017 to 2019, Finance Director EMEA, based in Germany, from 2015 to 2017 and Finance Director North America from 2013 to 2015. Ms. Kryger began her career at Arthur Andersen in 1998. Ms. Kryger holds a Bachelor of Business Administration in Accounting and Finance from the University of Wisconsin.
Diarmuid OConnell has served as Chair of our board of directors since July of 2021. Mr. OConnell has served as Chief Strategy Officer of Fair Financial Corp. between 2018 and 2019. Mr. OConnell previously served as Vice President, Corporate and Business Development of Tesla from 2006 to 2017 and has also previously served as Chief of Staff to the Assistant Secretary of State of Political Military Affairs in the United States Department of State from 2003 to 2005, along with various roles at Accenture, Young & Rubicam, Real Time Learning and McCann-Erickson. Since 2021, Mr. OConnell has served as a director of the Volvo Corporation and Tech and Energy Transaction Corp. He has also served as a director of Albemarle Corporation, Dana Inc. and The Mobility House GmbH since 2018. Mr. OConnell holds a Bachelors degree from Dartmouth College, a Masters of Business Administration from Northwestern Kellogg School of Management and a Masters degree in International Relations from the University of Virginia. We believe Mr. OConnell is qualified to serve as a member of our board of directors due to his industry experience and international expertise.
Ron Bloom has served as a Director of Clarios since July of 2019. Since 2019, Mr. Bloom has served as Chairman of the United States Postal Service Board of Governors. Mr. Bloom previously served as Vice Chairman and Managing Director at Brookfield Asset Management from 2016 to 2019 and as Vice Chairman, U.S. Investment Banking at Lazard from 2012 to 2016. In addition, Mr. Bloom served as Senior Advisor to the United States Secretary of the Treasury on the Presidents Task Force on the Automotive Industry from 2009 to 2011. Mr. Bloom holds a Bachelors degree from Wesleyan University and a Masters of Business Administration from Harvard Business School. We believe that Mr. Bloom is qualified to serve on our board of directors due to his extensive experience in the automotive industry and his management experience.
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John Barkhouse has served as a Director of Clarios since July of 2019 and has previously served as Chair of our board of directors from May 2019 to July 2021 and as our interim CEO between 2019 and 2020. Mr. Barkhouse has more than 25 years of experience leading large-scale transformations of international companies. Since 2018, Mr. Barkhouse has served as the Managing Director, Private Equity at Brookfield Business Partners. Mr. Barkhouse has also previously served as President, Director and CEO of Newalta Corporation from 2014 to 2018. Mr. Barkhouse holds a Bachelors degree in Mechanical Engineering from Dalhousie University and a Masters of Business Administration from Bradley University. We believe that Mr. Barkhouse is qualified to serve as a member of our board of directors due to his extensive industry expertise and professional experience working with a variety of successful companies.
Catherine Clegg has served as a Director of Clarios since August of 2020. Ms. Clegg has extensive experience in manufacturing operations, labor relations, manufacturing engineering and public policy. Since 1983, Ms. Clegg has served in various roles at General Motors, including as General Motors Workforce Strategy Vice President since 2019, Vice President, Business Intelligence, Global Public Policy between 2017 and 2019 and North America Manufacturing and Labor Relations Vice President from 2014 to 2017. Ms. Clegg has also served on the board of GrafTech since 2019. Ms. Clegg holds a Bachelors degree in Manufacturing Technology from Eastern Michigan University, a Masters of Business Administration from the University of Virginia and a Master of Arts in Advanced Leadership Studies from Indiana Wesleyan University. We believe Ms. Clegg is qualified to serve as a member of our board of directors due to her extensive experience in manufacturing operations and industry expertise.
Stephen Girsky has served as a Director of Clarios since July of 2019. Mr. Girsky has over 25 years of experience in the automotive industry. Since 2016, Mr. Girsky has served as a director of Brookfield Business Partners. He also currently serves as a Managing Partner of VectoIQ LLC, an independent advisory firm, and as a member of the board of directors of Nikola Motor Company. Mr. Girsky has previously served as a member of the Morgan Stanley Global Automotive and Auto Parts research team, and as a Managing Director of PaineWebbers Automotive Group. Mr. Girsky holds a Bachelors degree in Mathematics from the University of CaliforniaLos Angeles and a Masters of Business Administration from Harvard Business School. We believe Mr. Girsky is qualified to serve as a member of our board of directors due to his experience serving on public company boards and his industry expertise.
Michael Norona has served as a Director of Clarios since July of 2019 and is a former Fortune 500 CFO. Mr. Norona has nearly 30 years of executive leadership experience leading transformational change in high growth multi-unit global businesses, with a proven track record of creating shareholder value. Prior to joining our board of directors, Mr. Norona served as Executive Vice President and Chief Financial Officer of Advance Auto Parts from 2008 to 2016. Prior to Advance, Mr. Norona spent almost 20 years at Best Buy Co. where he served in various finance leadership roles, including as PresidentFinancial Services. Mr. Norona currently serves as Director Emeritus and audit committee member of JDRF, a non-profit organization focused on Type 1 diabetes research. Mr. Norona also serves on the University of North Carolina Kenan-Flagler Business School Board of Advisors and as Investment Committee Chair of the Ravenscroft School Board of Trustees. Mr. Norona holds a Bachelor of Commerce Degree (Accounting) from the University of British Columbia and is a Chartered Professional Accountant, CPA, CGA, Canada. We believe Mr. Norona is qualified to serve as a member of our board of directors due to his extensive management and corporate governance experience with public companies, auto after-market industry expertise and is qualified to serve on audit committees as a financial expert.
Maryrose Sylvester has served as a Director of Clarios since July of 2021. Ms. Sylvester has over 20 years of experience with supply chain, manufacturing, sales and innovation operations. Prior to joining our board of directors, Ms. Sylvester served as President, Electrification, U.S. and U.S. Country Managing Director for ABB Ltd from July 2019 to July 2020. She also served as President & CEO of Current, Powered by GE from 2015 to 2019, as President & CEO of GE Lighting from 2011 to 2015 and as President & CEO of GE Intelligent Platforms from 2006 to 2011. Ms. Sylvester has served on the board of directors of Harley-Davidson , Inc. since 2016 and the board of directors of Waste Management and Vontier Corporation since 2019. Ms. Sylvester has
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also previously served as Chair of the Board of Governors of the National Electric Manufactures Association from July 2011 to July 2020 and has served on the board of directors of the Foundation Fighting Blindness, from 2011 to 2018, and as a member of the GE Corporate Executive Counsel and the GE Commercial Counsel from 2011 to 2018. Ms. Sylvester holds a Bachelors degree in Procurement and Production Management from Bowling Green State University and a Masters of Business Administration from Cleveland State University. We believe Ms. Sylvester is qualified to serve as a member of our board of directors due to her extensive experience in manufacturing and previous board member experience.
Justin Shaw has served as a Director of Clarios since April of 2020. Mr. Shaw has served as an Operating Partner, Private Equity, Americas at CDPQ since 2019. Mr. Shaw previously served as a Senior Operating Executive at Cerberus Capital Management since 2001 and has served as Vice President, Strategy and Supply Chain for the Keane Group and as interim CFO at Root9B, LLC. Mr. Shaw also serves as Chairman of the board of directors of Save A Lot and is a member of the board of directors of Cardone Industries, Zevia, Suez Water Technologies and Solutions and Shaw Media. Mr. Shaw holds a Bachelors degree in History and Science from Harvard University and a Masters of Business Administration from Harvard Business School. We believe Mr. Shaw is qualified to serve as a member of our board of directors as a result of his various experiences in the transportation and automotive industry.
Bertrand Villon has served as a Director of Clarios since July of 2019. Mr. Villon has served as Managing Director in the Direct Private Equity Group at CDPQ since 2015. He has previously served as a private equity investor at Investcorp and in mergers and acquisitions advisory at Rothschild. Mr. Villon holds a Masters of Business Administration from the Wharton School of the University of Pennsylvania and a Masters in Science in Management from HEC School of Management in Paris. We believe Mr. Villon is qualified to serve as a member of our board of directors due to his background in management.
Mark Weinberg has served as a Director of Clarios since July of 2019. Mr. Weinberg has more than 20 years of corporate finance and investment banking experience. Mr. Weinberg has served in various roles at Brookfield Business Partners since 2006, including his current role as Managing Partner in Brookfields Private Equity Group. Prior to joining Brookfield, Mr. Weinberg served in Lehman Brothers Global Restructuring Group and as a high yield research analyst for CIBC World Markets. Mr. Weinberg holds a Bachelors degree from the University of Michigan and a Masters of Business Administration from the University of North CarolinaChapel Hill. We believe Mr. Weinberg is qualified to serve as a member of our board of directors due to his extensive experience in corporate finance.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Board Structure
Composition
Upon the consummation of the offering, our board of directors will consist of 11 members. Our board has determined that each of Michael Norona, Catherine Clegg, Diarmuid OConnell and Maryrose Sylvester qualify as independent directors under the corporate governance standards of the NYSE .
Our directors will be divided into three classes serving staggered three-year terms, initially with four directors in Class I (expected to be Ron Bloom, Stephen Girsky, Catherine Clegg and Diarmuid OConnell), four directors in Class II (expected to be John Barkhouse, Justin Shaw, Michael Norona and Mark Wallace) and three directors in Class III (expected to be Bertrand Villon, Maryrose Sylvester and Mark Weinberg). Class I, Class II and Class III directors will serve until our annual meetings of stockholders in 2022, 2023 and 2024, respectively. At each annual meeting of stockholders, directors will be elected to succeed the class of directors whose terms have expired.
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Our board of directors will have discretion to determine the size of the board of directors. Subject to the terms of the Stockholders Agreement, we expect that any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one third of the directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control.
Following the time when the Majority Ownership Requirement is no longer met, and subject to obtaining any required stockholder votes, directors may only be removed for cause and by the affirmative vote of holders of 662/3% of the total voting power of our outstanding shares of common stock, voting together as a single class. This requirement of a super-majority vote to remove directors for cause could enable a minority of our stockholders to exercise veto power over any such removal. Prior to such time, directors may be removed with or without cause by the affirmative vote of the holders of a majority of the total voting power of our outstanding shares of common stock.
Controlled Company Exception
After the consummation of this offering, entities affiliated with the Sponsor Group will have more than 50% of the combined voting power for the election of directors. As a result, we will be a controlled company within the meaning of NYSE rules and may elect not to comply with certain corporate governance standards, including that: (i) a majority of our board of directors consists of independent directors, as defined under NYSE rules; (ii) we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities; and (iii) we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities. We intend to rely on the foregoing exemptions provided to controlled companies under NYSE rules. Therefore, immediately following the consummation of this offering, we do not intend to have a board of directors that is composed of a majority of independent directors, under NYSE rules. In addition, we have opted to have a governance and compensation committee and such committee will not be fully independent. Accordingly, to the extent and for so long as we rely on these exemptions, you will not have the same protections afforded to stockholders of companies that are subject to all of these corporate governance requirements. In the event that we cease to be a controlled company and our common stock continues to be listed on the NYSE, we will be required to comply with these provisions within the applicable transition periods.
Board Committees
Upon the consummation of this offering, our board of directors will have four standing committees: an Audit Committee, a Governance and Compensation Committee, an ESG and Risk Management Committee
and an Executive Oversight Committee. The following is a brief description of our committees.
Audit Committee
The members of our audit committee are Michael Norona, Catherine Clegg and Maryrose Sylvester. Mr. Norona is the chair of our audit committee. The composition of our audit committee meets the requirements for independence under the current NYSE listing standards and SEC rules and regulations. Each member of our audit committee is financially literate. In addition, our board of directors has determined that Michael Norona, Catherine Clegg and Maryrose Sylvester are audit committee financial experts as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act of 1933, as amended (the Securities Act). This designation does not impose on them any duties, obligations or liabilities that are greater than are generally imposed on members of our audit committee and our board of directors. Our audit committee is directly responsible for, among other things:
| selecting a firm to serve as the independent registered public accounting firm to audit our financial statements; |
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| ensuring the independence of the independent registered public accounting firm; |
| discussing the scope and results of the audit with the independent registered public accounting firm and reviewing, with management and that firm, our interim and year-end operating results; |
| establishing procedures for employees to anonymously submit concerns about questionable accounting or audit matters; |
| considering the adequacy of our internal controls and internal audit function; |
| reviewing material related party transactions or those that require disclosure; and |
| approving or, as permitted, pre-approving all audit and non-audit services to be performed by the independent registered public accounting firm. |
Governance and Compensation Committee
The members of our compensation committee are John Barkhouse, Catherine Clegg, Maryrose Sylvester and Bertrand Villon. Mr. Barkhouse is the chair of our governance compensation committee. Ms. Clegg and Ms. Sylvester meet the requirements for independence under the current NYSE listing standards. Our governance and compensation committee is responsible for, among other things:
| reviewing and approving, or recommending that our board of directors approve, the compensation of our executive officers; |
| reviewing and recommending to our board of directors the compensation of our directors; |
| administering our stock and equity incentive plans; |
| reviewing and approving, or making recommendations to our board of directors with respect to, incentive compensation and equity plans; |
| reviewing our overall compensation philosophy; |
| reviewing and recommending our corporate governance guidelines and policies; |
| reviewing and considering proposed waivers of the code of conduct for directors and executive officers and making recommendations to our board of directors; |
| overseeing the process of evaluating the performance of our board of directors; and |
| assisting our board of directors on corporate governance matters. |
ESG and Risk Management Committee
The members of our ESG and risk management committee are Stephen Girsky, Catherine Clegg, Ron Bloom and Justin Shaw. Mr. Girsky is the chair of our ESG and risk management committee. Our ESG and risk management committee is responsible for, among other things:
| reviewing our risk capacity and appetite; |
| reviewing and recommending our risk-taking philosophy and approach to determining an appropriate balance between risk and reward; |
| reviewing our key risk inventory, including selection criteria, mitigation strategies and post-mitigation risk review; |
| reviewing our risk management policy framework on a periodic basis and recommending changes to our board of directors as necessary; |
| overseeing the approach to environmental, social and governance (ESG) matters within the context of the committees risk management mandate; and |
| assisting our board of directors on risk management matters. |
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Executive Oversight Committee
The members of our executive oversight committee are John Barkhouse, Diarmuid OConnell and Mark Wallace. Mr. Barkhouse is the chair of our executive oversight committee. Our executive oversight committee is responsible for, among other things:
| reviewing strategic, operating and financial plans of the Company; |
| reviewing factors such as the Companys technology plans, market competition and data to evaluate end use satisfaction; |
| reviewing the Companys enterprise risk management program; |
| reviewing the Companys ethics and compliance programs; and |
| reviewing significant legal and ethical matters affecting the Company. |
Compensation Committee Interlocks and Insider Participation
None of our executive officers have served as a member of a compensation committee (or if no committee performs that function, the board of directors) of any other entity that has an executive officer serving as a member of our board of directors.
Code of Ethics
We have adopted a code of ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. These standards are designed to deter wrongdoing and to promote honest and ethical conduct. The full texts of our code of business conduct and ethics policy is be available on our website at https://www.clarios.com/codeofethics/our-way. Any waiver of the code for directors or executive officers may be made only by our board of directors or a board committee to which the board has delegated that authority and will be promptly disclosed to our stockholders as required by applicable U.S. federal securities laws and the corporate governance rules of the NYSE. Amendments to the code must be approved by our board of directors and will be promptly disclosed (other than technical, administrative or non-substantive changes). Any amendments to the code, or any waivers of its requirements for which disclosure is required, will be disclosed on our website.
Corporate Governance Guidelines
Our board of directors will adopt corporate governance guidelines in accordance with the corporate governance rules of the NYSE, as applicable, that serve as a flexible framework within which our board of directors and its committees operate. These guidelines will cover a number of areas including the size and composition of the board, board membership criteria and director qualifications, director responsibilities, board agenda, roles of the chairman of the board, chief executive officer and presiding director, meetings of independent directors, committee responsibilities and assignments, board member access to management and independent advisors, director communications with third parties, director compensation, director orientation and continuing education, evaluation of senior management and management succession planning. A copy of our corporate governance guidelines will be posted on our website.
Indemnification of Officers and Directors
Our certificate of incorporation provides that we will indemnify our directors and officers to the fullest extent permitted by the DGCL. We have established directors and officers liability insurance that insures such persons against the costs of defense, settlement or payment of a judgment under certain circumstances.
Our certificate of incorporation provides that our directors will not be liable for monetary damages for breach of fiduciary duty, except for liability relating to any breach of the directors duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, violations under Section 174 of the DGCL or any transaction from which the director derived an improper personal benefit.
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Compensation Discussion and Analysis
Our Named Executive Officers
This Compensation Discussion and Analysis describes the compensation of the following individuals who served as our named executive officers during our fiscal year ended September 30, 2020 (our named executive officers):
Name |
Principal Position | |
Mark Wallace |
President and Chief Executive Officer | |
Christopher J. Eperjesy |
Chief Financial Officer | |
Leslie Wong |
General Manager, China, Asia Pacific | |
Jennifer Slater |
General Manager, Original Equipment and Products | |
Petar Oklobdzija(1) |
General Manager, Americas | |
John Barkhouse |
Former Interim Chief Executive Officer | |
Sean McLaughlan |
Former Interim Chief Financial Officer | |
Mark Lymbery |
Former Interim Chief Financial Officer |
(1) | Mr. Oklobdzijas employment with us terminated as of October 1, 2020. |
We note that Messrs. Barkhouse, McLaughlan and Lymbery were not compensated directly by the Company in connection with their service and were instead engaged through secondment agreements with Brookfield or AP Services, LLC (APS), as further described below. Therefore, this Compensation Discussion and Analysis generally does not address their compensation.
Our Compensation Philosophy
We make compensation decisions in a manner we believe will best serve the long-term interests of our stockholders by attracting and retaining executives who will be motivated to meet and exceed the Companys goals and whose interests will be aligned with the interests of our stockholders. To accomplish these objectives, we have implemented a strong pay-for-performance compensation program, while striving to pay our executives competitively and align our compensation program with our business strategies.
Executive Compensation Program Principles
We consider the following principles when making compensation decisions:
| Core Values: Our executive compensation program is designed to develop trust and respect among all members of the Clarios community, build strong teams and partnerships through collaborative work, drive business results through pride in Clarios, and get things done well. |
| Significant Pay at Risk: A significant portion of the total compensation of our named executive officers should be directly aligned with stockholders and at risk. We will pay our named executive officers higher compensation when they exceed our goals and lower compensation when they do not meet our goals. |
| Support Business Strategy: Our executive compensation program is aligned with our short-term and long-term business strategies. |
| Pay Competitively: We will review market total compensation and, over time, target each executive within a reasonable range of the market based upon our assessment of a variety of factors including individual performance, time in role, individual skills and importance of the role. Generally, our philosophy is to place more compensation in long-term incentive opportunities tied to stockholders |
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value creation. As noted above, actual pay delivered will vary above/below target pay based on Clarios and individual performanceabove-target performance will deliver above-market pay outcomes, and conversely, below-target performance will drive lower outcomes. |
Executive Compensation Objectives
Consistent with these overall principles, we have established the following objectives for the Companys executive compensation program, which are critical to our long-term success:
| Attract: Should be comparable to market in terms of level of pay and form of award so that we can attract talented executives. |
| Retain: Should retain talented leaders whose continued employment is a key component of our overall success. |
| Engage: Should motivate our named executive officers to meet or exceed our goals and generate superior returns for our stockholders. |
| Align: Should align the financial interests of our named executive officers with those of our stockholders. |
Key Components of Our Compensation Program
The compensation objectives for our named executive officers are achieved through the following mix of components of target direct compensation for our chief executive officer and most other named executive officers, respectively, which are discussed in more detail later in this Compensation Discussion and Analysis.
In fiscal year 2020, our compensation consisted of the elements described below.
Element of Pay |
Purpose |
Alignment with Principles & Objectives | ||
Base Salary | Recognize and reward for the scope of a named executive officers role and his or her individual performance | Provides a minimum, fixed level of cash compensation to reflect the level of accountability of talented executives who can continue to improve Clarios overall performance
Value provided is aligned with executives experience, industry knowledge, duties and scope of responsibility as well as the competitive market for talent | ||
Annual Incentive Program (AIP) | Reward for success in achieving annual objectives | Value paid out is variable dependent on Clarios performance through the fiscal year
Motivates executives to achieve specific annual performance goals and objectives | ||
Executive LTIP | Attract and retain senior management of Clarios and incentivize them to make decisions with a long-term view | Provides a percentage of a profit pool after Brookfield returns its invested capital, and an increasing percentage as returns increase
Payment based on a share of percentage of sale proceeds in excess of threshold |
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Element of Pay |
Purpose |
Alignment with Principles & Objectives | ||
Motivates and influences behavior to be consistent with maximizing stockholder value
Generally vests over 5 years | ||||
Retirement (401(k) Plan and Retirement Restoration Plan), health and welfare benefits, and limited perquisites | Enhances total compensation to provide a package that is competitive with market practices | Provides competitive benefits that support the health, wellness and long-term financial security of our executives |
2020 Compensation Decisions and Performance
Base Salary
As part of setting pay mix and structure for 2020, we evaluated named executive officer base salaries. Annual salary increases are neither automatic nor guaranteed, but determined by Clarios after taking into consideration each named executive officers position with Clarios and their respective responsibilities and experience. Based on this evaluation, the following base salary levels were approved for 2020.
Named Executive Officer |
Base Salary as of September 30, 2020 |
|||
Mark Wallace |
$ | 950,000 | ||
Christopher J. Eperjesy |
$ | 585,000 | ||
Leslie Wong |
$ | 591,101 | ||
Jennifer Slater |
$ | 385,650 | ||
Petar Oklobdzija |
$ | 453,740 |
Annual Incentive Program
In 2020, Clarios maintained the Annual Incentive Program (AIP) in which each of our named executive officers other than Messrs. Barkhouse, McLaughlan and Lymbery participated. The AIP is designed to reward and motivate key employees who have prime responsibility for the operations of Clarios or its affiliates. Incentive targets are represented as a percentage of annual base salary and tied to each named executive officers role. Measures are weighted to focus participants on a balanced mix of deliverables tied to strategic priorities, while appropriately focusing participants on key expectations that create value for our stockholders and Clarios. Payouts are based 60% on reaching an earnings before interest, taxes, depreciation and amortization (EBITDA) target and 40% on reaching a Free Cash Flow Conversion (FCF Conversion) target during the fiscal year. This mix of performance measures focuses our participants appropriately on growing earnings while improving Clarios ability to generate cash after spending the money required to maintain or expand our asset base.
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Performance measure thresholds, targets and maximums are established based on our strategic financial plans, the global economic environment, growth estimates and expectations, and Clarios-specific factors, including capital expenditure levels, restructuring and other investment initiatives. Below we provide the goals set forth for the 2020 AIP:
Driver |
Metric |
Weighting | Threshold |
Target | Maximum | |||||
Earnings |
EBITDA(1) | 60% | $1,489M | $1,567M | $1,724M | |||||
Cash |
FCF Conversion(2) | 40% | 11.7% | 16.7% | 26.7% | |||||
Payout |
50% (0% payout for missing threshold) |
100% | 200% |
(1) | EBITDA is defined as Clarios consolidated earnings before interest, taxes, depreciation and amortization, adjusted for certain approved significant items such as transaction/integration/separation costs, impairment charges, gains/losses on acquisitions/divestitures, restructuring costs and the adoption of new accounting pronouncements. Any additional adjustments, including adjusting for the impact of foreign currency, are at the sole discretion of the Chief Executive Officer. |
(2) | FCF Conversion is defined as free cash flow (defined as cash provided by operating activities, less capital expenditures) divided by EBITDA (defined above) adjusted for approved significant special items such as adjustments for cash effects of adjustments in EBITDA calculation. Tax and interest cash payments may be adjusted for significant variances from planned interest and tax payments. Any additional adjustments are at the sole discretion of the Chief Executive Officer. |
The following table sets forth the AIP bonuses paid to our participating named executive officers in December 2020 with respect to fiscal year 2020 performance. While Mr. Eperjesy participated in the AIP, for fiscal year 2020 he received a guaranteed minimum bonus pursuant to his employment agreement, as described in more detail below, which exceeded the bonus he would have earned under the AIP.
Name |
EBITDA Performance Multiplier (60% weighting)(1) |
FCF Conversion Performance Multiplier (40% weighting)(2) |
Weighted Payout Multiplier |
Target Bonus(3) |
Earned Bonus | ||||||||||||||||||||
Mark Wallace |
0 | % | 163 | % | 65 | % | $ | 950,000 | $ | 617,501 | |||||||||||||||
Leslie Wong(4) |
47 | % | 181.5 | % | 101 | % | $ | 214,978 | $ | 217,128 | |||||||||||||||
Jennifer Slater |
0 | % | 163 | % | 65 | % | $ | 173,543 | $ | 112,803 | |||||||||||||||
Petar Oklobdzija |
0 | % | 158.5 | % | 63.5 | % | $ | 226,870 | $ | 144,063 |
(1) | For Mr. Wallace and Ms. Slater, represents Clarios EBITDA performance multiplier (0%) and, for Messrs. Wong and Oklobdzija, the average of Clarios EBITDA performance multiplier (0%) and the EBITDA performance multiplier for their respective regions (Asia (94%) and Americas (0%)). |
(2) | For Mr. Wallace and Ms. Slater, represents Clarios FCF Conversion performance multiplier (163%) and, for Messrs. Wong and Oklobdzija, the average of Clarios FCF Conversion performance multiplier (163%) and the FCF Conversion performance multiplier for their respective regions (Asia (200%) and Americas (154%)). |
(3) | 2020 AIP bonuses for our participating named executive officers had a threshold opportunity equal to 50% of target and a maximum opportunity equal to 200% of target. |
(4) | Mr. Wongs AIP award was denominated and paid in Chinese Yuan and converted for purposes of this table using the same methodology utilized for purposes of our Summary Compensation Table. |
Clarios International LP Executive Long-Term Incentive Plan
Each of our named executive officers other than Messrs. Barkhouse, McLaughlan and Lymbery participate in the Clarios International LP Executive Long-Term Incentive Plan (the Executive LTIP). The Executive LTIP provides long-term cash incentives through the grant of up to 10,555,200 General Option Units and up to
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2,638,000 Stretch Option Units (collectively, Option Units), which entitle participants to a percentage of Sale Proceeds (as defined below) in excess of an applicable threshold value in connection with a Change in Control (as defined below). General Option Units (to the extent vested), in the aggregate, participate in 3.6% of Sale Proceeds in excess of $2,932,000,000 (plus the dollar value of any cash or other consideration contributed to or invested in Clarios by Brookfield) (the Threshold Value) in connection with a Change in Control, and Stretch Option Units (to the extent vested), in the aggregate, participate in 0.9% of Sale Proceeds in excess of $8,796,000,000 (plus the dollar value of any cash or other consideration contributed to or invested in Clarios by Brookfield) (the Stretch Threshold Value) in connection with a Change in Control. Any amounts payable to participants in respect of their Option Units will generally be paid within 30 days following a Change in Control.
Option Units generally vest in equal annual installments over a five-year period, subject to the participants continued employment with the Company through each vesting date. Any unvested Option Units that have not been previously forfeited will accelerate and become fully vested upon a Change in Control. Notwithstanding the foregoing, unless otherwise provided in the applicable award agreement, 50% of the General Option Units held by a participant will only represent the right to receive Sale Proceeds in connection with a Change in Control on a proportionate basis between (i) the point at which the Sale Proceeds are equal to the Threshold Value on the one hand; and (i) the point at which the Sale Proceeds are equal to the Stretch Threshold Value on the other hand.
For purposes of the Executive LTIP:
| Sale Proceeds is generally defined as, as of any date of determination, the sum of all proceeds actually received by Brookfield, net of all Sales Costs (as defined below), (i) as consideration (whether cash or equity) upon the Change in Control; and (ii) as distributions, dividends, repurchases, redemptions or otherwise as a holder of such equity interests in Clarios. Proceeds that are not paid upon or prior to or in connection with the Change in Control, including earn-outs, escrows and other contingent or deferred consideration will become Sale Proceeds only as and when such proceeds are received by Brookfield. Sales Costs means any costs or expenses (including legal or other advisor costs), fees (including investment banking fees), commissions or discounts payable directly by Brookfield in connection with, arising out of or relating to a Change in Control, as determined by Brookfield in its sole discretion. |
| Change in Control is generally defined as any transaction or series of transactions (including, without limitation, the consummation of a combination, share purchases, recapitalization, redemption, issuance of capital stock, consolidation, reorganization or otherwise) pursuant to which: (i) a person or entity not affiliated with Brookfield acquires securities representing more than 70% of the combined voting power of the outstanding voting securities of Clarios or the entity surviving or resulting from such transaction; (ii) following a public offering (including this offering) of Clarios stock, Brookfield has ceased to have a beneficial ownership interest in at least 30% of Clarios outstanding voting securities (effective on the first such date); or (iii) Clarios sells all or substantially all of the assets of Clarios and its subsidiaries on a consolidated basis. The consummation of this offering will not constitute a Change in Control as defined in the Executive LTIP. |
The following table sets forth the number of General Option Units and Stretch Option Units granted to each of our participating named executive officers in fiscal year 2020:
Name |
General Option Units (#) | Stretch Option Units (#) | ||||||
Mark Wallace |
2,322,144 | 580,536 | ||||||
Christopher J. Eperjesy |
633,312 | 158,328 | ||||||
Leslie Wong |
263,880 | 65,970 | ||||||
Jennifer Slater |
422,208 | 105,552 | ||||||
Petar Oklobdzija(1) |
501,372 | 125,343 |
(1) | In connection with his termination of employment, Mr. Oklobdzija forfeited his General Option Units and Stretch Option Units. |
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In connection with this offering, the Executive LTIP, which is currently sponsored by Clarios International LP, will become sponsored by Clarios International Inc.
Flexible Perquisite Program
Pursuant to our Flexible Perquisite Program, Messrs. Wallace and Eperjesy may receive reimbursements of up to 5% of their base salary each year for tax preparation or other financial planning services. In addition, Messrs. Wallace and Eperjesy are entitled to a comprehensive annual physical exam. During 2020, Mr. Wallace utilized the tax preparation and financial planning services under our Flexible Perquisite Program.
Retirement Benefits
We maintain a tax-qualified defined contribution plan (the 401(k) Plan) in which employees of Clarios, including our named executive officers other than Messrs. Barkhouse, McLaughlan and Lymbery, are eligible to participate. Under the 401(k) Plan, participants may defer a portion of their annual compensation on a pre-tax basis. In addition, we make (i) matching contributions of 100% of the first 4% of a participants deferrals and 50% of the next 2% of a participants deferrals and (ii) retirement income contributions in amounts ranging from 1%-5% of cash compensation based on age and years of participation in the 401(k) Plan. During 2020, Messrs. Wallace, Eperjesy and Oklobdzija and Ms. Slater participated in the 401(k) Plan.
In addition to the 401(k) Plan, we maintain the Clarios Retirement Restoration Plan (the Retirement Restoration Plan), an unfunded, non-qualified supplemental retirement plan pursuant to which we make contributions based on the employees compensation in excess of applicable IRS limits under the 401(k) Plan. Amounts accrued under the Retirement Restoration Plan are, subject to certain exceptions, paid out in connection with a participants separation from service. During 2020, Messrs. Wallace, Eperjesy and Oklobdzija and Ms. Slater participated in the Retirement Restoration Plan.
We also maintain the Clarios Deferred Compensation Plan (the Deferred Compensation Plan), under which certain U.S.-based, highly compensated employees of Clarios, including our U.S.-based named executive officers, are eligible to defer a portion of their annual compensation in excess of applicable IRS limits under the 401(k) Plan. Under the Deferred Compensation Plan, participants may defer up to 50% of their annual base compensation and up to 95% of their annual incentive compensation until a future distribution date specified by the participant. During 2020, Mr. Oklobdzija participated in the Deferred Compensation Plan.
Compensation Policies and Practices
Role of Consultants
In early 2021, our board of directors engaged Meridian Compensation Partners, LLC (Meridian) as outside consultants to advise our board of directors with respect to 2021 compensation design decisions. Meridian does not receive any other compensation from us for any other services. Meridian provides advice to our board of directors from time to time on various executive compensation matters including conducting a competitive compensation analysis, which Meridian prepared in early 2021. We expect to continue using the services of an outside compensation consultant for the remainder of 2021 and beyond.
In compliance with the SEC and the NYSE disclosure requirements regarding the independence of compensation consultants, our board of directors has assessed the independence of Meridian, including the independence of their partners, consultants and employees who advise us on executive compensation matters and governance issues.
Employment-Related Agreements and Retention Arrangements
We have entered into employment-related agreements and retention arrangements with certain of our named executive officers, as described in more detail under Narrative Disclosure to the Summary Compensation Table
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and Grants of Plan-Based Awards Table below. The retention arrangements were implemented primarily for the purpose of ensuring continuity in connection with the separation from JCI.
Tax Considerations
Section 162(m) of the Internal Revenue Code generally limits the tax deductibility of annual compensation paid by public companies for certain executive officers to $1 million. Although we are mindful of the benefits of tax deductibility when determining executive compensation, we may approve compensation that will not be fully-deductible in order to ensure competitive levels of total compensation for our executive officers.
Accounting Considerations
When reviewing preliminary recommendations and in connection with approving the terms of a given incentive plan period, we review and consider the accounting implications of a given award, including the estimated expense.
Summary Compensation Table
The following table sets forth information concerning the compensation paid to our named executive officers during our fiscal year ended September 30, 2020.
Name and Principal Position |
Year | Salary ($) |
Bonus ($)(1) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($)(2) |
Non-qualified Deferred Compensation Earnings ($) |
All Other Compensation ($)(3) |
Total ($) | |||||||||||||||||||||||||||
Mark Wallace(4) President and Chief Executive Officer |
2020 | 328,846 | 500,000 | | | 617,501 | | 492,376 | 1,938,723 | |||||||||||||||||||||||||||
Christopher J. Eperjesy(5) Chief Financial Officer |
2020 | 45,000 | 398,571 | | | | | 8,507 | 452,078 | |||||||||||||||||||||||||||
Leslie Wong(6) General Manager, China, Asia Pacific |
2020 | 491,097 | 12,652 | | | 217,128 | | 457,625 | 1,178,502 | |||||||||||||||||||||||||||
Jennifer Slater General Manager, Original Equipment and Products |
2020 | 375,854 | 192,822 | | | 112,803 | | 45,743 | 727,222 | |||||||||||||||||||||||||||
Petar Oklobdzija(7) General Manager, Americas |
2020 | 448,965 | 226,878 | | | 144,063 | | 53,654 | 873,560 | |||||||||||||||||||||||||||
John Barkhouse(8) Former Interim Chief Executive Officer |
2020 | 546,330 | | | | | | | 546,330 | |||||||||||||||||||||||||||
Sean McLaughlan(8) Former Interim Chief Financial Officer |
2020 | 489,848 | | | | | | | 489,848 | |||||||||||||||||||||||||||
Mark Lymbery(9) Former Interim Chief Financial Officer |
2020 | 187,228 | | | | | | | 187,228 |
(1) | Amounts in this column reflect (i) for Mr. Wallace, a $500,000 sign-on bonus, (ii) for Mr. Eperjesy, a $158,571 sign-on bonus and a $240,000 guaranteed bonus under our AIP in respect of fiscal year 2020, (iii) for Mr. Wong, a 13th month base salary bonus (which is a customary compensation element for our Chinese operations) and (iv) for Ms. Slater and Mr. Oklobdzija, a $192,822 and $226,878 retention bonus, respectively, pursuant to the 2018 Retention Agreements (as defined below). |
(2) | This column reflects amounts paid under our AIP in respect of fiscal year 2020, as described in more detail under Annual Incentive Program above. |
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(3) | This column reflects the following amounts: |
Name |
Vehicle ($)(a) | Financial Planning Services ($)(b) |
Relocation Expenses ($)(c) |
Tax Gross-Ups and Reimbursements ($)(d) |
Retirement Plan Employer Contributions ($)(e) |
Housing Allowance ($)(f) | ||||||||||||||||||||||||
Mark Wallace |
4,615 | 6,472 | 23,340 | 457,949 | | | ||||||||||||||||||||||||
Christopher J. Eperjesy |
1,154 | | 5,000 | 2,353 | | | ||||||||||||||||||||||||
Leslie Wong |
42,000 | | | 211,998 | 80,426 | 123,201 | ||||||||||||||||||||||||
Jennifer Slater |
14,308 | | | | 31,435 | | ||||||||||||||||||||||||
Petar Oklobdzija |
10,000 | | | | 43,654 | |
(a) | Vehicle: Reflects car allowance paid pursuant to our management car program and, for Mr. Wong, the value of a personal car service. |
(b) | Financial Planning Services: Reflects amounts paid for expenses related to tax preparation or other financial planning pursuant to our Flexible Perquisite Program. |
(c) | Relocation Expenses: Reflects reimbursement for or direct payment of relocation expenses. |
(d) | Tax Gross-Ups and Reimbursements: Reflects tax gross-ups and other tax reimbursements for amounts paid to certain of our named executive officers as follows: (i) for Mr. Wallace, a $446,966 gross-up on his sign-on bonus and a $10,983 gross-up on his relocation expenses, (ii) for Mr. Eperjesy, a $2,353 gross-up on his relocation expenses and (iii) for Mr. Wong, $211,998 in reimbursement for benefit-in-kind deductions. |
(e) | Retirement Plan Employer Contributions: Reflects employer contributions to retirement plans as follows: (i) for Mr. Wong, $80,426 in allowances to fund a personal pension plan and (ii) for Ms. Slater and Mr. Oklobdzija, (x) employer contributions made under our 401(k) Plan in February 2020 totaling $20,111 and $21,117, respectively and (y) employer contributions made under our Retirement Restoration Plan in February 2020 totaling $11,324 and $22,537, respectively. |
(f) | Housing Allowance: Reflects Mr. Wongs monthly housing allowance. |
(4) | Mr. Wallace joined Clarios as our President and Chief Executive Officer on May 18, 2020. |
(5) | Mr. Eperjesy joined Clarios as our Chief Financial Officer on August 24, 2020. |
(6) | Mr. Wongs compensation (other than the value of his personal car service) was paid in Chinese Yuan (CNY). For purposes of this table, amounts have been converted from CNY to US Dollars (USD) by using the exchange rate of 0.1473, which was in effect as of September 30, 2020. |
(7) | Mr. Oklobdzijas employment with us terminated as of October 1, 2020. |
(8) | Messrs. Barkhouse and McLaughlan are employees of Brookfield who provided services to us as interim Chief Executive Officer and interim Chief Financial Officer, respectively, pursuant to secondment agreements between us and Brookfield, as described in more detail under Employment Arrangements; Secondment Agreements below. Amounts in this table reflect fees paid to Brookfield pursuant to the secondment agreements as consideration for Messrs. Barkhouses and McLaughlans services. Mr. Barkhouses role as interim Chief Executive Officer terminated on May 17, 2020 and Mr. McLaughlans role as interim Chief Financial Officer terminated on August 23, 2020. |
(9) | Mr. Lymbery is an employee of APS who provided services to us as interim Chief Financial Officer pursuant to an agreement between us and APS, as described in more detail under Employment Arrangements; Secondment Agreements below. Amounts in this table reflect fees paid to APS pursuant to the secondment agreement as consideration for Mr. Lymberys services. Mr. Lymberys role as interim Chief Financial Officer terminated on November 8, 2019. |
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Grants of Plan-Based Awards
The following table sets forth information with respect to plan-based awards granted to our named executive officers during our fiscal year ended September 30, 2020.
Name |
Grant Date | Non-Equity Incentive Plan Awards: Number of Shares of Stock or Units (#) |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards |
|||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | ||||||||||||||||||
Mark Wallace |
2/12/2020 | 2,322,144 | (1) | | | | ||||||||||||||
2/12/2020 | 580,536 | (2) | | | | |||||||||||||||
| | 475,000 | 950,000 | 1,900,000 | (3) | |||||||||||||||
Christopher J. Eperjesy |
8/24/2020 | 633,312 | (1) | | | | ||||||||||||||
8/24/2020 | 158,328 | (2) | | | | |||||||||||||||
Leslie Wong(4) |
12/16/2019 | 263,880 | (1) | | | | ||||||||||||||
12/16/2019 | 65,970 | (2) | | | | |||||||||||||||
| | 107,489 | 214,978 | 429,956 | (3) | |||||||||||||||
Jennifer Slater |
12/16/2019 | 422,208 | (1) | | | | ||||||||||||||
12/16/2019 | 105,552 | (2) | | | | |||||||||||||||
| | 86,771 | 173,543 | 347,085 | (3) | |||||||||||||||
Petar Oklobdzija(5) |
12/16/2019 | 501,372 | (1) | | | | ||||||||||||||
12/16/2019 | 125,343 | (2) | | | | |||||||||||||||
| | 113,435 | 226,870 | 453,740 | (3) | |||||||||||||||
John Barkhouse |
| | | | | |||||||||||||||
Sean McLaughlan |
| | | | | |||||||||||||||
Mark Lymbery |
| | | | |
(1) | Reflects grants of General Option Units under the Executive LTIP. General Option Units vest 20% on each of the first five anniversaries after January 1, 2020 (or, for Mr. Eperjesy, January 1, 2021). Because there is no threshold, target or maximum payout associated with General Option Units, we have not disclosed estimated future payouts with respect to them. |
(2) | Reflects grants of Stretch Option Units under the Executive LTIP. Stretch Option Units vest 20% on each of the first five anniversaries after January 1, 2020 (or, for Mr. Eperjesy, January 1, 2021). Because there is no threshold, target or maximum payout associated with Stretch Option Units, we have not disclosed estimated future payouts with respect to them. |
(3) | The amounts in these rows represent the range of potential payouts under our AIP, as described in more detail under Annual Incentive Program above. |
(4) | Mr. Wongs AIP target, threshold and maximum payouts were originally denominated in CNY. For purposes of this table, amounts have been converted from CNY to USD by using the exchange rate of 0.1473, which was in effect as of September 30, 2020. |
(5) | In connection with Mr. Oklobdzijas termination of employment, all of his General Option Units and Stretch Option Units under the Executive LTIP were forfeited. |
Narrative Description to the Summary Compensation Table and Grants of Plan-Based Awards Table
Employment Arrangements
Executive Offer Letters
On March 20, 2020, we entered into an offer letter with Mr. Wallace to serve as our Chief Executive Officer and member of our Board, which was amended on June 21, 2021 (the Wallace Offer Letter). In addition, on
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July 10, 2020, we entered into an offer letter with Mr. Eperjesy to serve as our Chief Financial Officer, which was amended on June 8, 2021 (together with the Wallace Offer Letter, the Offer Letters).
Under the Offer Letters, which do not have fixed durations, Messrs. Wallaces and Eperjesys initial base salaries were set at $950,000 and $585,000, respectively. Messrs. Wallace and Eperjesy are eligible to participate in the AIP with target opportunities of 100% and 80% of base salary, respectively. For 2020, Mr. Eperjesys AIP bonus was guaranteed at $240,000.
In addition, the Offer Letters provide for (i) participation in the Executive LTIP, the terms of which are described under Clarios International LP Executive Long-Term Incentive Plan above, (ii) participation in the Deferred Compensation Plan, the terms of which are described under Retirement Benefits above, (iii) a one-time after-tax lump sum cash bonus for Mr. Wallace of $500,000, which was paid upon the successful completion of Mr. Wallaces first 30 days of service and (iv) one-time after-tax lump sum cash bonuses for Mr. Eperjesy of $80,000 and $820,000, which were paid on the first pay date following Mr. Eperjesys start date and upon the successful completion of 6 months of service, respectively. Finally, the Offer Letters provide for certain benefits and perquisites, including relocation benefits, participation in our Flexible Perquisite Program, participation in our management car allowance program with a $15,000 per year car allowance, participation in our health and welfare benefits programs and our 401(k) Plan, and four weeks of vacation per year.
In the event of a termination of Messrs. Wallaces or Eperjesys employment by us without Cause or Mr. Wallaces resignation for Good Reason (each as defined in the applicable Offer Letter), Messrs. Wallace or Eperjesy, as applicable, will be entitled to receive the following severance payments and benefits, in each case subject to execution of a release of claims: (i) a lump-sum cash payment equal to (x) 1.5 times for Mr. Wallace and (y) 1 times for Mr. Eperjesy, in each case, the sum of their then-current base salary and target annual bonus, (ii) (x) 1.5 years for Mr. Wallace and (y) 1 year for Mr. Eperjesy, in each case, of health and welfare benefit continuation at then current employee contribution levels, (iii) any earned but unpaid prior years bonus and (iv) 1 year of senior executive-level outplacement services.
Pursuant to the Offer Letters, Messrs. Wallace and Eperjesy are subject to certain restrictive covenants, including an 18-month post-termination non-competition restriction and post-termination customer and employee non-solicitation restrictions of 18 months for Mr. Wallace and 2 years for Mr. Eperjesy.
Retention Agreements
On June 8, 2018, we entered into retention bonus agreements with Ms. Slater and Mr. Oklobdzija, respectively (the Slater 2018 Retention Agreement and the Oklobdzija 2018 Retention Agreement and, collectively the 2018 Retention Agreements). In addition, on December 18, 2019 we entered into a second retention agreement with Ms. Slater (the Slater 2019 Retention Agreement) and on June 17, 2020, we entered into a second retention agreement with Mr. Oklobdzija (the Oklobdzija 2020 Retention Agreement and collectively with the Slater 2019 Retention Agreement and the 2018 Retention Agreements, the Retention Agreements).
Pursuant to the 2018 Retention Agreements, Ms. Slater and Mr. Oklobdzija were entitled to receive cash bonuses equal to 50% of their then current base salary on each of (x) the consummation of the sale of the Clarios business from Johnson Controls, Inc. and (y) the first anniversary of such sale, subject to their continued employment through the applicable date. The bonuses under the 2018 Retention Agreements were paid to Ms. Slater and Mr. Oklobdzija on May 1, 2019 and May 1, 2020.
Pursuant to the Slater 2019 Retention Agreement, Ms. Slater is entitled to receive three cash payments each equal to 75% of her then current base salary on April 30, 2021, April 30, 2022 and April 30, 2023, subject to (i) her continued employment through the applicable vesting date and (ii) not being in breach of any provisions of the Slater 2019 Retention Bonus or any other agreement with Clarios. In the event Ms. Slaters employment is
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involuntarily terminated other than for cause or is terminated due to her death or disability, any unpaid portion of the payments under the Slater 2019 Retention Agreement would accelerate in full and be payable as soon as practicable following her termination date.
Pursuant to the Oklobdzija 2020 Retention Agreement, Mr. Oklobdzija was entitled to receive two cash payments each equal to 50% of his then current base salary on September 30, 2021 and September 30, 2022, subject to (i) his continued employment though the applicable vesting date, (ii) meeting his performance expectations for the fiscal year 2021 and 2022, respectively, as determined by the President and Chief Executive Officer of Clarios and (iii) not being in breach of any provision of the Oklobdzija 2020 Retention Bonus or any other agreement with Clarios. Upon Mr. Oklobdzijas involuntary termination without cause on October 1, 2020, the payments under the Oklobdzija 2020 Retention Agreement accelerated in full.
Under the Retention Agreements, Ms. Slater and Mr. Oklobdzija are subject to certain restrictive covenants, including a one-year post-termination non-competition restriction and two-year post-termination customer and employee non-solicitation restrictions.
Special Bonus Awards
On December 6, 2019, each of Ms. Slater and Mr. Oklobdzija were granted special bonus awards (the Special Bonus Awards), which provide for eligibility to receive bonuses equal to 20% of their base salary on each of December 31, 2020, December 31, 2021 and December 31, 2022, in each case subject to their continued employment through the applicable vesting date. In the event of a termination of employment due to death, disability or retirement, each of Ms. Slater and Mr. Oklobdzija would be entitled to receive a prorated portion of the next tranche of the Special Bonus Award scheduled to be paid. In the event of a termination of employment for any other reason, any unpaid portion of the Special Bonus Award would be forfeited. In connection with Mr. Oklobdzijas termination of employment on October 1, 2020, his Special Bonus Award was forfeited in its entirety.
Secondment Agreements
On August 15, 2019, we entered into a secondment agreement with Brookfield pursuant to which Mr. Barkhouse would provide services to us as our interim Chief Executive Officer, and on October 28, 2019, we entered into a secondment agreement with Brookfield pursuant to which Mr. McLaughlan would provide services to us as our interim Chief Financial Officer (collectively, the Secondment Agreements). Pursuant to the Secondment Agreements, Messrs. Barkhouse and McLaughlan remained employees of Brookfield and Brookfield remained responsible for all of their compensation and benefits. In exchange, we paid Brookfield $72,844 and $51,563 per month for the services of Messrs. Barkhouse and McLaughlan, respectively. The Secondment Agreements terminated in connection with the cessation of Messrs. Barkhouses and McLaughlans service as interim Chief Executive Officer and interim Chief Financial Officer on May 17, 2020 and August 23, 2020, respectively.
On May 22, 2019, we entered into a secondment agreement with APS pursuant to which Mr. Lymbery would provide services to us as our interim Chief Financial Officer (the APS Agreement). Pursuant to the APS Agreement, Mr. Lymbery remained an employee of APS and APS remained responsible for all of this compensation and benefits. In exchange, we paid APS $200,000 per month and reimbursed APS for all reasonable and out-of-pocket expenses incurred in connection with Mr. Lymberys services (e.g., travel, lodging, meals). The APS Agreement terminated in connection with the cessation of Mr. Lymberys service as interim Chief Financial Officer on November 8, 2019.
2021 Long-Term Incentive Plan
In connection with this offering, we intend to establish the 2021 Long-Term Incentive Plan (the 2021 Plan). The 2021 Plan will provide for the grant of equity-based awards to our employees, consultants, service providers and non-employee directors.
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Administration. The 2021 Plan will be administered by the compensation committee (the Committee) of our board of directors, unless another committee is designated by our board of directors. The Committee will have the authority to, among other actions, determine eligible participants, the types of awards to be granted, the number of shares covered by any awards, the terms and conditions of any awards (and amend any terms and conditions) and the methods by which awards may be settled, exercised, cancelled, forfeited or suspended. In addition, the Committee has the authority to waive restrictions or accelerate vesting of any award at any time.
Shares Reserve; Adjustments. The maximum number of shares of our common stock available for issuance under the 2021 Plan will not exceed shares of our common stock. Any shares underlying substitute awards, shares remaining available for grant under a plan of an acquired company and awards that are forfeited, cancelled, expired, terminated or are otherwise lapsed, in whole or in part, or are settled in cash or withheld by us in respect of taxes (other than on stock options or stock appreciation rights), will become available for future grant under our 2021 Plan.
In the event of certain changes in our corporate structure, including any extraordinary dividend or other distribution, recapitalization, stock split, reorganization, merger, consolidation, spin-off, or other similar corporate transaction or event affecting our common stock, or changes in applicable laws, regulations or accounting principles, the Committee will make appropriate adjustments to prevent undue enrichment or harm to the number and type of common shares subject to awards, and to the grant, purchase, exercise or hurdle price for any award.
Non-Employee Director Limits. Under the 2021 Plan, the maximum number of shares of our common stock subject to an award granted during a single fiscal year to any non-employee director, taken together with any cash fees paid during the fiscal year, in respect to the directors service as a member of our board of directors during such year, will not exceed $800,000 in total value. The independent directors may make exception to this limit for a non-executive chair of the board of directors, provided that the non-employee director receiving such additional compensation may not participate in the decision to award such compensation.
Stock Options. The 2021 Plan permits the grant of incentive stock options to employees and/or nonstatutory stock options to all eligible participants. The exercise price of stock options may not be less than the fair market value of our common stock on the grant date, provided that if an incentive stock option is granted to a 10% stockholder, the exercise price may not be less than 110% of the fair market value of our common stock. Each stock option agreement will set forth the vesting schedule of the options and the term of the options, which may not exceed 10 years (or five years in the case of an incentive stock option granted to a 10% stockholder). The Committee will determine the method of payment of the exercise price. The Committee may provide in an applicable award agreement that, to the extent a stock option is not previously exercised as to all of the shares of our Common Stock subject thereto, and, if the fair market value of one share of our common stock is greater than the exercise price then in effect, then the stock option will be deemed automatically exercised immediately before its expiration.
Stock Appreciation Rights. The 2021 Plan permits the grant of stock appreciation rights, which entitle the holder to receive shares of our common stock or cash having an aggregate value equal to the appreciation in the fair market value of our common stock between the grant date and the exercise date, times the number of shares of our common stock subject to the award. The exercise price of stock appreciation rights may not be less than the fair market value of our common stock on the date of grant. Each stock appreciation rights agreement will set forth the vesting schedule of the stock appreciation rights. The Committee may provide in an applicable award agreement that, to the extent a stock appreciation right is not previously exercised as to all of the shares of our Common Stock subject thereto, and, if the fair market value of one common share is greater than the exercise price then in effect, then the stock appreciation right will be deemed automatically exercised immediately before its expiration.
Restricted Stock and Restricted Stock Units. The 2021 Plan permits the grant of restricted stock and restricted stock units. Restricted stock awards are grants of shares of our common stock, subject to certain
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condition and restrictions as specified in the applicable award agreement. Restricted stock units represent the right to receive shares of our common stock (or a cash amount equal to the value of our common stock) on future specified dates. The Committee will determine the form or forms in which payment of the amount owing upon settlement of a restricted stock unit may be made.
Performance Awards. The 2021 Plan permits the grant of performance awards which are payable upon the achievement of performance goals determined by the Committee. The Committee may, in its discretion, increase or reduce the amount of a settlement otherwise to be made in connection with a performance award.
Other Cash-Based Awards and Other Stock-Based Awards. The 2021 Plan permits the grant of other cash-based and other stock-based awards, the terms and conditions of which will be determined by the Committee and specified in the applicable award agreement.
Separation from Service. In the event of a participants separation from service, as defined in the 2021 Plan, the Committee may determine the extent to which an award may be exercised, settled, vested, paid or forfeited prior to the end of a performance period, or the vesting, exercise or settlement of such award.
Change in Control. In the event of a change in control, as defined in the 2021 Plan, unless otherwise set forth in the applicable award agreement, (i) if a participants awards are continued, assumed, substituted or replaced, and within twelve months following such change in control such participants employment or service is terminated by us without cause (as defined in the 2021 Plan), such awards held by such participant will become fully vested (and, in the case of any such award that is a stock option or a stock appreciation right, will be immediately exercisable), with the level of vesting for any such award that is a performance award calculated as if the applicable performance conditions had been achieved at target and (ii) if a participants awards are not continued, assumed, substituted or replaced, then such awards will be cancelled in consideration of a payment equal to the value of such award (or, in the case of a performance award, the target value of such award), with such value being the intrinsic value in the case of a stock option or a stock appreciation right.
Dissolution or Liquidation. In the event of the dissolution or liquidation of our company, each award will be terminated immediately prior to the consummation of such action, unless otherwise determined by the Committee.
No Repricing. Except pursuant to an adjustment by the Committee permitted under the 2021 Plan, no action may directly or indirectly reduce the exercise or hurdle price of any award established at the time of grant without stockholder approval.
Plan Amendment or Suspension. The Committee has the authority to amend or suspend the 2021 Plan, provided that no such action may be taken without stockholder approval if the approval is necessary to comply with a tax or regulatory requirement or other applicable law for which the Committee deems it necessary or desirable to comply. No amendment may in general adversely and materially affect a participants rights under any award without such participants written consent.
Term of the Plan. No awards may be granted under the 2021 Plan after our board of directors terminates the plan, the maximum number of shares available for issuance has been issued or 10 years from the effective date, whichever is earlier.
Outstanding Equity Awards at Fiscal Year-End
There have been no equity-based compensation programs and consequently there were no equity awards outstanding as of the end of our fiscal year ended September 30, 2020.
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Option Exercises and Stock Vested
There have been no equity-based compensation programs and consequently no stock options were exercised and no stock awards vested during our fiscal year ended September 30, 2020.
Pension Benefits and Nonqualified Deferred Compensation
During our fiscal year ended September 30, 2020, none of our named executive officers received pension benefits. The following table contains information with respect to the participation of our named executive officers in the Retirement Restoration Plan and the Deferred Compensation Plan, each of which provide for the deferral of compensation on a basis that is not tax-qualified, as of the end of our fiscal year ended September 30, 2020. The material terms and conditions of the Retirement Restoration Plan are set forth under Retirement Benefits above.
Name |
Executive Contributions in Last fiscal year ($) |
Company Contributions in Last fiscal year ($)(1) |
Aggregate Earnings in Last fiscal year ($) |
Aggregate Withdrawals/ Distributions ($) |
Aggregate Balance at Last FYE ($) |
|||||||||||||||
Mark Wallace |
| | | | | |||||||||||||||
Christopher J. Eperjesy |
| | | | | |||||||||||||||
Leslie Wong |
| | | | | |||||||||||||||
Jennifer Slater |
| 11,325 | 336 | (2) | 0 | 27,401 | (3) | |||||||||||||
Petar Oklobdzija |
| 22,537 | 2,678 | (4) | 0 | 198,815 | (5) | |||||||||||||
John Barkhouse |
| | | | | |||||||||||||||
Sean McLaughlan |
| | | | | |||||||||||||||
Mark Lymbery |
| | | | |
(1) | The amounts in this column reflect contributions under the Retirement Restoration Plan and are reflected in the Summary Compensation Table. |
(2) | Reflects dividends earned under the Retirement Restoration Plan. |
(3) | Reflects aggregate account balance under the Retirement Restoration Plan. |
(4) | Reflects (i) $1,925 in dividends earned under the Retirement Restoration Plan and (ii) $753 in dividends earned under the Deferred Compensation Plan. |
(5) | Reflects aggregate account balance of (i) $146,707 under the Retirement Restoration Plan and (ii) $52,108 under the Deferred Compensation Plan. |
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Potential Payments Upon Termination or Change in Control
The below table sets forth information regarding contractual payments that would be made to our named executive officers upon the occurrence of certain termination and/or change in control events. In estimating the value of such payments, the table assumes that the named executive officers employment was terminated and/or a change in control of Clarios occurred, in each case on September 30, 2020 (other than Mr. Oklobdzijas termination of employment, as described in more detail below).
Name |
Qualifying Termination(1) | Death, Disability or Retirement(2) |
Change in Control(3) |
|||||||||||||||||
Severance ($) | Health and Welfare Benefits ($) |
Outplacement Services ($) |
Retention Bonus ($) |
Executive LTIP ($) |
||||||||||||||||
Mark Wallace |
2,850,000 | 39,139 | 9,200 | | ||||||||||||||||
Christopher J. Eperjesy |
1,053,000 | 31,049 | 9,200 | | ||||||||||||||||
Leslie Wong |
| | 9,200 | | ||||||||||||||||
Jennifer Slater |
1,426,906 | 30,678 | 9,200 | 902,422 | ||||||||||||||||
Petar Oklobdzija |
1,071,650 | 17,252 | 4,600 | | ||||||||||||||||
John Barkhouse |
| | | | | |||||||||||||||
Sean McLaughlan |
| | | | | |||||||||||||||
Mark Lymbery |
| | | | |
(1) | Reflects (i) for Messrs. Wallace and Eperjesy, certain severance payments and benefits to which they are entitled under the Offer Letters upon a termination of employment without cause and, in the case of Mr. Wallace, a resignation for good reason, as described in more detail under Employment Arrangements above, (ii) for Ms. Slater, certain severance payments and benefits for which she is eligible under the Severance Policy upon a termination of employment without cause, as described in more detail under Severance Policy below, (iii) for Ms. Slater, accelerated vesting of her retention bonuses under the Slater 2019 Retention Agreement, as described in more detail under Employment Arrangements above, (iv) for Mr. Oklobdzija, the severance payments and benefits paid or provided in connection with Mr. Oklobdzijas termination of employment on October 1, 2020 pursuant to his separation agreement and release of claims, as described in more detail under Oklobdzija Separation Agreement below, (v) for Mr. Oklobdzija, the accelerated vesting of his retention bonuses under the Oklobdzija 2020 Retention Agreement upon his termination of employment, as described in more detail under Employment Arrangements above and (vi) for Mr. Wong, 52 weeks of outplacement services. |
(2) | Reflects (i) accelerated vesting of Ms. Slaters retention bonuses under the Slater 2019 Retention Agreement, as described in more detail under Employment Arrangements above, and (ii) a prorated portion of that tranche of Ms. Slaters Special Bonus Award scheduled to be paid on December 31, 2020, as described in more detail under Employment Arrangements above. |
(3) | Reflects proceeds that our named executive officers would be entitled to in respect of their General Option Units and Stretch Option Units under the Executive LTIP (as described in more detail under Other Compensation Plans; Clarios International LP Executive Long-Term Incentive Plan) (i) assuming that a change in control of Clarios occurred under the Executive LTIP as a result of a sale of Clarios to a person or entity not affiliated with Brookfield and (ii) based on an initial public offering price of $ per share (the bottom of the estimated initial public offering price range set forth on the cover page of this prospectus). |
Severance Policy
U.S.-based employees of Clarios (including our U.S.-based named executive officers) who do not otherwise have contractual severance protections are eligible to participate in our U.S. Severance Policy (the Severance Policy), pursuant to which our U.S.-based named executive officers are eligible to receive (i) cash severance equal to 52 weeks of base salary (payable either in a lump sum or through salary continuation), (ii) a pro-rated target bonus for the year of termination (with a minimum of 3 months of pro-ration), (iii) 52 weeks of continued
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health and welfare benefits at the then-current employee contribution levels and (iv) 52 weeks of outplacement services. Severance under the Severance Policy is subject to the named executive officers execution of a general release of claims against the Company and a restrictive covenant agreement containing a one-year post-termination non-competition restriction, two-year post-termination customer and employee non-solicitation restrictions and perpetual confidentiality obligations.
Oklobdzija Separation Agreement
In connection with Mr. Oklobdzijas termination of employment on October 1, 2020, we entered into a separation agreement and release of claims with Mr. Oklobdzija, dated October 13, 2020 (the Separation Agreement). Pursuant to the terms of the Separation Agreement and in exchange for a release of all claims against the Company, Mr. Oklobdzija received the following payments: (i) $17,452, reflecting two weeks of base pay in lieu of written notice of termination; (ii) $453,740, reflecting 52 weeks of continued base salary; (iii) $56,718, reflecting 25% of Mr. Oklobdzijas target annual bonus under the AIP; (iv) a $90,000 lump-sum payment; (v) continued health and welfare benefits coverage, with Mr. Oklobdzija paying the rate for medical coverage that is paid by our active employees, for the shorter of 52 weeks or until such time that Mr. Oklobdzija becomes eligible for medical and/or dental coverage under a plan of a future employer; and (vi) 26 weeks of outplacement services. The Separation Agreement contained certain restrictive covenants, including a one-year post-termination non-competition restriction, one-year post-termination customer and employee non-solicitation restrictions and perpetual confidentiality, non-disparagement and continued cooperation obligations.
Restrictive Covenants
In addition to the restrictive covenants under the Offer Letters, Retention Agreements and the Severance Policy, each of our named executive officers (other than Messrs. Barkhouse, McLaughlan and Lymbery) are subject to certain restrictive covenants under our AIP, including a one-year post-termination non-competition restriction, two-year post-termination customer and employee non-solicitation restrictions and perpetual confidentiality and non-disparagement obligations.
Compensation of our Directors
2020 Director Compensation
The following table sets forth information concerning the compensation earned by certain of our non-employee directors during the fiscal year ended September 30, 2020. No other director received compensation for service on our board of directors.
Name |
Fees Earned or Paid in Cash ($) |
Total ($) |
||||||
Michael Norona |
$ | 147,500 | $ | 147,500 | ||||
Stephen Girsky |
$ | 137,500 | $ | 137,500 |
For the first three quarters of the fiscal year ended September 30, 2020, Messrs. Norona and Girsky each received a prorated annual cash retainer of $125,000. In addition, Mr. Norona received an additional prorated annual cash retainer of $15,000 for his service as audit committee chair. Effective for the fourth quarter of fiscal year ended September 30, 2020, Messrs. Norona and Girsky each received a prorated annual cash retainer of $150,000. In addition, for that same period, (i) Mr. Norona received an additional prorated annual cash retainer of $20,000 for his service as audit committee chair and (ii) Mr. Girsky received an additional prorated annual cash retainer of $15,000 for his service as ESG and risk management committee chair and an additional prorated annual cash retainer of $10,000 for his service on the audit committee. Members of our board were also eligible for reimbursement for reasonable travel and other out-of-pocket expenses.
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New Director Compensation Policy
In connection with this offering, our board of directors has approved the adoption of a non-employee director compensation policy pursuant to which each of our non-employee directors will be eligible to receive annual compensation for their service on our board of directors. The non-employee directors will be eligible to receive an annual cash retainer of $85,000, plus additional annual cash compensation for service as non-executive chair or as a chair or member of a committee of our board, as follows: Board Chair: $102,500; Audit Committee Chair: $20,000; Audit Committee Member: $10,000; Governance and Compensation Committee Chair: $15,000; and ESG and Risk Management Committee Chair: $15,000. The annual cash compensation is payable in quarterly installments in arrears. Except as provided below, non-employee directors will have the opportunity to elect to receive cash-settled restricted stock units under the 2021 Plan in lieu of the annual cash retainer, which will be issued on the same terms (including vesting and settlement terms) as the equity-based compensation described below.
Except as provided below, the non-employee directors will also be eligible to receive the following equity-based compensation in the form of cash-settled restricted stock units with respect to shares of our common stock granted pursuant to the 2021 Plan, the settlement of which will occur upon a separation from service (or, if earlier, upon a change in control (as defined in the 2021 Plan)) (or, if earlier, upon death, disability or a change of control):
| an initial grant made in connection with this offering with a value at grant of $145,000 (or $312,500 for the Board Chair), vesting at the time of the annual meeting that occurs during the 2022 fiscal year (or, if earlier, upon death, disability or a change in control); and |
| an annual grant with a value at grant of $145,000 (or $312,500 for the Board Chair), to be made on or about the date of our annual stockholder meeting, beginning with the annual meeting that occurs during the 2022 fiscal year, and vesting upon the earlier of (i) one year following the grant date and (ii) the subsequent annual meeting (or, if earlier, upon death, disability or a change of control). |
All board compensation to be paid to any non-employee director who is an employee of Brookfield or CDPQ will be paid to Brookfield or CDPQ, as applicable, and all compensation to be paid to such directors, including any that would otherwise be paid in the form of cash-settled restricted stock units, will instead be paid to Brookfield or CDPQ, as applicable, in cash.
In addition, any non-employee director who is not an employee of Brookfield or CDPQ will be required to, within five years of joining our board of directors, acquire shares of our common stock or cash-settled restricted stock units under the 2021 Plan having a value equal to at least three times such directors combined cash and equity retainer, or $690,000 (or $1,500,000 for the Board Chair).
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We describe below transactions and series of similar transactions, during our last three fiscal years or currently proposed, to which we were a party or will be a party, in which:
| the amounts involved exceeded or will exceed $120,000; and |
| any of our directors, executive officers or beneficial holders of more than 5% of any class of our capital stock had or will have a direct or indirect material interest. |
Other than as described below, there have not been, nor are there any currently proposed, transactions or series of similar transactions meeting this criteria to which we have been or will be a party other than compensation arrangements, which are described where required under ManagementBoard Structure and Compensation of Directors and Executive Compensation.
Registration Rights Agreement
In connection with this offering, we will enter into the Registration Rights Agreement with the Sponsor Group, which will provide for customary demand registrations and piggyback registration rights. The Registration Rights Agreement also will provide that we will pay certain expenses relating to such registrations and indemnify the registration rights holders against (or make contributions in respect of) certain liabilities which may arise under the Securities Act.
Stockholders Agreement
In connection with this offering, we will enter into the Stockholders Agreement with the Sponsor Group. The Stockholders Agreement will require us to, among other things, for so long as the Sponsor Group is controlled by Brookfield and the Sponsor Group owns or controls at least: (i) 25% of the aggregate number of outstanding shares of our common stock, nominate a number of Sponsor Directors such that, upon the election of each such individual, the number of Sponsor Directors serving as directors of our company will be equal a majority of the board of directors (including the chair of the board of directors), and (ii) between 15% and 24.99% of the aggregate number of outstanding shares of our common stock, nominate a number of Sponsor Directors such that, upon the election of each such individual, the number of Sponsor Directors servicing as directors of our company will be equal to the greater of (x) 25% of the board of directors and (y) three directors. In the case of a vacancy on our board created by the removal or resignation of a Sponsor Director, the Stockholders Agreement will require us to nominate an individual designated by the Sponsor Group for election to fill the vacancy.
Pursuant to the Stockholders Agreement, for so long as the Sponsor Group continues to own or control at least 25% of our issued and outstanding common stock, written approval by the Sponsor Group will be required for certain corporate actions. These actions include: (i) certain amendments to our certificate of incorporation and bylaws; (ii) any increase or decrease in the size of our board of directors; (iii) hiring and termination of our chief executive officer and chief financial officer; (iv) entry into any new line of business or other material change in the scope or nature of our or our subsidiaries business or operations, taken as a whole; (v) the incurrence of indebtedness, including the entry into any guarantee in respect of indebtedness, in each case in excess of $ million, other than working capital loans and other similar transactions in the ordinary course of business; (vi) the creation, issuance or sale (by reclassification, merger, consolidation, reorganization or otherwise) of equity securities by us or any securities convertible into our equity securities, provided that the consent of the Sponsor Group shall not be required in connection with the grant or issuance of equity or equity-based awards to employees, officers, directors, consultants or other persons performing services for Clarios or any of its subsidiaries, or in connection with the issuance of common stock upon the exercise, conversion or settlement of such awards, pursuant to any equity incentive plans as in existence on the date of the Stockholders Agreement or that are thereafter adopted by the board of directors; (vii) the declaration or payment of dividends
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on capital stock; and (viii) any acquisition or disposition of any asset or business having consideration or fair value in excess of $ million, including any transaction resulting in any person or group (as such terms are used for purposes of Section 13(d) of the Exchange Act) becoming the beneficial owner, directly or indirectly, of more than 50% of the total voting power of our capital stock entitled to vote generally in the election of our directors or acquires the power to direct or cause the direction of our management and policies, whether through the ownership of voting securities, by contract or otherwise.
Indemnification of Directors and Officers
Our bylaws will provide that we will indemnify our directors and officers to the fullest extent permitted by the DGCL. In addition, our amended and restated certificate of incorporation will provide that our directors will not be liable for monetary damages for breach of fiduciary duty to the fullest extent permitted by the DGCL.
There is no pending litigation or proceeding naming any of our directors or officers to which indemnification is being sought, and we are not aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer.
Policies and Procedures for Transactions with Related Parties
Upon the consummation of this offering, we will adopt a written related person transaction policy (the policy), which will set forth our policy with respect to the review, approval, ratification and disclosure of all related person transactions by our audit committee. In accordance with the policy, our audit committee will have overall responsibility for implementation of and compliance with the policy.
For purposes of the policy, a related person transaction is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we were, are or will be a participant and the amount involved exceeded, exceeds or will exceed $120,000 and in which any related person (as defined in the policy) had, has or will have a direct or indirect material interest. A related person transaction does not include any employment relationship or transaction involving an executive officer and any related compensation resulting solely from that employment relationship that has been reviewed and approved by our board of directors.
The policy will require that notice of a proposed related person transaction be provided to our legal department prior to entry into such transaction. If our legal department determines that such transaction is a related person transaction, the proposed transaction will be submitted to our audit committee for consideration at its next meeting. Under the policy, our audit committee may approve only those related person transactions that are in, or not inconsistent with, our best interests. In the event that we become aware of a related person transaction that has not been previously reviewed, approved or ratified under the policy and that is ongoing or is completed, the transaction will be submitted to the audit committee so that it may determine whether to ratify, rescind or terminate the related person transaction.
The policy will also provide that the audit committee review certain previously approved or ratified related person transactions that are ongoing to determine whether the related person transaction remains in our best interests and the best interests of our stockholders. Additionally, we will make periodic inquiries of directors and executive officers with respect to any potential related person transaction of which they may be a party or of which they may be aware.
Existing arrangements with related parties and new arrangements with related parties that are entered into in connection with this offering, in each case (i) that are described in this prospectus, (ii) including any subsequent amendment to any such arrangement that is not material to the Company and (iii) any ancillary services provided in connection therewith, will not require review, approval or ratification pursuant to the policy.
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Tax Receivable Agreement
In connection with this offering, we will enter into a tax receivable agreement with the Sponsor Group. We and our subsidiaries have generated, or are expected to generate, certain tax benefits, which may reduce our liability for certain taxes that we might otherwise be required to pay. These tax benefits, which we collectively refer to as the Covered Tax Benefits, include: (i) all depreciation and amortization deductions, and any offset to taxable income and gain or increase to taxable loss, resulting from the tax basis that we have in certain of our assets prior to the consummation of this offering and to which we will succeed as a result of certain internal restructuring transactions, (ii) the utilization of our and our subsidiaries net operating losses, if any, attributable to periods prior to this offering and to which we will succeed as a result of certain internal restructuring transactions, and (iii) certain other tax benefits attributable to payments made under the tax receivable agreement. The tax receivable agreement provides for payments to the Sponsor Group in an amount equal to 85% of the aggregate reduction in U.S. federal, state, and local income taxes payable deemed to have been realized by us and our subsidiaries (using an assumed combined state and local income tax rate of 4.32%) from the deemed utilization of such Covered Tax Benefits.
The obligations under the tax receivable agreement will be our obligations and not obligations of our subsidiaries and are not conditioned upon the Sponsor Group maintaining a continued direct or indirect ownership interest in us. For purposes of the tax receivable agreement, the aggregate reduction in income tax payable by us will be computed by comparing our income tax liability with our hypothetical liability had we not been able to utilize the Covered Tax Benefits, with each of the income tax liability and hypothetical liability taking into account several assumptions and adjustments, including, for example, that:
| we will pay state and local taxes at a rate of 4.32%, even though our actual effective state and local tax rate may differ; |
| Section 250 of the Internal Revenue Code of 1986, as amended (the Code), which provides for reduced rates of taxation with respect to certain types of income, does not apply to us; and |
| certain limitations apply to our ability to utilize tax benefits other than the Covered Tax Benefits to offset our taxable income. |
The foregoing assumptions and adjustments could cause us to be required to make payments under the tax receivable agreement that are significantly greater than the benefits we realize in respect of the Covered Tax Benefits.
We also could be required to make payments under the tax receivable agreement even though we have not actually realized benefits with respect to the Covered Tax Benefits.
We expect that the payments we make under the tax receivable agreement could be substantial. Assuming no material changes in the relevant tax law, and that we and our subsidiaries earn sufficient taxable income to realize the full tax benefits subject to the tax receivable agreement, we expect that future payments under the tax receivable agreement will total between approximately $ million and $ million. We intend to fund the required payments required under the tax receivable agreement with cash flow generated by our operations. Depending on the amount and timing of our future earnings (if any) and on other factors, including the effect of any limitations imposed on our ability to use the Covered Tax Benefits, it is possible that all payments required under the tax receivable agreement could become due within a relatively short period of time. The actual amount and utilization of the Covered Tax Benefits, as well as the amount and timing of any payments under the tax receivable agreement, will vary depending upon a number of factors, including the amount, character, and timing of our and our subsidiaries taxable income in the future.
The tax receivable agreement will become binding upon us in connection with the completion of this offering and will remain in effect until all such Covered Tax Benefits have been used or expired, unless the agreement is terminated early, as described below.
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Payments under the tax receivable agreement are generally required to be made on May 15 of the calendar year following the taxable year with respect to which the payment obligation arises based on our estimates of taxable income for such taxable year, with certain final payments made after our tax return for such taxable year has been filed. Late payments accrue interest at an agreed default rate.
The tax receivable agreement provides that we would be required to make an immediate payment equal to the present value of the anticipated future tax benefits to the Sponsor Group if, at any time, we elect an early termination of the tax receivable agreement, upon certain mergers, asset sales, or other transactions constituting a change of control under the tax receivable agreement, if certain credit events described in the tax receivable agreement occur with respect to us, if we are in material breach of our obligations under the agreement, or if the Sponsor Group elects to exercise its right after the fifteenth anniversary of this offering to terminate the tax receivable agreement. Such payment would be based on certain valuation assumptions, including the assumption that we and our subsidiaries have sufficient taxable income and tax liabilities to fully utilize such tax benefits. Additionally, upon (i) a sale of any of our subsidiaries in a transaction that does not constitute a change of control under the tax receivable agreement or (ii) a non-taxable transfer of certain assets by us to a non-consolidated entity, we will be required to make a payment equal to the present value of future payments under the tax receivable agreement attributable to the Covered Tax Benefits of such subsidiary or with respect to such assets, applying the assumptions described above. Accordingly, payments under the tax receivable agreement may be made years in advance of the actual realization, if any, of the anticipated future tax benefits and may be significantly greater than the benefits we realize in respect of the tax attributes subject to the tax receivable agreement. In addition, in these situations, our obligations under the tax receivable agreement could have a material and adverse impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales or other change of control transactions.
Were the Internal Revenue Service to successfully challenge the availability or amount of any of the Covered Tax Benefits, the Sponsor Group would not reimburse us for any payments previously made under the tax receivable agreement, but future payments under the tax receivable agreement, if any, would be netted against any unreimbursed payments to reflect the result of any such successful challenge by the Internal Revenue Service. As a result, we could make payments under the tax receivable agreement in excess of our actual cash savings in income tax.
We have full responsibility and sole discretion over all tax matters concerning the Company. However, we will be required to notify the Sponsor Group of any audit by a taxing authority, the outcome of which is reasonably expected to affect the Sponsor Groups rights under the tax receivable agreement, and we are prevented from engaging in transactions and taking certain actions that have the principal purpose of reducing payments under the tax matters agreement.
Certain risks related to the tax receivable agreement are discussed in greater detail above in the section entitled Risk Factors.
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MANDATORY CONVERTIBLE PREFERRED STOCK OFFERING
Unless converted earlier as described below, each share of the Mandatory Convertible Preferred Stock will automatically and mandatorily convert on the mandatory conversion date, which is expected to be , 2024, into a number of shares of our common stock equal to the conversion rate described below.
The conversion rate, which is the number of shares of our common stock issuable upon conversion of each share of the Mandatory Convertible Preferred Stock on the mandatory conversion date (excluding any shares of our common stock issued in respect of accumulated but unpaid dividends, as described below), will be as follows:
| if the Applicable Market Value (as defined below) of our common stock is greater than the Threshold Appreciation Price, which is approximately $ , then the conversion rate will be shares of our common stock per share of the Mandatory Convertible Preferred Stock (the Minimum Conversion Rate) ; |
| if the Applicable Market Value of our common stock is less than or equal to the Threshold Appreciation Price but equal to or greater than the Initial Price, which is approximately $ , then the Conversion Rate will be equal to $50.00 divided by the Applicable Market Value of our common stock, rounded to the nearest ten-thousandth of a share; or |
| if the Applicable Market Value of our common stock is less than the Initial Price, then the conversion rate will be shares of our common stock per share of the Mandatory Convertible Preferred Stock (the Maximum Conversion Rate). |
The Threshold Appreciation Price is calculated by dividing $50.00 by the Minimum Conversion Rate, and represents approximately % appreciation over the Initial Price. The Initial Price is calculated by dividing $50.00 by the Maximum Conversion Rate and initially equals approximately $ , which is the public offering price of common stock in this offering.
Applicable Market Value means the Average VWAP per share of our common stock over the Settlement Period.
Settlement Period means the 20 consecutive Trading Day (as defined in the Certificate of Designations) period beginning on, and including, the 21st Scheduled Trading Day (as defined in the Certificate of Designations) immediately preceding , 2024.
VWAP per share of our common stock on any Trading Day means the per share volume-weighted average price as displayed on Bloomberg page BTRY<EQUITY> AQR (or its equivalent successor if such page is not available) in respect of the period from the scheduled open of trading until the scheduled close of trading of the primary trading session on such Trading Day (or, if such volume-weighted average price is not available, the market value per share of our common stock on such Trading Day as determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained by us for this purpose, which may include any of the underwriters for this offering). The Average VWAP per share over a certain period means the arithmetic average of the VWAP per share for each Trading Day in the relevant period.
Accordingly, assuming that the market price of our common stock on the mandatory conversion date is the same as the Applicable Market Value of our common stock, the aggregate market value of our common stock that holders of the Mandatory Convertible Preferred Stock will receive upon mandatory conversion of a share of Mandatory Convertible Preferred Stock (excluding any shares of our common stock such holders receive in respect of accumulated but unpaid dividends) will be:
| greater than the $50.00 liquidation preference per share of Mandatory Convertible Preferred Stock, if the Applicable Market Value is greater than the Threshold Appreciation Price; |
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| equal to the $50.00 liquidation preference per share of Mandatory Convertible Preferred Stock, if the Applicable Market Value is less than or equal to the Threshold Appreciation Price and greater than or equal to the Initial Price; and |
| less than the $50.00 liquidation preference per share of Mandatory Convertible Preferred Stock, if the Applicable Market Value is less than the Initial Price. |
At any time prior to , 2024, holders may elect to convert each share of the Mandatory Convertible Preferred Stock into shares of our common stock at the Minimum Conversion Rate. If holders elect to convert any shares of the Mandatory Convertible Preferred Stock during a specified period beginning on the effective date of a fundamental change (as defined in the Certificate of Designations), such shares of the Mandatory Convertible Preferred Stock will be converted into shares of our common stock at an increased conversion rate and will be entitled to receive a fundamental change dividend make-whole amount and an accumulated dividend amount.
Dividends on the Mandatory Convertible Preferred Stock will be payable on a cumulative basis when, as and if declared by our board of directors, or an authorized committee thereof, at an annual rate of % on the liquidation preference of $50.00 per share of Mandatory Convertible Preferred Stock. We may pay any declared dividend on the shares of Mandatory Convertible Preferred Stock (whether for a current dividend period or any prior dividend period, including in connection with the payment of declared and unpaid dividends), determined in our sole discretion (subject to limitations set forth in the Certificate of Designations) (i) in cash; (ii) subject to certain limitations, by delivery of shares of our common stock; or (iii) through any combination of cash and shares of our common stock. Dividend payments on the Mandatory Convertible Preferred Stock will be made on , , and of each year, commencing on, and including, , 2021 (each, a Dividend Payment Date). If we elect to make any payment of a declared dividend, or any portion thereof, in shares of our common stock, such shares will be valued for such purpose at 97% of the Average VWAP per share of our common stock over the five consecutive trading day period beginning on, and including, the sixth scheduled trading day prior to the applicable Dividend Payment Date (with each term defined in the Certificate of Designations), subject to certain limitations described in the Certificate of Designations.
Our common stock will rank junior to the Mandatory Convertible Preferred Stock with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up of our affairs. Unless accumulated and unpaid dividends have been declared and paid, or set aside for payment, on all outstanding shares of the Mandatory Convertible Preferred Stock for all preceding dividend periods, no dividends may be declared or paid on our common stock, and no common stock may be purchased, redeemed or otherwise acquired for consideration by us, in each case, subject to certain exceptions. In the event of our voluntary or involuntary liquidation, winding-up or dissolution, no distribution of our assets may be made to holders of our common stock until we have paid to holders of the Mandatory Convertible Preferred Stock a liquidation preference equal to $50.00 per share plus accumulated and unpaid dividends.
Except as specifically required by Delaware law or our amended and restated certificate of incorporation, and except as described below, the holders of Mandatory Convertible Preferred Stock will have no voting rights or powers.
Whenever dividends on any shares of the Mandatory Convertible Preferred Stock have not been declared and paid for the equivalent of six or more dividend periods, whether or not for consecutive dividend periods (a Nonpayment), the authorized number of directors on our Board of Directors will, at the next annual meeting of stockholders or at a special meeting of stockholders, if any, as provided below, automatically be increased by two and the holders of such shares of the Mandatory Convertible Preferred Stock, voting together as a single class with holders of any and all other series of Voting Preferred Stock (as defined below) then outstanding, will be entitled, at our next annual meeting of stockholders or at a special meeting of stockholders, if any, as provided below, to vote for the election of a total of two additional members of our Board of Directors (the Preferred
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Stock Directors); provided, however, that the election of any such Preferred Stock Directors will not cause us to violate the corporate governance requirements of the NYSE (or any other exchange or automated quotation system on which our securities may be listed or quoted) that requires listed or quoted companies to have a majority of independent directors; and provided, further, that our Board of Directors shall, at no time, include more than two Preferred Stock Directors.
In the event of a Nonpayment, the holders of record of at least 25% of the shares of the Mandatory Convertible Preferred Stock and any other series of Voting Preferred Stock may request that a special meeting of stockholders be called to elect such Preferred Stock Directors (provided, however, that if our next annual or a special meeting of stockholders is scheduled to be held within 90 days of the receipt of such request, the election of such Preferred Stock Directors, will, instead, be included in the agenda for and will be held at such scheduled annual or special meeting of stockholders). The Preferred Stock Directors will stand for reelection annually, and at each subsequent annual meeting of the stockholders, so long as the holders of the Mandatory Convertible Preferred Stock continue to have such voting rights.
At any meeting at which the holders of the Mandatory Convertible Preferred Stock are entitled to elect Preferred Stock Directors, the holders of record of a majority in voting power of the then outstanding shares of the Mandatory Convertible Preferred Stock and all other series of Voting Preferred Stock, present in person or represented by proxy, will constitute a quorum and the vote of the holders of a majority in voting power of such shares of the Mandatory Convertible Preferred Stock and other Voting Preferred Stock so present or represented by proxy at any such meeting at which there shall be a quorum shall be sufficient to elect the Preferred Stock Directors.
As used in this section, Voting Preferred Stock means any other class or series of our preferred stock, other than the Mandatory Convertible Preferred Stock, ranking equally with the Mandatory Convertible Preferred Stock as to dividends and to the distribution of assets upon liquidation, dissolution or winding-up and upon which like voting rights for the election of directors have been conferred and are exercisable. Whether a plurality, majority or other portion in voting power of the Mandatory Convertible Preferred Stock and any other Voting Preferred Stock have been voted in favor of any matter shall be determined by reference to the respective liquidation preference amounts of the Mandatory Convertible Preferred Stock and such other Voting Preferred Stock voted.
If and when all accumulated and unpaid dividends on the Mandatory Convertible Preferred Stock have been paid in full, or declared and a sum or number of shares of our common stock sufficient for such payment shall have been set aside for the benefit of the holders thereof on the applicable Regular Record Date (as defined in the Certificate of Designations) (a Nonpayment Remedy), the holders of the Mandatory Convertible Preferred Stock shall immediately and, without any further action by us, be divested of the foregoing voting rights, subject to the revesting of such powers in the event of each subsequent Nonpayment. If such voting rights for the holders of the Mandatory Convertible Preferred Stock and all other holders of Voting Preferred Stock have terminated, each Preferred Stock Director then in office shall automatically be disqualified as a director and shall no longer be a director and the term of office of each such Preferred Stock Director so elected will terminate at such time and the authorized number of directors on our Board of Directors shall automatically decrease by two.
Any Preferred Stock Director may be removed at any time, with or without cause, by the holders of record of a majority in voting power of the outstanding shares of the Mandatory Convertible Preferred Stock and any other series of Voting Preferred Stock then outstanding (voting together as a single class) when they have the voting rights described above. In the event that a Nonpayment shall have occurred and there shall not have been a Nonpayment Remedy, any vacancy in the office of a Preferred Stock Director (other than prior to the initial election of Preferred Stock Directors after a Nonpayment) may be filled by the written consent of the Preferred Stock Director remaining in office, except in the event that such vacancy is created as a result of such Preferred Stock Director being removed, or if no Preferred Stock Director remains in office, by a vote of the holders of record of a majority in voting power of the outstanding shares of the Mandatory Convertible Preferred Stock and
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any other series of Voting Preferred Stock then outstanding (voting together as a single class) when they have the voting rights described above; provided, however, that the election of any such Preferred Stock Directors will not cause us to violate the corporate governance requirements of the NYSE (or any other exchange or automated quotation system on which our securities may be listed or quoted) that requires listed or quoted companies to have a majority of independent directors. The Preferred Stock Directors will each be entitled to one vote per director on any matter that comes before our Board of Directors for a vote.
The Mandatory Convertible Preferred Stock will have certain other voting rights with respect to certain amendments to our amended and restated certificate of incorporation or the Certificate of Designations establishing the terms of the Mandatory Convertible Preferred Stock or certain other transactions as described in such Certificate of Designations.
The foregoing description of the proposed Mandatory Convertible Preferred Stock is not complete and is subject to, and qualified in its entirety by reference to, the provisions of the Certificate of Designations establishing the terms of the Mandatory Convertible Preferred Stock, a copy of which will be filed as an exhibit to the registration statement of which this prospectus forms a part and which may be obtained as described under Where You Can Find More Information. In addition, a description of the proposed Mandatory Convertible Preferred Stock is set forth in the separate prospectus pursuant to which such preferred stock is being offered.
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DESCRIPTION OF MATERIAL INDEBTEDNESS
Senior Secured Credit Facilities
Concurrently with the closing of the Acquisition, the Borrower entered into a credit agreement with, among others, the Co-Borrower, Holdings, as holding company guarantor, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the lenders party thereto, providing for the Senior Secured Credit Facilities. On March 5, 2021 (the Repricing Amendment Date), the parties thereto entered into a repricing amendment to the Senior Secured Credit Facilities, which lowered the applicable margins related to the term loans thereunder.
Under the Senior Secured Credit Facilities, we have the ability to increase the amount of term loans or add a revolving facility, or incur equivalent debt, in an aggregate amount not to exceed (a) a fixed amount set at the greater of $1,330.0 million and 80% of consolidated EBITDA on a trailing four quarter basis plus (b) an additional amount subject to (i) if such indebtedness is secured by a lien on the collateral that is pari passu with the lien on the collateral securing the Senior Secured Credit Facilities, the first lien net leverage ratio not exceeding the greater of (1) 5.00 to 1.00 and (2) if such indebtedness is incurred to finance a permitted acquisition or other permitted investment, the first lien net leverage ratio immediately prior to the incurrence of such indebtedness, (ii) if such indebtedness is secured by a lien on the collateral that is junior to the lien on the collateral securing the Senior Secured Credit Facilities, the secured net leverage ratio not exceeding the greater of (1) 5.50 to 1.00 and (2) if such indebtedness is incurred to finance a permitted acquisition or other permitted investment, the secured net leverage ratio immediately prior to the incurrence of such indebtedness or (iii) if such indebtedness is unsecured or secured by assets that do not secure the Senior Secured Credit Facilities, either (x) the total net leverage ratio not exceeding the greater of (1) 6.60 to 1.00 and (2) if such indebtedness is incurred to finance a permitted acquisition or other permitted investment, the total net leverage ratio immediately prior to the incurrence of such indebtedness or (y) the interest coverage ratio not being less than the lesser of (1) 2.00 to 1.00 and (2) if such indebtedness is incurred to finance a permitted acquisition or other permitted investment, the interest coverage ratio immediately prior to the incurrence of such indebtedness. The lenders under the Senior Secured Credit Facilities are not under any obligation to provide commitments in respect of any such increase or incurrence.
Interest Rate and Fees
Amounts borrowed under the Senior Secured Credit Facilities are subject to interest at a rate per annum equal to an applicable margin plus, at our option, either (a) for base rate loans denominated in U.S. Dollars, a base rate determined by reference to the highest of (i) the rate last quoted by The Wall Street Journal (or, if such rate is not quoted by The Wall Street Journal, another national publication selected by the administrative agent in consultation with the Borrower) as the U.S. Prime Rate in effect on such day, (ii) the Federal Funds Effective Rate plus 0.50% per annum and (iii) the one month U.S. Dollar LIBOR rate (which shall not be less than 0.00%) plus 1.00% per annum or (b) for Eurodollar rate loans, a rate determined by reference to the highest of (i) the U.S. Dollar LIBOR rate (in the case of the USD Term Loan) or the EURIBOR rate (in the case of the Euro Term Loan) based on the interest period of the applicable borrowing and (ii) 0.00%.
After the Repricing Amendment, the applicable margin for the USD Term Loan is 2.25% per annum in the case of base rate loans and 3.25% per annum in the case of Eurodollar rate loans and the applicable margin for the Euro Term Loan is 3.25% per annum for EURIBOR rate loans. The applicable margin under the Revolving Facility is based on a leverage-based pricing grid which does not exceed 3.25% per annum (in the case of Eurodollar rate loans) and 2.25% per annum (in the case of base rate loans).
Following the Repricing Amendment, the Senior Secured Credit Facilities include certain provisions that provide for an automatic transition to a replacement benchmark to the U.S. Dollar LIBOR rate at a future date.
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We are required to pay an unused line fee to the lenders under the Revolving Facility on the committed but unutilized balance of the Revolving Facility at a rate of, initially, 0.50% per annum, subject to stepdowns upon the achievement of certain first lien net leverage ratios.
Mandatory Repayments
The credit agreement governing the Senior Secured Credit Facilities requires us to prepay outstanding term loans, subject to certain exceptions, with: (1) 100% of the net cash proceeds of any incurrence of debt not permitted under the Senior Secured Credit Facilities and debt incurred to refinance the Senior Secured Credit Facilities, (2) 50% (which percentage is reduced to 25% and 0% if our first lien net leverage ratio is less than specified levels) of our annual excess cash flow (as defined in the credit agreement governing the Senior Secured Credit Facilities) minus the amount of any voluntary prepayments of first lien term loans and certain other debt, and any voluntary prepayment of certain first lien revolving facilities to the extent such prepayment is accompanied by a permanent commitment reduction, in each case made (or committed to be made) during the applicable calculation period (or, at the Borrowers option, after the applicable calculation period and prior to the payment due date) and further reduced by certain other amounts and (3) 100% (which percentage is reduced to 50% and 0% if our first lien net leverage ratio is less than specified levels) of the net cash proceeds of asset sales or other dispositions of assets constituting collateral pursuant to the unlimited basket (and including non-ordinary course casualty or condemnation events with respect to assets constituting collateral) by the Borrower or by any guarantor, subject to reinvestment rights and certain other exceptions. Mandatory repayments are applied pro rata across the term loans, subject to certain exceptions.
Voluntary Repayments
We may voluntarily prepay outstanding loans under the Senior Secured Credit Facilities at any time without premium or penalty, other than (i) customary breakage costs and (ii) a premium of 1.00% applicable to any prepayment of the Term Loan Facility that is made in connection with a repricing transaction (subject to certain exceptions) that occurs on or prior to the 6-month anniversary of the Repricing Amendment Date.
Amortization and Final Maturity
The USD Term Loan amortizes at 1% per annum in equal quarterly installments, with the balance payable at the time the Term Loan Facility matures. The Euro Term Loan does not amortize.
Guarantees and Security
Holdings and certain of the Borrowers direct and indirect wholly-owned subsidiaries (and, at our option, other subsidiaries of the Borrower) unconditionally guarantee all obligations under the Senior Secured Credit Facilities (with certain agreed-upon exceptions).
All obligations under the Senior Secured Credit Facilities, and the guarantees of those obligations, are secured, subject to certain exceptions, by:
| a pledge of 100% of the equity interests of the Borrower and certain of the equity interests held by the Borrower or any guarantor subsidiary; and |
| a security interest in substantially all other tangible and intangible assets of Holdings, the Borrower and each guarantor subsidiary, subject to certain permitted liens and customary exceptions. |
The liens securing our obligations under the Senior Secured Credit Facilities are second priority liens on the borrowing base (and certain other) assets securing the ABL Facility and first priority liens on the other relevant assets of Holdings, the Borrower and the guarantor subsidiaries, subject to customary exceptions and liens permitted under the Senior Secured Credit Facilities.
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Certain Covenants and Events of Default
The Senior Secured Credit Facilities contain a number of covenants that, among other things and subject to certain exceptions, restrict the ability of Borrower and its restricted subsidiaries to, among other things:
| incur additional indebtedness, including finance leases; |
| pay dividends on capital stock or redeem, repurchase or retire capital stock or certain indebtedness; |
| make investments, loans, advances and acquisitions; |
| enter into agreements with negative pledge clauses; |
| engage in transactions with our affiliates; |
| sell or dispose of assets, including the capital stock of our subsidiaries; |
| make certain fundamental changes, including consolidate or merge; and |
| create liens. |
The credit agreement governing the Senior Secured Credit Facilities also contains a customary passive holding company covenant applicable to Holdings and a leverage-based financial covenant, applicable only to the Revolving Facility and only applicable if certain exposures thereunder exceed a threshold amount on the last day of a fiscal quarter.
The credit agreement governing the Senior Secured Credit Facilities also contains certain events of default, including payment defaults, failure to perform or observe covenants, cross-defaults with certain other events of default in connection with our other material indebtedness, a change of control and certain bankruptcy events, among others.
ABL Facility
Concurrently with the closing of the Acquisition, the Borrower entered into a credit agreement with, among others, the Co-Borrower, as U.S. co-borrower, Clarios Recycling GmbH, each of the other borrowers from time to time party thereto, Holdings, as holding company guarantor, Citibank, N.A. and/or its affiliates, as administrative agent and collateral agent, and the lenders and issuing banks party thereto, for an asset-based revolving credit facility which allowed us to draw up to $500 million, subject to borrowing base availability, and will mature in 2024. On March 5, 2020, the parties thereto entered into an incremental amendment to the ABL Facility which increased the aggregate commitments thereunder by $250 million to $750 million, subject to borrowing base availability. A sublimit of $375 million applies to German borrowers. We have the ability to request the issuance of letters of credit up to a maximum aggregate amount of $273 million. Under the ABL Facility, we have the ability to increase the amount of revolving commitments outstanding thereunder by certain amounts. The lenders under the ABL Facility are not under any obligation to provide commitments in respect of any such increase.
Amounts borrowed under the ABL Facility are subject to interest at a rate per annum equal to an applicable margin plus, at our option, either (a) for base rate loans denominated in U.S. Dollars, a base rate determined by reference to the highest of (i) the rate of interest announced publicly by Citibank, N.A. in New York, from time to time, as its prime rate, (ii) the Federal Funds Effective Rate plus 0.50% per annum and (iii) the one month U.S. Dollar LIBOR rate (which shall not be less than 0.00%) plus 1.00% per annum or (b) for Eurodollar rate loans denominated in U.S. Dollars or Euros, a rate determined by reference to the highest of (i) the U.S. Dollar LIBOR rate (in the case of U.S. Dollar denominated loans) or the EURIBOR rate (in the case of Euro denominated loans) based on the interest period of the applicable borrowing and (ii) 0.00%. Asset-based revolving loans denominated in other currencies are subject to interest at a rate per annum equal to an applicable margin plus the customary equivalent to the Eurodollar rate.
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The applicable margin with respect to borrowings under the ABL facility is based on a historical excess availability-based pricing grid which does not exceed 1.75% per annum (in the case of Eurodollar rate loans) and 0.75% per annum (in the case of base rate loans). We also are required to pay an unused line fee to the lenders under the ABL Facility on the committed but unutilized balance of the ABL Facility at a rate of 0.375% or 0.250% per annum, which varies depending on utilization.
The ABL Facility contains customary covenants and restrictions that, among other things and subject to certain exceptions, restrict the ability of the borrowers and their restricted subsidiaries to, among others:
| incur additional indebtedness, including finance leases; |
| pay dividends on capital stock or redeem, repurchase or retire capital stock or certain indebtedness; |
| make investments, loans, advances and acquisitions; |
| enter into agreements with negative pledge clauses; |
| engage in transactions with our affiliates; |
| sell or dispose of assets, including the capital stock of our subsidiaries; |
| make certain fundamental changes, including consolidate or merge; and |
| create liens. |
The credit agreement governing the ABL Facility also contains a customary passive holding company covenant applicable to Holdings.
The ABL Facility requires us to maintain a fixed-charge coverage ratio of at least 1.0 to 1.0 if Specified Availability (as defined below and more particularly defined in the credit agreement governing the ABL Facility) is less than the greater of (i) 10% of the maximum amount that can be borrowed under the ABL Facility, based on the lesser of the borrowing base and the aggregate commitments under the ABL Facility at such time (the Line Cap) and (ii) $50.0 million. Specified Availability is the sum of (i) the amount by which the Line Cap exceeds the total exposure under the ABL Facility at such time and (ii) the amount (if any, and not to be less than zero or exceed 5% of the aggregate commitments under the ABL Facility) by which the borrowing base at such time exceeds the aggregate commitments under the ABL Facility.
Certain of our direct and indirect wholly-owned subsidiaries may be co-borrowers under the ABL Facility. Such obligations are also unconditionally guaranteed by Holdings and each of the Borrowers other direct and indirect wholly-owned subsidiaries (with certain agreed-upon exceptions).
All obligations under the ABL Facility, and the guarantees of those obligations, are secured by first priority liens on customary ABL priority collateral including accounts receivable, deposit and securities accounts and inventory, with customary exclusions (the ABL Priority Collateral) and second priority liens on the other relevant assets of Holdings, the co-borrowers and the guarantor subsidiaries, subject to customary exceptions and liens permitted under the ABL Facility.
The credit agreement governing the ABL Facility also contains certain events of default, including payment defaults, failure to perform or observe covenants (including a financial covenant), cross-defaults with other events of default in connection with our other material indebtedness, a change of control and certain bankruptcy events, among others.
The available borrowing capacity under the ABL Facility varies monthly according to the levels of our eligible accounts receivables, eligible unbilled receivables, eligible inventory and certain qualified cash and the amount of any reserves imposed by the administrative agent. In addition, there is no ability to borrow during a default or an event of default.
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The Secured Notes
6.250% Senior Secured Notes due 2026
On April 1, 2019, the Borrowers issued $1,000.0 million aggregate principal amount of 6.250% Senior Secured Notes due 2026. The 2026 USD Secured Notes mature on May 15, 2026. Interest accrues on the 2026 USD Secured Notes at a rate of 6.250% per annum from April 1, 2020, and interest is payable semi-annually on May 15 and November 15 of each year. The 2026 USD Secured Notes were offered and sold in transactions not required to be registered under the Securities Act and are not entitled to any registration rights. The 2026 USD Secured Notes are senior secured obligations and are and will be, as applicable, jointly and severally, unconditionally guaranteed by Holdings, which owns, directly or indirectly, all of the equity interests of the Borrowers, and each of the Borrowers existing and future wholly-owned subsidiaries that guarantee the Borrowers obligations under the term loans and cash flow revolver of the Senior Secured Credit Facilities.
4.375% Senior Secured Notes due 2026
On April 1, 2019, the Borrowers issued 700.0 million aggregate principal amount of 4.375% Senior Secured Notes due 2026. The Euro Secured Notes mature on May 15, 2026. Interest accrues on the Euro Secured Notes at a rate of 4.375% per annum from April 1, 2020, and interest is payable semi-annually on May 15 and November 15 of each year. The Euro Secured Notes were offered and sold in transactions not required to be registered under the Securities Act and are not entitled to any registration rights. The Euro Secured Notes are senior secured obligations and are and will be, as applicable, jointly and severally, unconditionally guaranteed by Holdings, which owns, directly or indirectly, all of the equity interests of the Borrowers, and each of the Borrowers existing and future wholly-owned subsidiaries that guarantee the Borrowers obligations under the term loans and cash flow revolver of the Senior Secured Credit Facilities.
6.750% Senior Secured Notes due 2025
On May 20, 2020, the Borrower issued $500.0 million aggregate principal amount of 6.750% Senior Notes due 2025. The 2025 Secured Notes mature on May 15, 2025. Interest accrues on the 2025 Secured Notes at a rate of 6.750% per annum from May 20, 2020, and interest is payable semi-annually on May 15 and November 15 of each year. The 2025 Secured Notes were offered and sold in transactions not required to be registered under the Securities Act and are not entitled to any registration rights. The 2025 Secured Notes are senior secured obligations and are and will be, as applicable, jointly and severally, unconditionally guaranteed by Holdings, which owns, directly or indirectly, all of the equity interests of the Borrowers, and each of the Borrowers existing and future wholly-owned subsidiaries that guarantee the Borrowers obligations under the term loans and cash flow revolver of the Senior Secured Credit Facilities.
The Secured Notes and the related guarantees are the Borrowers and the guarantors senior secured obligations and rank (i) pari passu in right of payment with all of the Borrowers and the guarantors existing and future senior indebtedness; (ii) senior in priority as to certain fixed asset collateral under the ABL Facility, to the extent of the value of such collateral; (iii) junior in priority as to certain priority collateral under the ABL Facility, to the extent of the value of such collateral; (iv) pari passu in priority as to collateral under the Term Loan Facility and Revolving Facility of the Senior Secured Credit Facilities; and (v) senior in priority as to certain fixed asset collateral with respect to the Borrowers and the guarantors future obligations secured by a junior priority lien on the fixed asset collateral, to the extent of the value of such collateral.
If, prior to maturity, we experience certain kinds of changes of control, we are required to offer to repurchase any or all of the Secured Notes at a repurchase price equal to 101% of the aggregate principal amount of the Secured Notes, plus any accrued and unpaid interest.
The indentures governing the Secured Notes also contain covenants that, among other things, limit our ability and the ability of certain of our subsidiaries to: (i) incur certain liens; (ii) transfer or sell assets; and (iii) merge or consolidate.
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The indentures governing the Secured Notes also contain customary events of default, including (i) failure to pay principal or interest on the Secured Notes when due and payable; (ii) failure to comply with certain covenants or agreements in indenture if not cured or waived as provided in the indenture, as applicable; (iii) failure to pay our indebtedness or indebtedness of any Restricted Subsidiary (as such term is defined in the applicable indenture) in excess of the greater of (x) $350.0 million or (y) 22.5% of Consolidated EBITDA (as such term is defined in the applicable indenture) measured for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination within any applicable grace period after maturity or acceleration; (iv) certain events of bankruptcy, insolvency, or reorganization; (v) failure to pay any judgment or decree for an amount in excess of the greater of (x) $350.0 million or (y) 22.5% of Consolidated EBITDA measured for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination against us or any Significant Subsidiary (as such term is defined in the applicable indenture) that was not discharged, waived or stayed as provided in the applicable indenture; and (vi) cessation of any guarantee of Holdings or any guarantor that is a Significant Subsidiary to be in full force and effect or an assertion by the Borrower or any guarantor that is a Significant Subsidiary in any pleading in any court of competent jurisdiction that any security interest in the Secured Notes is invalid or unenforceable. In the case of an event of default, the principal amount of the applicable Secured Notes plus accrued and unpaid interest would be accelerated.
The Unsecured Notes
8.500% Senior Notes due 2027
On April 1, 2019, the Borrowers issued $1,950.0 million aggregate principal amount of 8.500% Senior Notes due 2027, pursuant to an indenture, dated as of April 1, 2019, among the Borrowers, Holdings, and Citibank, N.A., as trustee, paying agent, registrar and transfer agent. The Unsecured Notes mature on May 15, 2027. Interest accrues on the Unsecured Notes at a rate of 8.500% per annum from April 1, 2020, and interest is payable semi-annually on May 15 and November 15 of each year. The Unsecured Notes were offered and sold in transactions not required to be registered under the Securities Act and are not entitled to any registration rights. The Unsecured Notes are unsecured obligations and are and will be, as applicable, jointly and severally, unconditionally guaranteed by Holdings, which owns, directly or indirectly, all of the equity interests of the Borrowers, and each of the Borrowers existing and future wholly-owned subsidiaries that guarantee the Borrowers obligations under the term loans and cash flow revolver of the Senior Secured Credit Facilities.
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The following table sets forth information regarding beneficial ownership of our common stock as of , 2021, by:
| each person or group whom we know to own beneficially more than 5% of our common stock; |
| each of the directors and named executive officers individually; and |
| all directors and executive officers as a group. |
In accordance with the rules of the SEC, beneficial ownership includes voting or investment power with respect to securities and includes the shares issuable pursuant to stock options that are exercisable within 60 days of , 2021. Shares issuable pursuant to stock options are deemed outstanding for computing the percentage of the person holding such options but are not outstanding for computing the percentage of any other person. The number of shares of common stock outstanding after this offering includes shares of common stock being offered for sale by us in this offering. The percentage of beneficial ownership for the following table is based on shares of common stock outstanding as of , 2021, and shares of common stock outstanding after the completion of this offering assuming no exercise of the underwriters over-allotment option. Unless otherwise indicated, the address for each listed stockholder is: c/o Clarios International Inc., 5757 N Green Bay Avenue, Milwaukee, Wisconsin, 53209. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock.
Shares Beneficially Owned Before the Offering |
Shares Beneficially Owned After the Offering(1) |
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Name and Address of Beneficial Owner |
Number | Percent % | Number | Percent % | ||||||||||||
5% Shareholders |
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Entities affiliated with the Sponsor Group(2) |
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Directors and Officers |
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Mark Wallace |
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Christopher J. Eperjesy |
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Anthony Moore |
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Gerardo Gonzalez-Aleu |
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Jennifer L. Slater |
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Leslie Wong |
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Dr. Werner Benade |
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Claudio Morfe |
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Wendy Radtke |
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Becky Kryger |
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Diarmuid OConnell |
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John Barkhouse |
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Ron Bloom |
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Catherine Clegg |
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Stephen Girsky |
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Michael Norona |
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Justin Shaw |
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Maryrose Sylvester |
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Bertrand Villon |
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Mark Weinberg |
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All directors and officers as a group (20 persons) |
* | Less than 1% ownership. |
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(1) | Assumes no exercise of the underwriters over-allotment option. See Underwriting. |
(2) | Includes: (i) shares of common stock collectively held by and (the Brookfield Funds) and (ii) shares of common stock collectively held by and (the CDPQ Funds). Each of Brookfield and Caisse de dépôt et placement du Québec may be deemed to beneficially own the shares of common stock held by the Brookfield Funds and the CDPQ Funds, respectively, but each disclaims beneficial ownership of such shares. The address of the Brookfield Funds is . The address of the CDPQ Funds is . |
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The following descriptions are summaries of the material terms of our certificate of incorporation and bylaws. Reference is made to the more detailed provisions of, and the descriptions are qualified in their entirety by reference to, these documents, copies of which are filed with the SEC as exhibits to the registration statement of which this prospectus is a part, and applicable law.
General
Following this offering and the Concurrent Offering (if completed), our authorized capital stock will consist of shares of common stock, par value $0.01 per share, and shares of preferred stock, par value $0.01 per share (including shares of Mandatory Convertible Preferred Stock).
Common Stock
Common stock outstanding. As of , 2021 there were shares of common stock outstanding which were held of record by stockholders. There will be shares of common stock outstanding, assuming no exercise of the underwriters over-allotment option and no exercise of outstanding options, after giving effect to the sale of the shares of common stock offered hereby. All outstanding shares of common stock are fully paid and non-assessable, and the shares of common stock to be issued upon completion of this offering will be fully paid and non-assessable.
Voting rights. The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders.
Dividend rights. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available therefor. See Dividend Policy.
Rights upon liquidation. In the event of liquidation, dissolution or winding up of Clarios, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding.
Other rights. The holders of our common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock.
Preferred Stock
Our amended and restated certificate of incorporation will authorize our board of directors to establish one or more series of preferred stock (including convertible preferred stock). Unless required by law or any stock exchange, the authorized shares of preferred stock will be available for issuance without further action by holders of our common stock. Our board of directors will be able to determine, with respect to any series of preferred stock, the powers (including voting powers), preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, including, without limitation:
| the designation of the series; |
| the number of shares of the series, which our board of directors may, except where otherwise provided in the preferred stock designation, increase (but not above the total number of authorized share of the class) or decrease (but not below the number of shares then outstanding); |
| whether dividends, if any, will be cumulative or non-cumulative and the dividend rate of the series; |
| the dates at which dividends, if any, will be payable; |
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| the redemption rights and price or prices, if any, for shares of the series; |
| the terms and amounts of any sinking fund provided for the purchase or redemption of shares of the series; |
| the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of our company; |
| whether the shares of the series will be convertible into shares of any other class or series, or any other security, of our company or any other entity, and, if so, the specification of the other class or series or other security, the conversion price or prices or rate or rates, any rate adjustments, the date or dates as of which the shares will be convertible and all other terms and conditions upon which the conversion may be made; |
| restrictions on the issuance of shares of the same series or of any other class or series; and |
| the voting rights, if any, of the holders of the series. |
We could issue a series of preferred stock that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of the holders of our common stock might believe to be in their best interests or in which the holders of our common stock might receive a premium over the market price of the shares of common stock. Additionally, the issuance of preferred stock may adversely affect the holders of our common stock by restricting dividends on the common stock, diluting the voting power of the common stock or subordinating the liquidation rights of the common stock. As a result of these or other factors, the issuance of preferred stock could have an adverse impact on the market price of our common stock.
Mandatory Convertible Preferred Stock. Assuming the Concurrent Offering is completed, we will also have outstanding shares of the Mandatory Convertible Preferred Stock (or shares if the underwriters in the Concurrent Offering exercise their over-allotment option in full), which will be convertible into shares of our common stock (or shares if the underwriters in the Concurrent Offering exercise their over-allotment option in full), in each case, assuming mandatory conversion based on an applicable market value of our common stock equal to the assumed initial public offering price of $ per share of our common stock, which is the midpoint of the estimated offering price range shown on the cover page of this prospectus, subject to anti-dilution, make-whole and other adjustments or any shares of our common stock that may be issued in payment of a dividend, fundamental change dividend make-whole amount or accumulated dividend amount. See Mandatory Convertible Preferred Stock Offering.
Authorized but Unissued Capital Stock
Delaware law does not require stockholder approval for any issuance of authorized shares. However, the listing requirements of the NYSE, which would apply so long as the shares of common stock remains listed on the NYSE, require stockholder approval of certain issuances equal to or exceeding 20% of the then outstanding voting power or the then outstanding number of shares of common stock. These additional shares of common stock may be used for a variety of corporate purposes, including future public offerings, to raise additional capital or to facilitate acquisitions.
One of the effects of the existence of unissued and unreserved common stock or preferred stock may be to enable our board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of our company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive the stockholders of opportunities to sell their shares at prices higher than prevailing market prices.
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Dividends
The DGCL permits a corporation to declare and pay dividends out of surplus or, if there is no surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Surplus is defined as the excess of the net assets of the corporation over the amount determined to be the capital of the corporation by its board of directors. The capital of the corporation is typically calculated to be (and cannot be less than) the aggregate par value of all issued shares of capital stock. Net assets equal the fair value of the total assets minus total liabilities. The DGCL also provides that dividends may not be paid out of net profits if, after the payment of the dividend, remaining capital would be less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets. Declaration and payment of any dividend will be subject to the discretion of our board of directors. See also Dividend Policy.
Stockholder Meetings
Our amended and restated certificate of incorporation and our bylaws will provide that annual stockholder meetings will be held at a date, time and place, if any, as exclusively selected by our board of directors. Our amended and restated certificate of incorporation will provide that, subject to any special rights of the holders as required by law, special meetings of the stockholders can only be called by the chairman of the board, the chief executive officer or the president of the Company, or, until the time that the Sponsor Group is no longer controlled by Brookfield and the Majority Ownership Requirement is no longer met, at the request of the Sponsor Group. Except as described above, stockholders are not permitted to call a special meeting or to require the board of directors to call a special meeting. To the extent permitted under applicable law, we may conduct meetings solely by means of remote communications, including by webcast.
Corporate Opportunity
Our amended and restated certificate of incorporation will renounce, to the maximum extent permitted from time to time by Delaware law, any interest or expectancy that we have in, or right to be offered an opportunity to participate in, specified business opportunities that are from time to time presented to our officers, directors or stockholders or their respective affiliates, other than those officers, directors, stockholders or affiliates who are our or our subsidiaries employees. Our amended and restated certificate of incorporation will provide that, to the fullest extent permitted by law, none of the Sponsor Group or any of its affiliates or any Sponsor Director who is not employed by us (including any non-employee director who serves as one of our officers in both his director and officer capacities) or his or her affiliates will have any duty to refrain from (i) engaging in a corporate opportunity in the same or similar lines of business in which we or our affiliates now engage or propose to engage or (ii) otherwise competing with us or our affiliates.
In addition, to the fullest extent permitted by law, in the event that the Sponsor Group or any non-employee director acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for itself or himself or its or his affiliates or for us or our affiliates, such person will have no duty to communicate or offer such transaction or business opportunity to us or any of our affiliates and they may take any such opportunity for themselves or offer it to another person or entity.
Our amended and restated certificate of incorporation will not renounce our interest in any business opportunity that is expressly offered to a non-employee director solely in his or her capacity as a director or officer of the Company. To the fullest extent permitted by law, no business opportunity will be deemed to be a potential corporate opportunity for us unless we would be permitted to undertake the opportunity under our amended and restated certificate of incorporation, we have sufficient financial resources to undertake the opportunity and the opportunity would be in line with our business.
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Anti-Takeover Effects of our Amended and Restated Certificate of Incorporation and Bylaws and Certain Provisions of Delaware Law
Our amended and restated certificate of incorporation and bylaws will contain, and the DGCL contains, certain provisions that are summarized in the following paragraphs and that are intended to enhance the likelihood of continuity and stability in the composition of our board of directors. These provisions are intended to avoid costly takeover battles, reduce our vulnerability to a hostile or abusive change of control and enhance the ability of our board of directors to maximize stockholder value in connection with any unsolicited offer to acquire us. However, these provisions may have an anti-takeover effect and may delay, deter or prevent a merger or acquisition of the Company by means of a tender offer, a proxy contest or other takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the prevailing market price for the shares of common stock held by stockholders.
No Cumulative Voting
Under Delaware law, the right to vote cumulatively does not exist unless the certificate of incorporation specifically authorizes cumulative voting. Our amended and restated certificate of incorporation will not authorize cumulative voting. Therefore, stockholders holding a majority in voting power of the shares of our common stock entitled to vote generally in the election of directors will be able to elect all our directors.
Classified Board; Election of Directors
Our amended and restated certificate of incorporation provides that our board of directors will be divided into three classes of directors, with the classes to be as nearly equal in number as possible, and with the directors serving staggered three-year terms, with only one class of directors being elected at each annual meeting of stockholders. As a result, approximately one-third of our board of directors will be elected each year. We expect that the Sponsor Directors will be divided as nearly as equally among the three classes of directors as is practicable. The classification of directors will have the effect of making it more difficult for stockholders to change the composition of our board of directors. Our amended and restated certificate of incorporation and bylaws will provide that, subject to any rights of holders of preferred stock to elect additional directors under specified circumstances, the number of directors will be fixed from time to time exclusively pursuant to a resolution adopted by the board of directors.
Removal of Directors; Vacancies and Newly Created Directorships
Under the DGCL, unless otherwise provided in our amended and restated certificate of incorporation, directors serving on a classified board may be removed by the stockholders only for cause. Our amended and restated certificate of incorporation provides that the directors divided into classes may be removed with or without cause upon the affirmative vote of a majority in voting power of all outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class; provided, however, that following the time when the Majority Ownership Requirement is no longer met, directors may only be removed for cause, and only upon the affirmative vote of holders of at least 662⁄3% of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class; provided, further, however, that specified directors designated pursuant to the Stockholders Agreement may not be removed without cause without the consent of the designating party. In addition, our amended and restated certificate of incorporation will provide that, subject to the rights granted to one or more series of preferred stock then outstanding or the rights granted under the Stockholders Agreement, any newly-created directorship on the board of directors that results from an increase in the number of directors and any vacancies on our board of directors will be filled only by the affirmative vote of a majority of the remaining directors, even if less than a quorum, by a sole remaining director or by the stockholders; provided, however, that following the time when the Majority Ownership Requirement is no longer met, any newly-created directorship on the board of directors that results from an increase in the number of directors and any vacancy occurring in the board of directors may only be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director (and not by the stockholders).
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Action by Written Consent; Special Meetings of Stockholders
Our amended and restated certificate of incorporation will provide that stockholder action can be taken only at an annual or special meeting of stockholders and cannot be taken by written consent in lieu of a meeting or, until the time that the Sponsor Group is no longer controlled by Brookfield and the Majority Ownership Requirement is no longer met, by written consent of the Sponsor Group in lieu of a meeting. Our amended and restated certificate of incorporation will also provide that, subject to any special rights of the holders as required by law, special meetings of the stockholders can only be called by the chairman of the board of directors, the chief executive officer or the president of the Company or, until the time that the Sponsor Group is no longer controlled by Brookfield and the Majority Ownership Requirement is no longer met, at the request of holders of the Sponsor Group. Except as described above, stockholders are not permitted to call a special meeting or to require the board of directors to call a special meeting. Our amended and restated bylaws will prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting.
Advance Notice Procedures
Our amended and restated bylaws will establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. In order for any matter to be properly brought before a meeting, a stockholder will have to comply with advance notice requirements and provide us with certain information. Generally, to be timely, a stockholders notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the immediately preceding annual meeting of stockholders. Our amended and restated bylaws will also specify requirements as to the form and content of a stockholders notice. These provisions will not apply to the Sponsor Group so long as the Sponsor Group is controlled by Brookfield and the Majority Ownership Requirement is met. Our amended and restated bylaws will allow the chairman of the meeting at a meeting of the stockholders to adopt rules and regulations for the conduct of meetings which may have the effect of precluding the conduct of certain business at a meeting if the rules and regulations are not followed.
Supermajority Approval Requirements
The DGCL generally provides that the affirmative vote of the holders of a majority of the total voting power of the shares entitled to vote on any matter is required to amend a corporations certificate of incorporation or bylaws, unless either a corporations certificate of incorporation or bylaws require a greater percentage. Our amended and restated certificate of incorporation and bylaws will provide that, following the time that the Majority Ownership Requirement is no longer met, the following provisions in our amended and restated certificate of incorporation may be amended, altered, repealed or rescinded only by the affirmative vote of the holders of at least 662/3% in voting power of all the then outstanding shares of our stock entitled to vote thereon, voting together as a single class:
| the provision requiring a 662/3% supermajority vote for stockholders to amend our amended and restated bylaws; |
| the provisions providing for a classified board of directors (the election and term of our directors); |
| the provisions regarding resignation and removal of directors; |
| the provisions regarding competition and corporate opportunities; |
| the provisions regarding entering into business combinations with interested stockholders; |
| the provisions regarding stockholder action by written consent; |
| the provisions regarding calling special meetings of stockholders; |
| the provisions regarding filling vacancies on our board of directors and newly created directorships; |
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| the provisions eliminating monetary damages for breaches of fiduciary duty by a director; |
| the provision regarding forum selection; and |
| the amendment provision requiring that the above provisions be amended only with a 662/3% supermajority vote. |
The combination of the classification of our board of directors, the lack of cumulative voting and the supermajority voting requirements will make it more difficult for our existing stockholders to replace our board of directors as well as for another party to obtain control of us by replacing our board of directors. Because our board of directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management.
Authorized but Unissued Shares
The authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder approval, subject to any limitations imposed by the listing rules of the NYSE. The existence of authorized but unissued and unreserved common stock and preferred stock could make more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise. See Preferred Stock and Authorized but Unissued Capital Stock above.
Business Combinations with Interested Stockholders
In general, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group owning 15% or more of the corporations voting stock for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. We will expressly elect not to be governed by the business combination provisions of Section 203 of the DGCL until such time as no party to our stockholders agreement beneficially owns % or more of the then outstanding shares of our common stock, at which time we will automatically become subject to Section 203 of the DGCL. However, our amended certificate of incorporation will contain similar provisions providing that we may not engage in certain business combinations with any interested stockholder for a three-year period following the time that the stockholder became an interested stockholder, unless (i) the business combination or the transaction which resulted in the stockholder becoming an interested stockholder was approved by the board of directors; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our outstanding shares entitled to vote generally in the election of directors at the time the transaction commenced; or (iii) on or after such time, the business combination is approved by the board of directors and authorized at a meeting of stockholders, and not by written consent, by the affirmative vote of at least 662/3% of the outstanding shares entitled to vote generally in the election of directors that are not owned by the interested stockholder. Our amended certificate of incorporation will provide that the Sponsor Group and its affiliates and any of their respective direct or indirect transferees and any group as to which such persons are a party do not constitute interested stockholders for purposes of this provision.
Dissenters Rights of Appraisal and Payment
Under the DGCL, with certain exceptions, our stockholders will have appraisal rights in connection with a merger or consolidation in which we are a constituent entity. Pursuant to the DGCL, stockholders who properly demand and perfect appraisal rights in connection with such merger or consolidation will have the right to receive payment of the fair value of their shares as determined by the Delaware Court of Chancery, plus interest, if any, on the amount determined to be the fair value, from the effective time of the merger or consolidation through the date of payment of the judgment.
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Stockholders Derivative Actions
Under the DGCL, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the stockholder bringing the action is a holder of our shares at the time of the transaction to which the action relates or such stockholders stock thereafter devolved by operation of law. To bring such an action, the stockholder must otherwise comply with Delaware law regarding derivative actions.
Exclusive Forum
Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a breach of fiduciary duty owed by any current or former director, officer, stockholder or employee of the Company to the Company or our stockholders; (iii) any action asserting a claim against us arising under the DGCL, our certificate of incorporation or our bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine. Our amended and restated certificate of incorporation will further provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the federal securities laws of the United States, including, in each case, the applicable rules and regulations promulgated thereunder. It is possible that a court could find our forum selection provisions to be inapplicable or unenforceable and, accordingly, we could be required to litigate claims in multiple jurisdictions, incur additional costs or otherwise not receive the benefits that we expect our forum selection provisions to provide. The exclusive forum provisions may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers or stockholders, which may discourage lawsuits with respect to such claims. See Risk factorsRisks Related to our Common Stock and this OfferingThe provision of our amended and restated certificate of incorporation requiring exclusive forum in certain courts in the State of Delaware or the federal district courts of the United States for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.
To the fullest extent permitted by law, any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of our company shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation. However, investors will not be deemed to have waived compliance with the federal securities laws and the rules and regulations thereunder as a result of our forum selection provisions.
Limitation of Liability of Directors and Officers
Our amended and restated certificate of incorporation will provide that no director will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except as required by applicable law, as in effect from time to time. Currently, Delaware law requires that liability be imposed for the following:
| any breach of the directors duty of loyalty to our company or our stockholders; |
| any act or omission not in good faith or which involved intentional misconduct or a knowing violation of law; |
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| unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; and |
| any transaction from which the director derived an improper personal benefit. |
As a result, neither we nor our stockholders have the right, through stockholders derivative suits on our behalf, to recover monetary damages against a director for breach of fiduciary duty as a director, including breaches resulting from grossly negligent behavior, except in the situations described above.
Our bylaws will provide that, to the fullest extent permitted by law, we will indemnify any officer or director of our company against all damages, claims and liabilities arising out of the fact that the person is or was our director or officer, or served any other enterprise at our request as a director, officer, employee, agent or fiduciary. We will reimburse the expenses, including attorneys fees, incurred by a person indemnified by this provision when we receive an undertaking to repay such amounts if it is ultimately determined that the person is not entitled to be indemnified by us. Amending this provision will not reduce our indemnification obligations relating to actions taken before an amendment.
Listing
We have applied to list the common stock on the NYSE under the symbol BTRY.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Computershare Trust Company, N.A.
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MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF COMMON STOCK
The following are the material U.S. federal income and estate tax consequences of the ownership and disposition of our common stock acquired in this offering by a Non-U.S. Holder that does not own, and has not owned, actually or constructively, more than 5% of our common stock. You are a Non-U.S. Holder if for U.S. federal income tax purposes you are a beneficial owner of our common stock that is:
| a nonresident alien individual; |
| a foreign corporation; or |
| a foreign estate or trust. |
You are not a Non-U.S. Holder if you are a nonresident alien individual present in the United States for 183 days or more in the taxable year of disposition, or if you are a former citizen or former resident of the United States for U.S. federal income tax purposes. If you are such a person, you should consult your tax adviser regarding the U.S. federal income tax consequences of the ownership and disposition of our common stock.
If you are a partnership for U.S. federal income tax purposes, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and your activities.
This discussion is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, changes to any of which subsequent to the date of this prospectus may affect the tax consequences described herein, possibly with retroactive effect. This discussion does not describe all of the tax consequences that may be relevant to you in light of your particular circumstances, including alternative minimum tax and Medicare contribution tax consequences and does not address any aspect of state, local or non-U.S. taxation, or any taxes other than income and estate taxes. You should consult your tax adviser with regard to the application of the U.S. federal tax laws to your particular situation, as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Dividends
Distributions of cash or other property will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed our current and accumulated earnings and profits, they will constitute a return of capital, which will first reduce your basis in our common stock, but not below zero, and then will be treated as gain from the sale of our common stock, as described below under Gain on Disposition of Our Common Stock.
Dividends paid to you generally will be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. In order to obtain a reduced rate of withholding (subject to the discussion below under FATCA), you will be required to provide a properly executed applicable IRS Form W-8 certifying your entitlement to benefits under a treaty.
If dividends paid to you are effectively connected with your conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base maintained by you in the United States), you will generally be taxed on the dividends in the same manner as a U.S. person. In this case, you will be exempt from the withholding tax discussed in the preceding paragraph, although you will be required to provide a properly executed IRS Form W-8ECI in order to claim an exemption from withholding. You should consult your tax adviser with respect to other U.S. tax consequences of the ownership and disposition of our common stock, including the possible imposition of a branch profits tax at a rate of 30% (or a lower treaty rate) if you are a corporation.
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Gain on Disposition of Our Common Stock
Subject to the discussions below under Information Reporting and Backup Withholding and FATCA, you generally will not be subject to U.S. federal income or withholding tax on gain realized on a sale or other taxable disposition of our common stock unless:
| the gain is effectively connected with your conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained by you in the United States), or |
| we are or have been a United States real property holding corporation, as defined in the Code, at any time within the five-year period preceding the disposition or your holding period, whichever period is shorter, and our common stock has ceased to be regularly traded on an established securities market prior to the beginning of the calendar year in which the sale or disposition occurs. |
We believe that we are not, and do not anticipate becoming, a United States real property holding corporation.
If you recognize gain on a sale or other disposition of our common stock that is effectively connected with your conduct of a trade or business in the United States (and if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained by you in the United States), you will generally be taxed on such gain in the same manner as a U.S. person. You should consult your tax adviser with respect to other U.S. tax consequences of the ownership and disposition of our common stock, including the possible imposition of a branch profits tax at a rate of 30% (or a lower treaty rate) if you are a corporation.
Information Reporting and Backup Withholding
Information returns are required to be filed with the IRS in connection with payments of dividends on our common stock. Unless you comply with certification procedures to establish that you are not a U.S. person, information returns may also be filed with the IRS in connection with the proceeds from a sale or other disposition of our common stock. You may be subject to backup withholding on payments on our common stock or on the proceeds from a sale or other disposition of our common stock unless you comply with certification procedures to establish that you are not a U.S. person or otherwise establish an exemption. Your provision of a properly executed applicable IRS Form W-8 certifying your non-U.S. status will permit you to avoid backup withholding. Amounts withheld under the backup withholding rules are not additional taxes and may be refunded or credited against your U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
FATCA
Provisions of the Code commonly referred to as FATCA require withholding of 30% on payments of dividends on our common stock, as well as of gross proceeds of dispositions of our common stock, to foreign financial institutions (which is broadly defined for this purpose and in general includes investment vehicles) and certain other non-U.S. entities unless various U.S. information reporting and due diligence requirements (generally relating to ownership by U.S. persons of interests in or accounts with those entities) have been satisfied, or an exemption applies. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. Under proposed regulations the preamble to which states that taxpayers may rely on the proposed regulations until final regulations are issued, this withholding tax will not apply to the gross proceeds from the sale, exchange, redemption or other taxable disposition of our common stock. If FATCA withholding is imposed, a beneficial owner that is not a foreign financial institution generally may obtain a refund of any amounts withheld by filing a U.S. federal income tax return (which may entail significant administrative burden). You should consult your tax adviser regarding the effects of FATCA on your investment in our common stock.
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Federal Estate Tax
Individual Non-U.S. Holders and entities the property of which is potentially includible in such an individuals gross estate for U.S. federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained certain interests or powers), should note that, absent an applicable treaty exemption, our common stock will be treated as U.S.-situs property subject to U.S. federal estate tax.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock. Future sales of substantial amounts of our common stock in the public market could adversely affect market prices prevailing from time to time. Furthermore, because only a limited number of shares will be available for sale shortly after this offering due to existing contractual and legal restrictions on resale as described below, there may be sales of substantial amounts of our common stock in the public market after the restrictions lapse. This may adversely affect the prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have shares of common stock (or shares of common stock outstanding if the underwriters exercise their option to purchase additional shares of common stock in full) as of , 2021. Of these shares, the shares (or shares if the underwriters exercise their option to purchase additional shares of common stock in full) sold in this offering will be freely transferable without restriction or registration under the Securities Act, except for any shares purchased by one of our existing affiliates, as that term is defined in Rule 144 under the Securities Act. The remaining shares of common stock existing are restricted shares as defined in Rule 144. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 of the Securities Act. As a result of the contractual 180-day lock-up period described below and the provisions of Rules 144 and 701, these shares will be available for sale in the public market as follows:
Number of Shares |
Date | |
On the date of this prospectus. | ||
After 90 days from the date of this prospectus. | ||
After 180 days from the date of this prospectus (subject, in some cases, to volume limitations). | ||
At various times after 180 days from the date of this prospectus (subject, in some cases, to volume limitations). |
Assuming the Concurrent Offering is completed, we will also have outstanding shares of the Mandatory Convertible Preferred Stock (or shares if the underwriters in the Concurrent Offering exercise their over-allotment option in full), which will be convertible into shares of our common stock (or shares if the underwriters in the Concurrent Offering exercise their over-allotment option in full), in each case assuming mandatory conversion based on an applicable market value of our common stock equal to the assumed initial public offering price of $ per share of common stock (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus), subject to anti-dilution, make-whole and other adjustments or any shares of our common stock that may be issued in payment of a dividend, fundamental change dividend make-whole amount or accumulated dividend amount.
Rule 144
In general, a person who has beneficially owned restricted shares of our common stock for at least six months would be entitled to sell such securities, provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the 90 days preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Persons who have beneficially owned restricted shares of our common stock for at least six months but who are our affiliates at the time of, or any time during the 90 days preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three month period only a number of securities that does not exceed the greater of either of the following:
| 1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering, assuming no exercise of the underwriters option to purchase additional shares; or |
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| the average weekly trading volume of our common stock on the during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale; |
provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Such sales both by affiliates and by non-affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144 to the extent applicable.
Rule 701
In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchases shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period requirements or other restrictions contained in Rule 701.
The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold by persons other than affiliates, as defined in Rule 144, subject only to the manner of sale provisions of Rule 144 and by affiliates under Rule 144 without compliance with its one-year minimum holding period requirement.
Registration Rights
In connection with this offering, we will enter into an agreement that will provide that certain holders of our capital stock, including the Sponsor Group, will be entitled to various rights with respect to the registration of these shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates.
Lock-up Agreements
We, our directors and executive officers and holders of substantially all of our common stock, have agreed subject to certain exceptions (including the issuance of the Mandatory Convertible Preferred Stock in the Concurrent Offering and of any shares of common stock issued upon conversion thereof), not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock for a period of 180 days after the date of this prospectus, without the prior written consent of BofA Securities, Inc. and J.P. Morgan Securities LLC. See Underwriting.
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We are offering the shares of common stock described in this prospectus through a number of underwriters. BofA Securities, Inc. and J.P. Morgan Securities LLC are acting as representatives of the underwriters. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:
Name |
Number of Shares |
|||
BofA Securities, Inc. |
||||
J.P. Morgan Securities LLC |
||||
Barclays Capital Inc |
||||
BMO Capital Markets Corp. |
||||
Credit Suisse Securities (USA) LLC |
||||
Deutsche Bank Securities Inc. |
||||
Goldman Sachs & Co. LLC |
||||
Citigroup Global Markets Inc. |
||||
HSBC Securities (USA) Inc. |
||||
RBC Capital Markets, LLC |
||||
Scotia Capital (USA) Inc. |
||||
TD Securities (USA) LLC |
||||
CIBC World Markets Corp. |
||||
Guggenheim Securities, LLC |
||||
Credit Agricole Securities (USA) Inc. |
||||
ING Financial Markets LLC |
||||
National Bank of Canada Financial Inc. |
||||
Natixis Securities Americas LLC |
||||
Santander Investment Securities Inc. |
||||
Siebert Williams Shank & Co., LLC |
||||
|
|
|||
Total |
||||
|
|
The underwriters are committed to purchase all the common shares offered by us if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.
The underwriters propose to offer the common shares directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. After the initial offering of the shares to the public, if all of the common shares are not sold at the initial public offering price, the underwriters may change the offering price and the other selling terms. Sales of any shares made outside of the United States may be made by affiliates of the underwriters. The offering of the shares by the underwriters is subject to receipt and acceptance of the shares and subject to the underwriters right to reject any order in whole or in part.
The underwriters have an option to buy up to additional shares of common stock from us to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this option to purchase additional shares. If any shares are purchased with this option to purchase additional shares, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.
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The underwriting fee is equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The underwriting fee is $ per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters option to purchase additional shares.
Without option to purchase additional shares exercise |
With full option to purchase additional shares exercise |
|||||||
Per Share |
$ | $ | ||||||
Total |
$ | $ |
We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $ . We have agreed to reimburse the underwriters for expenses up to $ , including expenses related to clearance of this offering with FINRA. In accordance with FINRA Rule 5110, this reimbursed fee is deemed underwriting compensation for this offering.
A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.
We have agreed that, subject to certain exceptions, we will not, without the prior written consent of BofA Securities, Inc. and J.P. Morgan Securities LLC for a period of 180 days after the date of this prospectus, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, or publicly file with, the SEC a registration statement under the Exchange Act relating to, any shares of our common stock or securities convertible into or exercisable or exchangeable for any shares of our common stock, or publicly disclose the intention to undertake any of the foregoing, or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any shares of common stock or any such other securities.
Our directors and executive officers, and holders of substantially all of our common stock (the lock-up parties) have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of them, with limited exceptions, for a period of 180 days after the date of this prospectus, may not (and may not cause any of their direct or indirect affiliates to), without the prior written consent of BofA Securities, Inc. and J.P. Morgan Securities LLC, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock (including, without limitation, common stock or such other securities which may be deemed to be beneficially owned by such lock-up parties in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant (collectively with the common stock, the lock-up securities)); (ii) enter into any hedging, swap or other agreement, transaction or arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the lock-up securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of lock-up securities, in cash or otherwise; (iii) make any demand for, or exercise any right with respect to, the registration of any shares of our common stock or any security convertible into or exercisable for our common stock, except as those demands or exercises do not involve any public disclosure or filing; or (iv) publicly disclose the intention to undertake any of the foregoing. Such persons or entities have further acknowledged that these undertakings preclude them from engaging in any
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hedging or other transactions or arrangements (including, without limitation, any short sale or the purchase or sale of, or entry into, any put or call option, or combination thereof, forward, swap or any other derivative transaction or instrument, however described or defined) designed or intended, or which could reasonably be expected to lead to or result in, a sale or disposition or transfer (by any person or entity, whether or not a signatory to such agreement) of any economic consequences of ownership, in whole or in part, directly or indirectly, of any lock-up securities, whether any such transaction or arrangement (or instrument provided for thereunder) would be settled by delivery of lock-up securities, in cash or otherwise.
BofA Securities, Inc. and J.P. Morgan Securities LLC, in their sole discretion, may release the securities subject to any of the lock-up agreements with the underwriters described above, in whole or in part at any time.
Record holders of our securities are typically the parties to the lock-up agreements with the underwriters and the market standoff agreements with us referred to above, while holders of beneficial interests in our shares who are not also record holders in respect of such shares are not typically subject to any such agreements or other similar restrictions. Accordingly, we believe that certain holders of beneficial interests who are not record holders and are not bound by market standoff or lock-up agreements could enter into transactions with respect to those beneficial interests that negatively impact our stock price. In addition, any stockholder who is neither subject to a market standoff agreement with us nor a lock-up agreement with the underwriters may be able to sell, short sell, transfer, hedge, pledge, lend or otherwise dispose of or attempt to sell short sell, transfer, hedge, pledge, lend or otherwise dispose of, their equity interests at any time after the closing of this offering.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
We have applied to have our common stock approved for listing on the NYSE under the symbol BTRY.
In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These stabilizing transactions may include making short sales of common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be covered shorts, which are short positions in an amount not greater than the underwriters option to purchase additional shares referred to above, or may be naked shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their option to purchase additional shares, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.
The underwriters have advised us that, pursuant to Regulation M of the Securities Act of 1933, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.
These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock, and, as a result, the price of the
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common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the NYSE, in the over-the-counter market or otherwise. Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:
| the information set forth in this prospectus and otherwise available to the representatives; |
| our prospects and the history and prospects for the industry in which we compete; |
| an assessment of our management; |
| our prospects for future earnings; |
| the general condition of the securities markets at the time of this offering; |
| the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and |
| other factors deemed relevant by the underwriters and us. |
Neither we nor the underwriters can assure investors that an active trading market will develop for our common shares, or that the shares will trade in the public market at or above the initial public offering price.
Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.
In the ordinary course of their various business activities, the underwriters and their affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively traded securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the issuer. The underwriters and their affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
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In connection with the offering, the underwriters are not acting for anyone other than the issuer and will not be responsible to anyone other than the issuer for providing the protections afforded to their clients nor for providing advice in relation to the offering.
Notice to Prospective Investors in United Kingdom
In relation to the United Kingdom (UK), no shares have been offered or will be offered pursuant to the offering to the public in the UK prior to the publication of a prospectus in relation to the shares which has been approved by the Financial Conduct Authority in the UK in accordance with the UK Prospectus Regulation and the FSMA, except that offers of shares may be made to the public in the UK at any time under the following exemptions under the UK Prospectus Regulation and the FSMA:
a. | to any legal entity which is a qualified investor as defined under the UK Prospectus Regulation; |
b. | to fewer than 150 natural or legal persons (other than qualified investors as defined under the UK Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or |
c. | at any time in other circumstances falling within section 86 of the FSMA, |
provided that no such offer of shares shall require the Company or any underwriter to publish a prospectus pursuant to Section 85 of the FSMA or Article 3 of the UK Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the UK Prospectus Regulation.
Each person in the UK who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with the Company and the underwriters that it is a qualified investor within the meaning of the UK Prospectus Regulation.
In the case of any shares being offered to a financial intermediary as that term is used in Article 5(1) of the UK Prospectus Regulation, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer to the public other than their offer or resale in the UK to qualified investors, in circumstances in which the prior consent of the underwriters has been obtained to each such proposed offer or resale.
The Company, the underwriters and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.
For the purposes of this provision, the expression an offer to the public in relation to any shares in the UK means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase or subscribe for any shares, the expression UK Prospectus Regulation means Regulation (EU) 2017/1129 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018, and the expression FSMA means the Financial Services and Markets Act 2000.
In connection with the offering, are not acting for anyone other than the issuer and will not be responsible to anyone other than the issuer for providing the protections afforded to their clients nor for providing advice in relation to the offering.
This document is for distribution only to persons who (i) have professional experience in matters relating to investments and who qualify as investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the Financial Promotion Order), (ii) are persons falling within Article 49(2)(a) to (d) (high net worth companies, unincorporated
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associations etc.) of the Financial Promotion Order, (iii) are outside the UK, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) in connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as relevant persons). This document is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons.
Notice to Prospective Investors in Switzerland
This prospectus is not intended to constitute an offer or solicitation to purchase or invest in the shares. The shares may not be publicly offered, directly or indirectly, in Switzerland within the meaning of the Swiss Financial Services Act (FinSA) and no application has or will be made to admit the shares to trading on any trading venue (exchange or multilateral trading facility) in Switzerland. Neither this prospectus nor any other offering or marketing material relating to the shares constitutes a prospectus pursuant to the FinSA, and neither this prospectus nor any other offering or marketing material relating to the shares may be publicly distributed or otherwise made publicly available in Switzerland.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Markets Rules 2012 of the Dubai Financial Services Authority (DFSA). This prospectus is intended for distribution only to persons of a type specified in the Markets Rules 2012 of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
In relation to its use in the DIFC, this prospectus is strictly private and confidential and is being distributed to a limited number of investors and must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose. The interests in the securities may not be offered or sold directly or indirectly to the public in the DIFC.
Notice to Prospective Investors in Australia
This prospectus:
| does not constitute a disclosure document or a prospectus under Chapter 6D.2 of the Corporations Act 2001 (Cth) (the Corporations Act); |
| has not been, and will not be, lodged with the Australian Securities and Investments Commission (ASIC), as a disclosure document for the purposes of the Corporations Act and does not purport to include the information required of a disclosure document for the purposes of the Corporations Act; and |
| may only be provided in Australia to select investors who are able to demonstrate that they fall within one or more of the categories of investors, available under section 708 of the Corporations Act (Exempt Investors). |
The shares may not be directly or indirectly offered for subscription or purchased or sold, and no invitations to subscribe for or buy the shares may be issued, and no draft or definitive offering memorandum, advertisement
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or other offering material relating to any shares may be distributed in Australia, except where disclosure to investors is not required under Chapter 6D of the Corporations Act or is otherwise in compliance with all applicable Australian laws and regulations. By submitting an application for the shares, you represent and warrant to us that you are an Exempt Investor.
As any offer of shares under this document will be made without disclosure in Australia under Chapter 6D.2 of the Corporations Act, the offer of those securities for resale in Australia within 12 months may, under section 707 of the Corporations Act, require disclosure to investors under Chapter 6D.2 if none of the exemptions in section 708 applies to that resale. By applying for the shares you undertake to us that you will not, for a period of 12 months from the date of sale of the shares, offer, transfer, assign or otherwise alienate those shares to investors in Australia except in circumstances where disclosure to investors is not required under Chapter 6D.2 of the Corporations Act or where a compliant disclosure document is prepared and lodged with ASIC.
Notice to Prospective Investors in Hong Kong
The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the SFO) of Hong Kong and any rules made thereunder; or (b) in other circumstances which do not result in the document being a prospectus as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of Hong Kong) (the CO) or which do not constitute an offer to the public within the meaning of the CO. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the SFO and any rules made thereunder.
Notice to Prospective Investors in Japan
The shares have not been and will not be registered pursuant to Article 4, Paragraph 1 of the Financial Instruments and Exchange Law of Japan. Accordingly, none of the shares nor any interest therein may be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to or for the benefit of a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and any other applicable laws, regulations and ministerial guidelines of Japan in effect at the relevant time.
Notice to Prospective Investors in Singapore
Each underwriter has acknowledged that this prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each underwriter has represented and agreed that it has not offered or sold any shares or caused the shares to be made the subject of an invitation for subscription or purchase and will not offer or sell any shares or cause the shares to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares, whether directly or indirectly, to any person in Singapore other than:
(a) | to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289) of Singapore, as modified or amended from time to time (the SFA)) pursuant to Section 274 of the SFA; |
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(b) | to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA; or |
(c) | otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. |
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a) | a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
(b) | a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
(i) | to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
(ii) | where no consideration is or will be given for the transfer; |
(iii) | where the transfer is by operation of law; |
(iv) | as specified in Section 276(7) of the SFA; or |
(v) | as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018. |
Notice to Prospective Investors in Peoples Republic of China
This prospectus may not be circulated or distributed in the PRC and the common stock may not be offered or sold, and will not be offered or sold to any person for re-offering or resale directly or indirectly to any resident of the PRC or for the benefit of, legal or natural persons of the PRC except pursuant to applicable laws and regulations of the PRC. Neither this prospectus nor any advertisement or other offering material may be distributed or published in the PRC, except under circumstances that will result in compliance with applicable laws and regulations.
Notice to Prospective Investors in Republic of Korea
The shares of our common stock have not been registered under the Financial Investment Services and Capital Markets Act of Korea. Accordingly, due to restrictions under and the requirements of the securities laws of the Republic of Korea, the shares of our common stock are not being offered or sold and may not be offered or sold, and the registration statement of which this prospectus forms a part may not be circulated or distributed, directly or indirectly, in such jurisdiction. Persons located in or who are resident of such jurisdiction will not be permitted to acquire, directly or indirectly, any shares of our common stock in this offering, except as permitted by law applicable to such person and full compliance with such law.
Notice to Prospective Investors in Saudi Arabia
This prospectus has been prepared on the basis that prospective investors in the Fund are Sophisticated investors as defined by Article 74(b) of Investment Funds Regulations issued by the Capital Markets Authoritys
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board and therefore distribution of the prospectus will be carried out through a distributor who will provide investors with the same documentation that the foreign fund made available to investors in other jurisdictions, and ensure that any information provided by the distributor to the investors is complete, accurate and not misleading.
This document may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Investment Fund Regulations issued by the Capital Market Authority. The Capital Market Authority does not make any representation as to the accuracy or completeness of this document and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this document. Prospective purchasers of the shares offered hereby should conduct their own due diligence on the accuracy of the information relating to the securities. If you do not understand the contents of this document, you should consult an authorized financial adviser.
Notice to Prospective Investors in Qatar
The shares described in this prospectus have not been, and will not be, offered, sold or delivered at any time, directly or indirectly, in the State of Qatar in a manner that would constitute a public offering or an attempt to do business as a bank, an investment company or otherwise in the State of Qatar. The sale and marketing of the Units in this prospectus are made to qualified investors only. This prospectus has not been, and will not be, filed with, reviewed by or approved by the Qatar Central Bank, the Qatar Financial Markets Authority or any other relevant Qatari authority or any other regulator in the State of Qatar and may not be publicly distributed. This prospectus and the information contained therein are intended for original recipient only, may not be shared with any third-party in Qatar and should not be provided to any other person. This prospectus not for general circulation in the State of Qatar and should not be reproduced or used for any other purpose and any distribution or reproduction of this document by the recipient to third parties in Qatar is not permitted and shall be at the liability of such recipient. The prospectus is not, and will not be, registered with Qatar Central Bank or with the Qatar Financial Centre Regulatory Authority.
Notice to Prospective Investors in Kuwait
This prospectus is not for general circulation to the public in Kuwait. The shares have not been licensed for offering in Kuwait by the Kuwait Capital Markets Authority or any other relevant Kuwaiti government agency. The offering of the shares in Kuwait on the basis a private placement or public offering is, therefore, restricted in accordance with Law No. 7 of 2010 and the bylaws thereto (as amended). No private or public offering of the shares is being made in Kuwait, and no agreement relating to the sale of the shares will be concluded in Kuwait. No marketing or solicitation or inducement activities are being used to offer or market shares in Kuwait.
Notice to Prospective Investors in Canada
The shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these rights or consult with a legal advisor.
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Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
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The validity of the issuance of the shares of common stock offered hereby will be passed upon for us by Davis Polk & Wardwell LLP and for the underwriters by Cleary Gottlieb Steen & Hamilton LLP.
The financial statements of Clarios Global LP as of and for the year ended September 30, 2020 and as of and for the five month period ended September 30, 2019 included in this prospectus and the related financial statement schedule included elsewhere in the registration statement have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein (which report expresses an unqualified opinion on the financial statements and financial statement schedule and includes an explanatory paragraph referring to the differences in the accounting basis between the Predecessor Company and the Successor Company due to the application of purchase accounting and that the Successor Company consolidated financial statements are on a consolidated basis that is not comparable to the combined financial statements of the Predecessor Company). Such financial statements and financial statement schedule are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The combined financial statements of Clarios Global LP for the seven months ended April 30, 2019 and for the year ended September 30, 2018 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to the Company and its common stock, reference is made to the registration statement and the exhibits and any schedules filed therewith. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance, if such contract or document is filed as an exhibit, reference is made to the copy of such contract or other document filed as an exhibit to the registration statement, each statement being qualified in all respects by such reference. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information we have filed electronically with the SEC.
As a result of the offering, we will be required to file periodic reports and other information with the SEC. We also maintain an Internet site at https://www.clarios.com/. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part.
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INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Page | ||||
Clarios Global LP Unaudited Consolidated Financial Statements |
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F-2 | ||||
F-3 | ||||
Consolidated Statements of Financial Position as of March 31, 2021 and September 30, 2020 |
F-4 | |||
F-5 | ||||
F-6 | ||||
F-7 | ||||
Clarios Global LP Audited Consolidated and Combined Financial Statements |
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Report of Independent Registered Public Accounting Firm (Successor) |
F-35 | |||
Report of Independent Registered Public Accounting Firm (Predecessor) |
F-37 | |||
F-38 | ||||
F-39 | ||||
F-40 | ||||
F-41 | ||||
F-42 | ||||
F-43 |
F-1
Consolidated Statements of Loss
(in millions; unaudited)
Six Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Net sales |
$ | 4,499 | $ | 3,915 | ||||
Cost of sales |
3,581 | 3,247 | ||||||
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|
|
|
|||||
Gross profit |
918 | 668 | ||||||
Selling, general and administrative expenses |
(455 | ) | (462 | ) | ||||
Equity income |
45 | 28 | ||||||
Restructuring and impairment costs |
(253 | ) | | |||||
Net financing charges |
(366 | ) | (339 | ) | ||||
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|
|
|
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Loss before income taxes |
(111 | ) | (105 | ) | ||||
Income tax provision (benefit) |
137 | (19 | ) | |||||
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|
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|
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Net loss |
(248 | ) | (86 | ) | ||||
Income (loss) attributable to noncontrolling interests |
1 | (1 | ) | |||||
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|
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|
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Net loss attributable to the Company |
$ | (249 | ) | $ | (85 | ) | ||
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The accompanying notes are an integral part of the consolidated financial statements.
F-2
Consolidated Statements of Comprehensive Loss
(in millions; unaudited)
Six Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Net loss |
$ | (248 | ) | $ | (86 | ) | ||
Other comprehensive income, net of tax: |
||||||||
Foreign currency translation |
93 | (146 | ) | |||||
Realized and unrealized gains (losses) on derivatives |
60 | (74 | ) | |||||
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|
|||||
Other comprehensive income (loss), net of tax |
153 | (220 | ) | |||||
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Total comprehensive loss |
(95 | ) | (306 | ) | ||||
Comprehensive income attributable to noncontrolling interests |
1 | 3 | ||||||
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|
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Comprehensive loss attributable to the Company |
$ | (96 | ) | $ | (309 | ) | ||
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The accompanying notes are an integral part of the consolidated financial statements.
F-3
Consolidated Statements of Financial Position
(in millions; unaudited)
March 31, 2021 | September 30, 2020 | |||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 550 | $ | 682 | ||||
Accounts receivable - net |
1,116 | 1,110 | ||||||
Inventories |
1,388 | 1,235 | ||||||
Other current assets |
256 | 236 | ||||||
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|
|||||
Current assets |
3,310 | 3,263 | ||||||
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|
|||||
Operating lease right-of-use assets |
86 | 93 | ||||||
Property, plant and equipment - net |
3,281 | 3,496 | ||||||
Goodwill |
1,787 | 1,742 | ||||||
Other intangible assets - net |
5,817 | 5,993 | ||||||
Equity method investments |
764 | 782 | ||||||
Noncurrent income tax assets |
163 | 197 | ||||||
Other noncurrent assets |
42 | 39 | ||||||
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|
|||||
Total assets |
$ | 15,250 | $ | 15,605 | ||||
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|
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Liabilities and Equity |
||||||||
Short-term debt |
$ | 9 | $ | | ||||
Current portion of long-term debt |
51 | 51 | ||||||
Operating lease - current liabilities |
33 | 30 | ||||||
Accounts payable |
1,159 | 1,138 | ||||||
Accrued compensation and benefits |
140 | 151 | ||||||
Accrued interest |
115 | 114 | ||||||
Other current liabilities |
505 | 538 | ||||||
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|
|||||
Current liabilities |
2,012 | 2,022 | ||||||
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|
|||||
Long-term debt |
10,212 | 10,453 | ||||||
Operating lease - noncurrent liabilities |
54 | 62 | ||||||
Pension and postretirement benefits |
211 | 211 | ||||||
Noncurrent income tax liabilities |
847 | 810 | ||||||
Other noncurrent liabilities |
183 | 213 | ||||||
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|
|||||
Long-term liabilities |
11,507 | 11,749 | ||||||
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|
|||||
Commitments and contingencies (Note 16) |
||||||||
Parent company investment |
1,927 | 2,172 | ||||||
Accumulated other comprehensive loss |
(206 | ) | (359 | ) | ||||
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|
|||||
Equity attributable to the Company |
1,721 | 1,813 | ||||||
Noncontrolling interest |
10 | 21 | ||||||
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|
|||||
Total equity |
1,731 | 1,834 | ||||||
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Total liabilities and equity |
$ | 15,250 | $ | 15,605 | ||||
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The accompanying notes are an integral part of the consolidated financial statements.
F-4
Consolidated Statements of Cash Flows
(in millions; unaudited)
Six Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Operating Activities |
||||||||
Net loss attributable to the Company |
$ | (249 | ) | $ | (85 | ) | ||
Income (loss) attributable to noncontrolling interests |
1 | (1 | ) | |||||
|
|
|
|
|||||
Net loss |
(248 | ) | (86 | ) | ||||
Adjustments to reconcile net loss to cash provided by operating activities: |
||||||||
Depreciation |
183 | 171 | ||||||
Amortization |
200 | 193 | ||||||
Pension and postretirement benefit expense |
2 | | ||||||
Pension and postretirement contributions |
(2 | ) | (1 | ) | ||||
Earnings from equity method investments, net of dividends received |
(44 | ) | (18 | ) | ||||
Deferred income taxes |
42 | (101 | ) | |||||
Unrealized foreign currency remeasurement on debt |
24 | 8 | ||||||
Restructuring and impairment costs, net of payments |
240 | | ||||||
Other |
34 | 27 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
| 303 | ||||||
Inventories |
(139 | ) | (122 | ) | ||||
Other assets |
14 | (17 | ) | |||||
Accounts payable and accrued liabilities |
59 | (327 | ) | |||||
Accrued income taxes |
(44 | ) | 20 | |||||
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|
|
|
|||||
Net cash provided by operating activities |
321 | 50 | ||||||
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|
|||||
Investing Activities |
||||||||
Capital expenditures |
(113 | ) | (165 | ) | ||||
Acquisition of businesses, net of cash acquired |
(48 | ) | | |||||
Changes in long-term investments |
| (1 | ) | |||||
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|
|
|
|||||
Net cash used by investing activities |
(161 | ) | (166 | ) | ||||
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|
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|
|||||
Financing Activities |
||||||||
Increase in short-term debt |
1 | | ||||||
Increase in long-term debt |
520 | 636 | ||||||
Repayment of long-term debt |
(803 | ) | (83 | ) | ||||
Debt financing costs |
| (1 | ) | |||||
Change in noncontrolling interest share |
(14 | ) | (440 | ) | ||||
Other |
| (1 | ) | |||||
|
|
|
|
|||||
Net cash provided (used) by financing activities |
(296 | ) | 111 | |||||
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|
|
|
|||||
Effect of exchange rate changes on cash and cash equivalents |
4 | (28 | ) | |||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
(132 | ) | (33 | ) | ||||
Cash and cash equivalents at beginning of period |
682 | 388 | ||||||
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|
|||||
Cash and cash equivalents at end of period |
$ | 550 | $ | 355 | ||||
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The accompanying notes are an integral part of the consolidated financial statements.
F-5
Consolidated Statements of Equity
(in millions; unaudited)
For the Six Months Ended March 31, 2021 | ||||||||||||||||||||
Parent Company Investment |
Accumulated Other Comprehensive Loss |
Equity Attributable to the Company |
Noncontrolling Interest |
Total Equity |
||||||||||||||||
Balance as of September 30, 2020 |
$ | 2,172 | $ | (359 | ) | $ | 1,813 | $ | 21 | $ | 1,834 | |||||||||
Comprehensive income (loss): |
||||||||||||||||||||
Net income (loss) |
(249 | ) | | (249 | ) | 1 | (248 | ) | ||||||||||||
Other comprehensive income, net of tax |
| 153 | 153 | | 153 | |||||||||||||||
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|
|
|
|
|
|
|||||||||||
Comprehensive income (loss) |
(249 | ) | 153 | (96 | ) | 1 | (95 | ) | ||||||||||||
Change in noncontrolling interests |
4 | | 4 | (12 | ) | (8 | ) | |||||||||||||
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|
|
|||||||||||
Balance as of March 31, 2021 |
$ | 1,927 | $ | (206 | ) | $ | 1,721 | $ | 10 | $ | 1,731 | |||||||||
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For the Six Months Ended March 31, 2020 | ||||||||||||||||||||
Parent Company Investment |
Accumulated Other Comprehensive Loss |
Equity Attributable to the Company |
Noncontrolling Interest |
Total Equity |
||||||||||||||||
Balance as of September 30, 2019 |
$ | 2,576 | $ | (101 | ) | $ | 2,475 | $ | 448 | $ | 2,923 | |||||||||
Comprehensive income (loss): |
||||||||||||||||||||
Net loss |
(85 | ) | | (85 | ) | (1 | ) | (86 | ) | |||||||||||
Other comprehensive income (loss), net of tax |
| (224 | ) | (224 | ) | 4 | (220 | ) | ||||||||||||
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|
|||||||||||
Comprehensive income (loss) |
(85 | ) | (224 | ) | (309 | ) | 3 | (306 | ) | |||||||||||
Change in noncontrolling interests |
(5 | ) | (7 | ) | (12 | ) | (428 | ) | (440 | ) | ||||||||||
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Balance as of March 31, 2020 |
$ | 2,486 | $ | (332 | ) | $ | 2,154 | $ | 23 | $ | 2,177 | |||||||||
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The accompanying notes are an integral part of the consolidated financial statements.
F-6
Notes to Consolidated Financial Statements (unaudited)
1. | Summary of the Business and Significant Accounting Policies |
On March 12, 2018, Johnson Controls International plc (JCI) announced it was exploring strategic alternatives for its Power Solutions business (the Company or Power Solutions). On November 13, 2018, JCI entered into a Stock and Asset Purchase Agreement (Purchase Agreement) with BCP Acquisitions LLC, which subsequently assigned its rights under the Purchase Agreement to an affiliate (such entities being referred to as the Purchaser, as the context requires). The Purchaser was a newly-formed entity controlled by investment funds managed by Brookfield Asset Management Inc. Pursuant to the Purchase Agreement, on the terms and subject to the conditions therein, JCI agreed to sell, and the Purchaser agreed to acquire, Power Solutions for a purchase price of $13.2 billion. The transaction closed on April 30, 2019 (the Acquisition Date).
In the following text, the terms Company, we, us and our may refer, as the context requires, to Clarios Global LP and its consolidated subsidiaries. The term Parent Company refers to the Purchaser subsequent to the Acquisition Date.
These financial statements reflect the results of the operations, financial position and cash flows of the Company. The Company is a limited partnership organized under the laws of Canada.
The separation from JCI was completed pursuant to various agreements related to the separation. These agreements include arrangements for transition services provided on a temporary basis by JCI.
In the opinion of the Company, the accompanying unaudited consolidated financial statements state fairly the financial position, results of operations and cash flows for the periods presented. The consolidated statement of financial position at September 30, 2020 was derived from the audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements pursuant to applicable rules and regulations.
Basis of Presentation
These unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). The results of operations for the six month period ended March 31, 2021 is not necessarily indicative of results for the Companys 2021 fiscal year because of seasonal and other factors.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Principles of Consolidation
The financial statements include the accounts of the Company that are consolidated in conformity with U.S. GAAP. All intercompany transactions have been eliminated. Investments in partially-owned affiliates (POA) for which the Company exercises significant influence but does not have control are accounted for by the equity method.
Under certain criteria as provided for in Accounting Standards Codification (ASC) 810, Consolidation, the Company may consolidate a POA. To determine whether to consolidate a POA, the Company first determines if the entity is a variable interest entity (VIE). An entity is considered to be a VIE if it has one of the following characteristics: 1) the legal entity does not have sufficient equity investment at risk; 2) residual equity holders do
F-7
not control the entity; 3) equity holders are shielded from economic losses or do not participate fully in the entitys residual economics; or 4) the entity was established with non-substantive voting. If the entity meets one of these characteristics, the Company then determines if it is the primary beneficiary of the VIE. The party with the power to direct activities of the VIE that most significantly impact the VIEs economic performance and the potential to absorb benefits or losses that could be significant to the VIE is considered the primary beneficiary and consolidates the VIE. If the entity is not considered a VIE, then the Company applies the voting interest model to determine whether or not the Company shall consolidate the POA.
Effective January 2020, the Company entered into certain distribution and technology agreements with a POA that resulted in the Companys counterparty in the POA to no longer participate fully in the residual economics of the POA, and as such, the POA has been identified as a VIE. Concurrent with the distribution and technology agreements and to increase the Companys investment in developing markets, the Company entered into a definitive purchase agreement to acquire from the counterparty a majority interest in the VIE and create additional shareholder rights giving the Company key operating decision making rights considered most significant to the VIE in exchange for nominal cash value (the VIE Transaction). The VIE Transaction closed October 31, 2020 (the VIE Transaction Date), resulting in the Company being identified as the primary beneficiary of and consolidating the VIE. The Company accounted for the VIE Transaction as a step-acquisition of a business, which requires the Company to recognize in its financial statements the fair value of acquired net assets and consideration transferred to effect the acquisition. Refer to Note 2, Acquisitions, of the notes to consolidated financial statements for more information regarding the VIE Transaction.
In July 2020, the Company received notification that its bid to acquire its counterpartys equity interests in a consolidated POA and a non-consolidated POA was successful. In order to increase the Companys investment in developing markets, the Company entered into an agreement to acquire the equity interests for approximately $33 million and to refinance the non-consolidated POAs debt at acquisition for approximately $49 million (the China Transaction). The price paid to acquire the equity interest is subject to further adjustment based upon the collection of certain outstanding receivables acquired from the non-consolidated POA. The China Transaction closed on December 15, 2020 (the China Transaction Date) upon receiving customary regulatory approvals, resulting in both entities being wholly-owned and consolidated by the Company. The Company accounted for the acquisition of the counterpartys equity interest in the non-consolidated POA as a step-acquisition of a business, which requires the Company to recognize in its financial statements the fair value of acquired net assets and consideration transferred to effect the acquisition. Refer to Note 2, Acquisitions, of the notes to consolidated financial statements for more information regarding the China Transaction.
Description of Business
The Company is a global supplier of lead-acid automotive batteries for virtually every type of passenger car, light truck and utility vehicle. The Company serves both automotive original equipment manufacturers (OEM) and the general vehicle battery aftermarket. The Company also supplies advanced battery technologies to power start-stop, hybrid and electric vehicles.
Receivables
Receivables consist of amounts billed and currently due from customers and revenues that have been recognized for accounting purposes but not yet billed to customers. The Company extends credit to customers in the normal course of business and maintains an allowance for credit losses resulting from the inability or unwillingness of customers to make required payments. As discussed in more detail below, effective October 1, 2020 the Company adopted Accounting Standards Update ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), and related amendments (ASU 2016-13). Under the newly adopted standard, expected lifetime losses on customer accounts receivable are recognized upon origination through an allowance for credit losses account that is deducted from the customer account receivable balance and presented net thereof. The Company pools its account receivable balances according to similar credit risk characteristics such as the customers size,
F-8
markets served, financial health, and business environment which are generally defined by the Companys reportable segments. In computing its allowance for credit losses, the Company applies historical loss rates to these asset pools, adjusting for macroeconomic factors and other credit quality indicators including but not limited to customer credit risk scores, agency ratings, collection experience, and collateral as applicable. The Company regularly reassesses the pools and indicators used to inform the amount of allowance for credit losses for the period by considering changes in customer credit ratings, customer payment history and loss experience, current market and economic conditions and the Companys expectations of future market and economic conditions. The changes in the allowance for credit losses on the Companys trade receivables for the six months ended March 31, 2021 were as follows (in millions):
Balance at beginning of period (1) |
$ | 32 | ||
Provision charged to cost and expenses |
9 | |||
Allowance adjustments |
(2 | ) | ||
Accounts charged off |
(2 | ) | ||
Currency translation |
1 | |||
|
|
|||
Balance at end of period |
$ | 38 | ||
|
|
(1) | The beginning balance reflects an increase in the allowance for credit losses as of September 30, 2020 of $19 million associated with accounts receivable purchased from JCI as of the Acquisition Date with deteriorated credit quality under ASU 2016-13, which were previously recorded at fair value net of the allowance for credit losses. The accounts receivable balance has a corresponding $19 million adjustment, resulting in a net zero effect to total assets. No other material adjustments were recorded as a result of the adoption of Topic 326. |
New Accounting Pronouncements
Recently Issued and Effective Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, which replaces the incurred loss impairment methodology under prior U.S. GAAP with an expected credit loss model. ASU 2016-13 affects trade receivables, loans, contract assets, certain beneficial interests, off-balance sheet credit exposures not accounted for as insurance and other financial assets that are not subject to fair value through net income, as defined by the standard. The Company adopted standard on October 1, 2020 (the effective date) under the modified retrospective method. Under the expected credit loss model, the Company is required to consider future economic trends to estimate expected credit losses over the lifetime of the asset. Other than the aforementioned recording of an allowance for credit losses for purchased accounts receivable from JCI with deteriorated credit quality and the corresponding gross up of purchased accounts receivable, the adoption of the standard did not have a material impact on the Companys consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, IntangiblesGoodwill and OtherInternal-Use Software (Subtopic 350-40): Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15). ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the non-cancellable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider. On October 1, 2020, the Company adopted the standard using the prospective transition approach. The adoption of this standard did not have a material impact on the consolidated financial statements.
Recently Issued But Not Effective Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASU 2020-04). ASU 2020-04 provides optional guidance for a limited period of time to ease potential accounting impact associated with transitioning away from reference rates that are expected to be discontinued, such as the London Interbank
F-9
Offered Rate (LIBOR). The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The amendments in ASU 2020-04 can be adopted as of March 12, 2020 and are effective through December 31, 2022. The Company is currently evaluating the whether it will adopt this pronouncement and the resulting impacts, if any, of adoption on the Companys consolidated financial statements and disclosures.
Other recently issued accounting pronouncements are not expected to have a material impact on the Companys consolidated financial statements.
2. | Acquisitions |
VIE Transaction
As disclosed in Note 1, Summary of the Business and Significant Accounting Policies, the Company entered into certain distribution and technology agreements with a partially-owned affiliate that resulted in the Companys counterparty in the POA no longer participating fully in the residual economics of the POA, and as such, the POA has been identified as a VIE. Concurrent with the distribution and technology agreements and to increase the Companys investment in developing markets, the Company entered into a definitive purchase agreement to acquire from the counterparty a majority interest in the VIE and create additional shareholder rights giving the Company key operating decision making rights considered most significant to the VIE. The VIE Transaction closed in October 31, 2020, resulting in the Company being identified as the primary beneficiary of and consolidating the VIE. Transaction costs incurred in consummating the VIE Transaction were not material.
The Company accounted for the VIE Transaction as a step-acquisition, resulting in an after-tax gain on the remeasurement of the Companys investment in the POA of $2 million, net of accumulated foreign currency translation losses, being recognized in equity income in the consolidated statement of loss for the six months ended March 31, 2021. To remeasure the Companys equity method investment in the POA to fair value, the Company utilized the income approach, which relies on the use of projected financial results, long-term growth rates, and discount rates for a lack of control associated with the equity interest held by the Company prior to the VIE Transaction. The preliminary fair value of consideration transferred by the Company at closing consisted of the following (in millions):
Cash delivered at closing* |
$ | | ||
Cash acquired from VIE |
(7 | ) | ||
|
|
|||
Cash to acquire business, net of cash acquired |
(7 | ) | ||
Fair value of interest previously held in POA |
8 | |||
Accounts receivable from POA |
18 | |||
|
|
|||
Net purchase consideration |
$ | 19 | ||
|
|
*Nominal | cash was delivered at closing for additional two percent equity interest acquired. |
The preliminary purchase price allocation of the VIE Transaction is as follows (in millions):
Purchase Price Allocation | ||||
Net purchase consideration |
$ | 19 | ||
Accounts receivable (a) |
19 | |||
Inventories (a) |
11 | |||
Property, plant and equipment (a) |
2 | |||
Other intangible assets (b) |
4 | |||
Noncurrent income tax assets (c) |
1 | |||
|
|
|||
Assets acquired |
37 |
F-10
Purchase Price Allocation | ||||
Short-term debt (a) |
9 | |||
Current portion of long-term debt (a) |
2 | |||
Accounts payable (a) |
4 | |||
Long-term debt (a) |
2 | |||
|
|
|||
Liabilities assumed |
17 | |||
|
|
|||
Net identifiable assets acquired |
20 | |||
|
|
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Noncontrolling interest (d) |
(8 | ) | ||
|
|
|||
Goodwill acquired (e) |
$ | 7 | ||
|
|
(a) | The preliminary fair value approximates the historical carrying value. |
(b) | Other intangible assets consist of existing customer relationships with an estimated amortization life of 16 years. The Company applied the income valuation method to determine the preliminary fair value of the customer relationships, which relies on the use of projected financial results, estimated customer attrition rates, and discount rates. |
(c) | Deferred income tax assets represent the future tax benefit associated with the differences between the preliminary fair value allocated to assets (excluding goodwill) and liabilities and the historical carryover tax basis of these assets and liabilities, where applicable. A deferred tax liability has not been recognized for the basis difference inherent in the preliminary fair value allocated to goodwill. |
(d) | The preliminary fair value of the noncontrolling interest in the VIE was determined by applying the income approach, which relies on the use of projected financial results, long-term growth rates, and discount rates associated with the noncontrolling interests lack of control. |
(e) | The preliminary fair value of goodwill reflects the value paid primarily for future customer growth and the assembled workforce, and is not deductible for tax purposes. |
As of March 31, 2021, the Company had not yet completed the analysis to assign fair values to all assets acquired and liabilities assumed and additional purchase price adjustments may arise; therefore the purchase price allocation is preliminary. The Company is still in process of integrating the VIE into its financial reporting and operating policies, systems, processes, and internal controls. As a result, the preliminary purchase price allocation and estimated fair value of assets acquired and liabilities assumed, and thus the Companys results of operations and financial position concerning the VIE, may be subsequently adjusted. Adjustments to the purchase price allocation can be made through the end of the measurement period, which is not to exceed one year from the VIE Transaction Date.
The VIE Transaction did not have a material impact on the results of the Companys operations or cash flows for the six month period ended March 31, 2021.
China Transaction
As disclosed in Note 1, in July 2020 the Company received notification that its bid to acquire its counterpartys equity interests in a non-consolidated POA and a consolidated POA operating in China was successful. In order to increase the Companys investment in developing markets, the Company has entered into an agreement to acquire the equity interests for $33 million and to refinance the non-consolidated POAs debt at acquisition for $49 million. The price paid to acquire the equity interest is subject to further adjustment based upon the collection of certain outstanding receivables acquired from the non-consolidated POA. The China Transaction closed on December 15, 2020 upon receiving customary regulatory approvals, resulting in both entities being wholly-owned and consolidated by the Company as of this date. As of March 31, 2021, the Company has paid $26 million of the purchase price and has recorded in other current liabilities an obligation to pay the remaining $7 million one year after the China Transaction Date in accordance with the agreement, subject to further adjustment based upon the collection of certain outstanding receivables acquired from the non-consolidated
F-11
POA. In addition, the Company has paid $49 million to refinance the non-consolidated POAs debt. Transaction costs incurred in consummating the China Transaction were not material.
China Transaction - Non-consolidated POA
The Company accounted for the acquisition of the counterpartys equity interest in the non-consolidated POA as a step-acquisition of a business, resulting in an after-tax gain on the remeasurement of the Companys investment in the POA of $4 million, net of accumulated foreign currency translation gains, being recognized in equity income in the consolidated statement of loss for the six months ended March 31, 2021. To remeasure the Companys equity method investment in the POA to fair value, the Company utilized the income approach, which relies on the use of projected financial results, long-term growth rates, and discount rates for a lack of control associated with the equity interest held by the Company prior to the China Transaction. The preliminary fair value of consideration transferred by the Company at closing consisted of the following (in millions):
Cash delivered at closing* |
$ | 61 | ||
Cash acquired from non-consolidated POA |
(6 | ) | ||
|
|
|||
Cash to acquire business, net of cash acquired |
55 | |||
Other current liabilities |
3 | |||
Fair value of interest previously held in POA |
27 | |||
Accounts receivable from POA |
13 | |||
|
|
|||
Net purchase consideration |
$ | 98 | ||
|
|
* | Cash delivered at closing includes cash paid to acquire the remaining equity interest in the non-consolidated POA, and amounts paid to refinance the non-consolidated POAs debt at acquisition. |
The preliminary purchase price allocation of the acquisition of the remaining equity interest in the non-consolidated POA is as follows (in millions):
Purchase Price Allocation | ||||
Net purchase consideration |
$ | 98 | ||
Accounts receivable (a) |
11 | |||
Other current assets (a) |
8 | |||
Property, plant and equipment (a) |
55 | |||
Other intangible assets (b) |
4 | |||
Noncurrent income tax assets (c) |
2 | |||
|
|
|||
Assets acquired |
80 | |||
Accounts payable (a) |
7 | |||
|
|
|||
Liabilities assumed |
7 | |||
|
|
|||
Net identifiable assets acquired |
73 | |||
|
|
|||
Goodwill acquired (d) |
$ | 25 | ||
|
|
(a) | The preliminary fair value approximates the historical carrying value. |
(b) | Other intangible assets consist of existing customer relationships with an estimated amortization life of 6 years. The Company applied the income valuation method to determine the preliminary fair value of the customer relationships, which relies on the use of projected financial results, estimated customer attrition rates, and discount rates. |
(c) | Deferred income tax assets represent the future tax benefit associated with the differences between the preliminary fair value allocated to assets (excluding goodwill) and liabilities and the historical carryover tax basis of these assets and liabilities, where applicable. A deferred tax liability has not been recognized for the basis difference inherent in the preliminary fair value allocated to goodwill. |
F-12
(d) | The preliminary fair value of goodwill reflects the value paid primarily for future customer growth and the assembled workforce, and is not deductible for tax purposes. |
As of March 31, 2021, the Company had not yet completed the analysis to assign fair values to all assets acquired and liabilities assumed and additional purchase price adjustments may arise; therefore the purchase price allocation is preliminary. The purchase price for the equity interests acquired in the China Transaction is subject to further adjustment based upon the collection of certain outstanding receivables acquired from the non-consolidated POA, and the Company is still in process of integrating the VIE into its financial reporting and operating policies, systems, processes, and internal controls. As a result, the preliminary purchase price allocation and estimated fair value of assets acquired and liabilities assumed, and thus the Companys results of operations and financial position concerning the non-consolidated POA, may be subsequently adjusted. Adjustments to the purchase price allocation can be made through the end of the measurement period, which is not to exceed one year from the China Transaction Date.
The non-consolidated POA acquired in the China Transaction did not have a material impact on the Companys results of operations or cash flows for the six month period ended March 31, 2021.
China Transaction - Consolidated POA
Of the $33 million purchase price agreed to with the counterparty to acquire the equity interests in the China Transaction, $16 million was allocated to the acquisition of the noncontrolling interest in the consolidated POA. The effect of the change in the Companys ownership interest in the consolidated POA is as follows (in millions):
Equity Attributable to the Company |
Noncontrolling Interest |
Total Equity | ||||||||||
Balance as of September 30, 2020 |
$ | 1,813 | $ | 21 | $ | 1,834 | ||||||
Net income (loss) |
(249 | ) | 1 | (248 | ) | |||||||
Other comprehensive income, net of tax |
153 | | 153 | |||||||||
Change in noncontrolling interests |
||||||||||||
VIE Transaction |
| 8 | 8 | |||||||||
China Transaction - consolidated POA |
4 | (20 | ) | (16 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance as of March 31, 2021 |
$ | 1,721 | $ | 10 | $ | 1,731 | ||||||
|
|
|
|
|
|
Bosch Transaction
On August 9, 2019, the Company entered into an agreement with Robert Bosch GmbH (Bosch), pursuant to which the Company agreed to acquire from Bosch the 20% interests held by Bosch in the joint venture in which the Company holds the remaining interests. The transaction closed on December 12, 2019, the purchase price being funded through the Companys available liquidity. The effect of the change in the Companys ownership interest in the joint venture with Bosch is as follows (in millions):
Equity Attributable to the Company |
Noncontrolling Interest |
Total Equity | ||||||||||
Balance as of September 30, 2019 |
$ | 2,475 | $ | 448 | $ | 2,923 | ||||||
Net loss |
(85 | ) | (1 | ) | (86 | ) | ||||||
Other comprehensive income, net of tax |
(224 | ) | 4 | (220 | ) | |||||||
Change in noncontrolling interests |
(12 | ) | (428 | ) | (440 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance as of March 31, 2020 |
$ | 2,154 | $ | 23 | $ | 2,177 | ||||||
|
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|
|
F-13
3. | Revenue |
The Company services both automotive OEM and the battery aftermarket by providing advanced battery technology. The Companys revenue is generated through the manufacture and sale of automotive battery products, of which the delivery of goods ordered typically represents the Companys sole performance obligation with respect to distinct goods and services offered to customers. The Company recognizes revenue typically at the point in time when control over the goods transfers to the customer as specified by the shipping terms agreed upon with the customer.
The transaction price includes the total consideration expected to be received under the contract which may include both cash and noncash components. The calculation of the transaction price for contracts containing noncash consideration includes the fair value of the noncash consideration to be received as of the contracts inception date. Noncash consideration received from customers consists of spent battery cores for which the Company estimates fair value based on the lead content to be obtained from their reclamation and the market price of the relevant lead index as of the contracts inception date; this is considered to be a level 2 fair value measurement. Certain customer agreements contain future price discounts for additional product purchases if the customer returns batteries cores. These material rights are accounted for as separate performance obligations and recognized as deferred revenue within other current liabilities in the consolidated statements of financial position each time the battery cores are received. Material rights are recognized as revenue in the month following the receipt of the returned battery core as options are either exercised when the customer purchase additional product or expire at the end of the month.
The Company considers the contractual consideration payable by the customer and assesses variable consideration that may affect the total transaction price, including discounts, rebates, refunds, credits or other similar sources of variable consideration, when determining the transaction price of each contract. The Company includes variable consideration in the estimated transaction price when it is probable that significant reversal of revenue recognized would not occur when the uncertainty associated with variable consideration is subsequently resolved. These estimates are based on the amount of consideration that the Company expects to be entitled to.
Shipping and handling costs billed to customers are included in sales and the related costs are included in cost of sales when control transfers to the customer. The Company has elected to present amounts collected from customers for sales and other taxes net of the related amounts remitted.
Disaggregated Revenue
The following table presents disaggregation of revenues by geography (in millions):
Six Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Americas |
$ | 2,641 | $ | 2,419 | ||||
EMEA (1) |
1,344 | 1,058 | ||||||
Asia |
514 | 438 | ||||||
|
|
|
|
|||||
Total |
$ | 4,499 | $ | 3,915 | ||||
|
|
|
|
(1) | EMEA includes Europe, Middle East and Africa |
Contract Balances
Contract assets in accounts receivable - net relate to the Companys right to consideration for performance obligations satisfied but not billed and consist primarily of unbilled receivables. Contract assets in other current assets relate to noncash consideration of spent battery cores to be received from customers. Contract liabilities relate to deferred revenue resulting from customer payments received in both cash and noncash consideration in advance of satisfaction of performance obligations under the contract. Contract balances are classified as assets or liabilities on a contract-by-contract basis at the end of each reporting period.
F-14
The following table presents the location and amount of contract balances in the Companys consolidated statements of financial position (in millions):
Location of contract balances |
March 31, 2021 | September 30, 2020 | ||||||||
Contract assets - current |
Accounts receivable - net |
$ | 4 | $ | 3 | |||||
Contract assets - current |
Other current assets | 19 | 11 | |||||||
Contract liabilities - current |
Other current liabilities |
(11 | ) | (16 | ) |
For the six months ended March 31, 2021 and 2020, the Company recognized revenue of $16 million and $12 million, respectively, that was included in the beginning contract liability balance for the respective periods.
Remaining Performance Obligations
A performance obligation is a distinct good, service, or a bundle of goods and services promised in a contract. A contracts transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For product sales, each product sold to a customer typically represents a distinct performance obligation. The Company satisfies performance obligations at a point in time. The Company has applied the practical expedient to exclude the value of remaining performance obligations for contracts with an original expected duration of one year or less.
4. | Inventories |
Inventories consisted of the following (in millions):
March 31, 2021 | September 30, 2020 | |||||||
Raw materials and supplies |
$ | 456 | $ | 396 | ||||
Work-in-process |
419 | 377 | ||||||
Finished goods |
513 | 462 | ||||||
|
|
|
|
|||||
Inventories |
$ | 1,388 | $ | 1,235 | ||||
|
|
|
|
5. | Property, Plant and Equipment |
Property, plant and equipment consisted of the following (in millions):
March 31, 2021 | September 30, 2020 | |||||||
Buildings and improvements |
$ | 905 | $ | 877 | ||||
Machinery and equipment |
2,508 | 2,362 | ||||||
Construction in progress |
478 | 520 | ||||||
Land |
194 | 197 | ||||||
|
|
|
|
|||||
Total property, plant and equipment |
4,085 | 3,956 | ||||||
Less: accumulated depreciation |
(804 | ) | (460 | ) | ||||
|
|
|
|
|||||
Property, plant and equipment - net |
$ | 3,281 | $ | 3,496 | ||||
|
|
|
|
Fixed asset acquisitions in accounts payable at March 31, 2021 and September 30, 2020 were $54 million and $95 million, respectively.
F-15
6. | Goodwill and Other Intangible Assets |
The changes in the carrying amount of goodwill are as follows (in millions):
September 30, 2020 |
Business Acquisitions |
Currency Translation |
March 31, 2021 |
|||||||||||||
Americas |
$ | 426 | $ | | $ | | $ | 426 | ||||||||
EMEA |
1,076 | 7 | 5 | 1,088 | ||||||||||||
Asia |
240 | 25 | 8 | 273 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,742 | $ | 32 | $ | 13 | $ | 1,787 | ||||||||
|
|
|
|
|
|
|
|
At March 31, 2021 and September 30, 2020 the carrying amount of goodwill was $1,787 million and $1,742 million, respectively. The increase in the carrying amount of goodwill for the six months ended March 31, 2021 was the result of $32 million of activity related to acquisitions and $13 million foreign currency translation. Refer to Note 2, Acquisitions of the notes to the consolidated financial statements for further information.
The Companys other intangible assets, primarily from business acquisitions valued based on independent valuations, consisted of (in millions):
March 31, 2021 | September 30, 2020 | |||||||||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net | Gross Carrying Amount |
Accumulated Amortization |
Net | |||||||||||||||||||
Definite-lived intangible assets |
||||||||||||||||||||||||
Customer relationships |
$ | 5,011 | $ | (621 | ) | $ | 4,390 | $ | 5,001 | $ | (459 | ) | $ | 4,542 | ||||||||||
Technology |
950 | (131 | ) | 819 | 945 | (96 | ) | 849 | ||||||||||||||||
Trademarks and miscellaneous |
31 | (5 | ) | 26 | 30 | (4 | ) | 26 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total definite-lived intangible assets |
5,992 | (757 | ) | 5,235 | 5,976 | (559 | ) | 5,417 | ||||||||||||||||
Trademarks - indefinite-life |
582 | | 582 | 576 | | 576 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other intangible assets |
$ | 6,574 | $ | (757 | ) | $ | 5,817 | $ | 6,552 | $ | (559 | ) | $ | 5,993 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The amortization of other intangible assets for the periods presented were as follows (in millions):
Six Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Amortization expense |
$ | 200 | $ | 193 | ||||
|
|
|
|
Excluding the impact of any future acquisitions, the Company anticipates amortization for the years ending September 30, 2022, 2023, 2024, 2025 and 2026 will be approximately $388 million per year.
7. | Leases |
The Company leases certain warehouses, office space, equipment and vehicles.
Some leases include one or more options to renew with renewal terms that can extend the lease term, and or options to purchase leased assets. The exercise of either a lease renewal or a purchase option is at the Companys sole discretion. We have lease agreements that include both lease and non-lease components such as additional products and services provided to support the lease asset. Lease payments are allocated to non-lease components based on estimated stand-alone prices. The Companys lease agreements do not contain restrictions or covenants. The depreciable life of assets and leasehold improvements are limited by the expected lease term. The amounts disclosed in our consolidated statements of financial position as of March 31, 2021 and September 30, 2020 pertaining to the lease of right-of-use (ROU) assets and lease liabilities were measured based on current expectations of exercising available renewal options.
F-16
We utilize our incremental borrowing rate (IBR) as the basis to calculate the present value of future lease payments, which includes residual value guarantees, purchase options and variable lease payments, where applicable, at lease commencement. Our IBR represents the rate that we would have to pay to borrow funds on a collateralized basis over a similar term and in a similar economic environment.
Leases with an initial term of 12 months or less are not recorded on our consolidated statements of financial position; we recognize lease expense for these leases on a straight-line basis over the lease term.
As of March 31, 2021, we have not entered into any leases, which have not yet commenced, that would entitle us to significant rights or create additional obligations.
The following table presents the components of the Companys lease expense and the classification in the consolidated statements of loss for the periods presented (in millions):
Six Months Ended March 31, | ||||||||||
Classification | 2021 | 2020 | ||||||||
Operating lease cost (1) |
Cost of sales / Selling, general and administrative expenses |
$ | 21 | $ | 21 | |||||
Finance lease cost |
||||||||||
Amortization |
Cost of sales / Selling, general and administrative expenses |
5 | 4 | |||||||
Interest |
Net financing charges | 2 | 1 | |||||||
|
|
|
|
|||||||
Net lease cost |
$ | 28 | $ | 26 | ||||||
|
|
|
|
(1) | Includes short-term leases and variable lease costs, which are immaterial. |
The following table presents the balance and classifications of our ROU assets and lease liabilities included in our consolidated statements of financial position for the periods presented (in millions):
Classification | March 31, 2021 | September 30, 2020 | ||||||||||
Assets |
||||||||||||
Operating lease assets |
|
Operating lease right-of-use assets |
|
$ | 86 | $ | 93 | |||||
Finance lease assets (1) |
|
Property, plant and equipment - net |
|
48 | 50 | |||||||
|
|
|
|
|||||||||
Total leased assets |
$ | 134 | $ | 143 | ||||||||
|
|
|
|
|||||||||
Liabilities |
||||||||||||
Current |
||||||||||||
Operating lease liabilities |
|
Operating lease - current liabilities |
|
$ | 33 | $ | 30 | |||||
Finance lease liabilities |
|
Current portion of long- term debt |
10 | 9 | ||||||||
Noncurrent |
||||||||||||
Operating lease liabilities |
|
Operating lease - noncurrent liabilities |
|
54 | 62 | |||||||
Finance lease liabilities |
Long-term debt | 40 | 43 | |||||||||
|
|
|
|
|||||||||
Total lease liabilities |
$ | 137 | $ | 144 | ||||||||
|
|
|
|
(1) | Finance lease assets are recorded net of accumulated amortization of $20 million and $10 million as of March 31, 2021 and September 30, 2020, respectively. |
F-17
The following table presents our weighted-average remaining lease terms and weighted-average IBR for our operating and financing leases for the periods presented:
March 31, 2021 | September 30, 2020 | |||||||
Weighted-average remaining lease term (years) |
||||||||
Operating leases |
3.74 | 3.93 | ||||||
Finance leases |
2.81 | 3.23 | ||||||
Weighted-average IBR |
||||||||
Operating leases |
6.30 | % | 6.63 | % | ||||
Finance leases |
6.71 | % | 6.76 | % |
The following table presents additional information related to cash paid for amounts included in the measurement of lease liabilities included in our consolidated statement of cash flows for the periods presented (in millions):
Six Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Operating cash flows for operating leases |
$ | (21 | ) | $ | (21 | ) | ||
Operating cash flows for finance leases |
(2 | ) | (1 | ) | ||||
Financing cash flows for finance leases |
(5 | ) | (3 | ) | ||||
Noncash right-of-use assets obtained in exchange for operating lease liabilities |
12 | 37 | ||||||
Noncash right-of-use assets obtained in exchange for financing lease liabilities |
8 | 6 |
The following table presents the future undiscounted maturities of our operating and financing leases at March 31, 2021 and for each of the next five fiscal years ending September 30 and thereafter (in millions):
Operating Leases | Finance Leases | Total | ||||||||||
Remainder of 2021 |
$ | 18 | $ | 7 | $ | 25 | ||||||
2022 |
29 | 21 | 50 | |||||||||
2023 |
22 | 20 | 42 | |||||||||
2024 |
15 | 3 | 18 | |||||||||
2025 |
6 | 3 | 9 | |||||||||
After 2025 |
8 | 3 | 11 | |||||||||
|
|
|
|
|
|
|||||||
Total lease payments |
$ | 98 | $ | 57 | $ | 155 | ||||||
Less: interest |
(11 | ) | (7 | ) | (18 | ) | ||||||
|
|
|
|
|
|
|||||||
Present value of lease liabilities |
$ | 87 | $ | 50 | $ | 137 | ||||||
|
|
|
|
|
|
8. | Debt and Financing Arrangements |
Short-term debt consisted of the following (in millions):
March 31, 2021 | September 30, 2020 | |||||||
VIE bank borrowings - short-term (c) |
$ | 9 | $ | | ||||
Weighted average interest rate on short-term debt outstanding |
11.9 | % | | % |
F-18
Long-term debt consisted of the following (in millions):
March 31, 2021 | September 30, 2020 | |||||||
2026 USD Secured Notes (a) |
$ | 1,000 | $ | 1,000 | ||||
2025 Secured Notes (a) |
500 | 500 | ||||||
Euro Secured Notes (a) |
821 | 821 | ||||||
Unsecured Notes (a) |
1,950 | 1,950 | ||||||
USD Term Loan (b) |
3,963 | 4,158 | ||||||
Euro Term Loan (b) |
2,217 | 2,294 | ||||||
VIE bank borrowings - long-term (c) |
3 | | ||||||
Deferred financing cost |
(241 | ) | (271 | ) | ||||
Finance lease liabilities (Note 7) |
50 | 52 | ||||||
|
|
|
|
|||||
Gross long-term debt |
10,263 | 10,504 | ||||||
Less: current portion |
||||||||
USD Term Loan |
40 | 42 | ||||||
VIE bank borrowings - long-term (c) |
1 | | ||||||
Finance lease liabilities (Note 7) |
10 | 9 | ||||||
|
|
|
|
|||||
Net long-term debt |
$ | 10,212 | $ | 10,453 | ||||
|
|
|
|
(a) | In connection with the Acquisition, we issued $1,000 million aggregate principal amount of 6.250% Senior Secured Notes due 2026 (the 2026 USD Secured Notes), 700 million aggregate principal amount of 4.375% Senior Secured Notes due 2026 (the Euro Secured Notes and, together with the 2026 USD Secured Notes, the 2026 Secured Notes) and $1,950 million aggregate principal amount of 8.500% Senior Notes due 2027 (the Unsecured Notes and, together with the Secured Notes, the Acquisition Financing Notes). The Company used the net proceeds from the issuance of the Acquisition Financing Notes to finance the Acquisition. |
In addition, on May 20, 2020, we issued $500 million aggregate principal amount of 6.750% Senior Secured Notes due 2025 (the 2025 Secured Notes). The Company used the net proceeds from the issuance of the 2025 Secured Notes for general corporate purposes.
(b) | In connection with the Acquisition, the Company also entered into (i) senior secured credit facilities, initially consisting of (x) a 7-year $6,409 million equivalent principal amount first lien term loan facility (the Term Loan Facility) consisting of (1) a $4,200 million US Dollar denominated tranche (the USD Term Loan) with effective interest rates of 3.359% and 3.648% as of March 31, 2021 and September 30, 2020, respectively, and (2) a 1,955 million euro-denominated tranche (the Euro Term Loan) with effective interest rates of 3.250% and 3.750% as of March 31, 2021 and September 30, 2020, respectively, and (y) a 5-year $750 million first lien revolving credit facility (the Revolving Facility), and (ii) a 5-year $500 million asset-based revolving credit facility (the ABL Facility). The Company used the proceeds of the borrowings under the Term Loan Facility and the ABL Facility to pay the cash consideration for the Acquisition and pay related fees and expenses. |
On March 5, 2020, the Company entered into an incremental amendment to the ABL Facility pursuant to which the aggregate commitments were increased by $250 million to $750 million in the aggregate. There were no outstanding borrowings under the Revolving Facility as of March 31, 2021 and as of September 30, 2020. There were no outstanding borrowings under the ABL Facility as of March 31, 2021 and September 30, 2020.
The ABL Facility is secured by a first-priority lien on the accounts receivable, excluding accounts receivable eligible under the Companys receivables factoring programs and other defined ineligible items, and inventory of certain subsidiaries operating in the United States, Germany and Mexico. The Companys Senior Secured Notes, Term Loan Facility and Revolving Facility are secured by a first-priority lien on substantially all of the
F-19
Companys assets excluding those secured under the ABL Facility, and by a second-priority lien on the assets which secure the ABL Facility.
In March 2021, the Company closed on the repricing of the Term Loan Facility (Debt Repricing), which resulted in a 50 basis point rate reduction on the EUR Term Loan (issued with an original issue discount of 25 basis points) and 25 basis point rate reduction on the USD Term Loan. As part of the Debt Repricing, the Company also made $100 million in principal payments on the USD Term Loan and the First Lien Credit Agreement was amended to include provisions broadly consistent with the hardwired approach recommended prior to the repricing by the Alternative Rates Reference Committee convened by the Federal Reserve Board in relation to addressing the discontinuation of US dollar LIBOR. In conjunction with the Debt Repricing, the Company recorded approximately $16 million of expense in net financing charges on the consolidated statements of loss for the six months ended March 31, 2021, including $12 million of expense to write-off unamortized deferred financing costs on the extinguishment of debt.
During the six months ended March 31, 2021, in addition to the $100 million in principal payments made as part of the Debt Repricing noted above, the Company made $20 million in scheduled principal payments and approximately $150 million in voluntary principal payments on the Term Loan Facility ($75 million on the USD Term Loan and 65 million on the Euro Term Loan).
(c) In connection with the VIE Transaction, the Company assumed Turkish lira denominated short-term debt (VIE bank borrowings - short-term) and long-term debt (VIE bank borrowings - long-term) of Turkish lira 74 million and Turkish lira 32 million, respectively. Refer to Note 2, Acquisitions, of the notes to consolidated financial statements for further information regarding the VIE Transaction.
The installments of long-term debt, excluding lease obligations and deferred financing costs, mature in the following fiscal years (in millions):
Year Ending September 30, | ||||
Remainder of 2021 |
$ | 20 | ||
2022 |
41 | |||
2023 |
40 | |||
2024 |
40 | |||
2025 |
541 | |||
After 2025 |
9,772 | |||
|
|
|||
Total debt maturities |
$ | 10,454 | ||
|
|
Total cash paid for interest on debt was $284 and $321 million for the six months ended March 31, 2021 and 2020, respectively.
The Companys net financing charges line item in the consolidated statements of loss for the periods presented contained the following components (in millions):
Six Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Interest expense |
$ | 289 | $ | 289 | ||||
Factoring fees |
9 | 15 | ||||||
Banking fees and bond cost amortization |
45 | 28 | ||||||
Interest income |
(1 | ) | | |||||
Net foreign exchange results for financing activities |
24 | 7 | ||||||
|
|
|
|
|||||
Net financing charges |
$ | 366 | $ | 339 | ||||
|
|
|
|
F-20
9. | Derivative Instruments and Hedging Activities |
The Company selectively uses derivative instruments to reduce the Companys market risk associated with changes in interest rates, foreign currency and commodities. Under the Companys policy, the use of derivatives is restricted to those intended for hedging purposes; the use of any derivative instrument for speculative purposes is strictly prohibited. A description of each type of derivative utilized by the Company to manage the Companys risk is included in the following paragraphs.
Cash Flow Hedges
The Company has USD denominated variable-rate debt obligations and selectively enters into variable to fixed interest rate swaps to minimize variability in cash flows for interest payments associated with the designated proportion of the hedged debt. As cash flow hedges under ASC 815, Derivatives and Hedging, the hedge gains or losses due to changes in fair value are initially recorded as a component of accumulated other comprehensive income (AOCI) and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in interest rates during the six months ended March 31, 2021 and 2020. The Company entered into nine interest rate swaps to hedge the variability in future cash flows associated with a portion of the Companys variable-rate term loans. Four interest rate swaps, which became effective in May 2019 (the May 2019 Interest Rate Swaps), convert $1,000 million of the Companys variable-rate USD term loans to a weighted average fixed interest rate of 2.153% plus the applicable margin. Four interest rate swaps, which became effective in July 2019 (the July 2019 Interest Rate Swaps), convert $1,000 million of the Companys variable-rate USD term loans to a weighted average fixed interest rate of 1.653% plus the applicable margin. One interest rate swap, which became effective in June 2020 (the June 2020 Interest Rate Swap), converts $250 million of the Companys variable-rate USD term loans to a weighted average fixed interest rate 0.519% plus the applicable margin (inclusive of a 0.0% LIBOR floor). The May 2019 Interest Rate Swaps and July 2019 Interest Rate Swaps mature on May 31, 2024. The June 2020 Interest Rate Swap matures on April 30, 2025.
The Company has Euro denominated variable-rate debt obligations and selectively enters into interest rate caps to minimize extreme adverse variability in cash flows for interest payments associated with the designated proportion of the hedged debt. As cash flow hedges, the hedge gains or losses due to changes in fair value are initially recorded as a component of AOCI and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. The option premiums paid for the caps are recorded to interest expense over the life of the cap on a straight-line basis. The foreign currency transaction gains and losses on the Euro caps are recognized in earnings each period. The hedged interest rate was below the strike price on the caps during the six months ended March 31, 2021 and 2020. The Company entered into four interest rate caps to further mitigate the Companys exposure to increasing interest rates on its variable-rate Euro term loans. Two interest rate caps were effective beginning in May 2019 with a maturity of May 31, 2024, and they cap the interest on 500 million of the Companys variable-rate term loans at 0.5%, plus the applicable margin. In executing these interest rate caps, the Company paid a premium of $3.7 million. Two interest rate caps were effective beginning in July 2019 with a maturity of May 31, 2024, and they cap the interest on 500 million of the Companys variable-rate term loans at 0.0%, plus the applicable margin. In executing these interest rate caps, the Company paid a premium of $3.6 million.
The Company selectively hedged anticipated transactions that were subject to commodity price risk, primarily using commodity hedge contracts, to minimize overall price risk associated with the Companys purchases of lead, tin and polypropylene in cases where commodity price risk cannot be naturally offset or hedged through supply base fixed price contracts. Commodity risks were systematically managed pursuant to policy guidelines. As cash flow hedges, the hedge gains or losses due to changes in fair value were initially recorded as a component of AOCI and were subsequently reclassified into earnings when the hedged transactions, typically sales, occurred and affected earnings. The maturities of the commodity hedge contracts coincided with the forecast of commodities purchases, generally over a forecast period of 12 months or less. These contracts were
F-21
highly effective in hedging the variability in future cash flows attributable to changes in commodity prices during the periods presented.
The Company had the following outstanding contracts to hedge forecasted commodity purchases (in metric tons):
Volume Outstanding as of | ||||||||
Commodity |
March 31, 2021 | September 30, 2020 | ||||||
Polypropylene |
31,664 | 39,017 | ||||||
Lead |
29,497 | 67,578 | ||||||
Tin |
1,951 | 2,517 |
Net Investment Hedges
The Company enters into foreign currency denominated debt obligations to selectively hedge portions of its net investment in non-U.S. subsidiaries. The currency effects of the debt obligations are reflected in the AOCI account within equity where they offset currency gains and losses recorded on the Companys net investments in Europe. At March 31, 2021 and September 30, 2020, the Company had 2.6 billion and 2.1 billion, respectively, of debt designated as a net investment hedge in the Companys net investment in Europe. Pre-tax gains (losses) on net investment hedges recorded in foreign currency translation adjustments within AOCI were $24 million and ($9) million for the six months ended March 31, 2021 and 2020, respectively. For the six months ended March 31, 2021 and 2020, no gains or losses were reclassified from AOCI into the Companys consolidated statements of loss.
Derivatives Not Designated as Hedging Instruments
The Company also holds certain foreign currency and diesel fuel forward contracts which do not qualify for hedge accounting treatment. The change in fair value of foreign currency exchange derivatives and commodity derivatives not designated as hedging instruments under ASC 815 are recorded in the consolidated statements of loss.
Fair Value of Derivative Instruments
The following table presents the location and fair values of derivative instruments and hedging activities included in the Companys consolidated statements of financial position (in millions):
Derivatives and Hedging Activities Designated as Hedging Instruments under ASC 815 |
Derivatives and Hedging Activities Not Designated as Hedging Instruments under ASC 815 |
|||||||||||||||
March 31, 2021 | September 30, 2020 | March 31, 2021 | September 30, 2020 | |||||||||||||
Other current assets |
||||||||||||||||
Foreign currency exchange derivatives |
$ | | $ | | $ | 11 | $ | 1 | ||||||||
Commodity derivatives |
24 | 4 | 1 | | ||||||||||||
Other noncurrent assets |
||||||||||||||||
Interest rate caps |
1 | 1 | | | ||||||||||||
Interest rate swaps |
2 | $ | | $ | | $ | | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 27 | $ | 5 | $ | 12 | $ | 1 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other current liabilities |
||||||||||||||||
Foreign currency exchange derivatives |
$ | | $ | | $ | 11 | $ | 4 | ||||||||
Commodity derivatives |
2 | 6 | | | ||||||||||||
Other noncurrent liabilities |
||||||||||||||||
Interest rate swaps |
89 | 119 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 91 | $ | 125 | $ | 11 | $ | 4 | ||||||||
|
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|
|
|
|
|
|
F-22
Counterparty Credit Risk
The use of derivative financial instruments exposes the Company to counterparty credit risk. The Company has established policies and procedures to limit the potential for counterparty credit risk, including establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. As a matter of practice, the Company deals with major banks worldwide having strong investment grade long-term credit ratings. To further reduce the risk of loss, the Company generally enters into International Swaps and Derivatives Association master netting agreements with substantially all of its counterparties. The Companys derivative contracts do not contain any credit risk related contingent features and do not require collateral or other security to be furnished by the Company or the counterparties. The Companys exposure to credit risk associated with its derivative instruments is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. The Company does not anticipate any non-performance by any of its counterparties, and the concentration of risk with financial institutions does not present significant credit risk to the Company.
Derivatives Impact on the Consolidated Statements of Loss and Statements of Comprehensive Loss
The following table presents the pre-tax gains (losses) recorded in other comprehensive income related to cash flow hedges for the periods presented (in millions):
Six Months Ended March 31, | ||||||||
Derivatives in ASC 815 Cash Flow Hedging Relationships |
2021 | 2020 | ||||||
Commodity derivatives |
$ | 36 | $ | (17 | ) | |||
Interest rate swaps |
14 | (66 | ) | |||||
Interest rate caps |
| | ||||||
|
|
|
|
|||||
Total |
$ | 50 | $ | (83) | ||||
|
|
|
|
The following table presents the location and amount of the pre-tax gains (losses) on cash flow hedges reclassified from AOCI into the Companys consolidated statements of loss for the periods presented (in millions):
Derivatives in ASC 815 Cash Flow Hedging Relationships |
Location of Gain (Loss) Recognized in Income on Derivative |
Six Months Ended March 31, | ||||||||||
2021 | 2020 | |||||||||||
Commodity derivatives |
Cost of sales | $ | 5 | $ | (5) | |||||||
Interest rate swaps |
Net financing charges | (18) | (1) | |||||||||
Interest rate caps |
Net financing charges | (1) | (1) | |||||||||
|
|
|
|
|||||||||
Total |
$ | (14) | $ | (7) | ||||||||
|
|
|
|
The following table presents the location and amount of pre-tax gains (losses) on derivatives not designated as hedging instruments recognized in the Companys consolidated statements of loss for the periods presented (in millions):
Derivatives Not Designated as Hedging Instruments
under ASC |
Location of Gain (Loss) Recognized in Income on Derivative |
Six Months Ended March 31, | ||||||||||
2021 | 2020 | |||||||||||
Foreign currency exchange derivatives |
Cost of sales | $ | 1 | $ | (12) | |||||||
Commodity derivatives |
Cost of sales | 1 | | |||||||||
Foreign currency exchange derivatives |
Net financing charges | 3 | (2) | |||||||||
|
|
|
|
|||||||||
Total |
$ | 5 | $ | (14) | ||||||||
|
|
|
|
10. | Fair Value Measurements |
ASC 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC
F-23
820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:
Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2: Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.
ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
Recurring Fair Value Measurements
The following tables present the Companys fair value hierarchy for those assets and liabilities measured at fair value as of March 31, 2021 and September 30, 2020 (in millions):
Fair Value Measurements Using: | ||||||||||||||||
Total as of March 31, 2021 |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Other current assets |
||||||||||||||||
Foreign currency exchange derivatives |
$ | 11 | $ | | $ | 11 | $ | | ||||||||
Commodity derivatives |
25 | | 25 | | ||||||||||||
Other noncurrent assets |
||||||||||||||||
Investments in marketable common stock |
5 | 5 | | | ||||||||||||
Interest rate caps |
1 | | 1 | | ||||||||||||
Interest rate swaps |
2 | | 2 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 44 | $ | 5 | $ | 39 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other current liabilities |
||||||||||||||||
Foreign currency exchange derivatives |
$ | 11 | $ | | $ | 11 | $ | | ||||||||
Commodity derivatives |
2 | | 2 | | ||||||||||||
Other noncurrent liabilities |
||||||||||||||||
Interest rate swaps |
89 | | 89 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 102 | $ | | $ | 102 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Fair Value Measurements Using: | ||||||||||||||||
Total as of September 30, 2020 |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Other current assets |
||||||||||||||||
Foreign currency exchange derivatives |
$ | 1 | $ | | $ | 1 | $ | | ||||||||
Commodity derivatives |
4 | | 4 | | ||||||||||||
Other noncurrent assets |
||||||||||||||||
Investments in marketable common stock |
2 | 2 | | | ||||||||||||
Interest rate caps |
1 | | 1 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 8 | $ | 2 | $ | 6 | $ | | ||||||||
|
|
|
|
|
|
|
|
F-24
Fair Value Measurements Using: | ||||||||||||||||
Total as of September 30, 2020 |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Other current liabilities |
||||||||||||||||
Foreign currency exchange derivatives |
$ | 4 | $ | | $ | 4 | $ | | ||||||||
Commodity derivatives |
6 | | 6 | | ||||||||||||
Other noncurrent liabilities |
||||||||||||||||
Interest rate swaps |
119 | | 119 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 129 | $ | | $ | 129 | $ | | ||||||||
|
|
|
|
|
|
|
|
Valuation Methods
Foreign currency exchange derivatives: The foreign currency exchange derivatives are valued under a market approach using publicized spot and forward prices.
Commodity derivatives: The commodity derivatives are valued under a market approach using publicized prices, where available, or dealer quotes.
Investments in marketable common stock: Investments in marketable common stock are valued using a market approach based on the quoted market prices. During the six months ended March 31, 2021, the unrealized gains recognized in the consolidated statements of loss on these investments that were still held as of March 31, 2021 were approximately $5 million. During the six months ended March 31, 2020, the unrealized gains recognized in the consolidated statements of loss on these investments that were still held as of March 31, 2020 were approximately $2 million.
Interest rate caps: The interest rate caps are valued under a market approach based on pricing models. These models use discounted cash flows that utilize the appropriate market-based forward swap curves and interest rates.
Interest rate swaps: The interest rate swaps are valued under a market approach based on pricing models. These models use discounted cash flows that utilize the appropriate market-based forward swap curves and interest rates.
The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate their carrying values. The fair value of the Acquisitions Financing Notes, 2025 Secured Notes, and term loans were $10.7 billion and $10.8 billion at March 31, 2021 and September 30, 2020, respectively, which was determined based on quoted market prices for similar instruments classified as Level 2 inputs within the ASC 820 fair value hierarchy. The carrying value of short-term debt and other long-term debt approximates fair value.
F-25
11. | Accumulated Other Comprehensive Loss |
The following schedule presents changes in AOCI attributable to the Company (in millions, net of tax):
Six Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Foreign currency translation adjustments |
||||||||
Balance at beginning of period |
$ | (236) | $ | (49) | ||||
Aggregate adjustment for the period (net of tax effect of $0 and $0) |
93 | (150) | ||||||
Change in noncontrolling interests (net of tax effect of $0 and $0) |
| (7) | ||||||
|
|
|
|
|||||
Balance at end of period |
(143) | (206) | ||||||
|
|
|
|
|||||
Realized and unrealized gains (losses) on derivatives |
||||||||
Balance at beginning of period |
(123) | (52) | ||||||
Current period changes in fair value (net of tax effect of $(5) and $(3)) |
45 | (80) | ||||||
Reclassification to income (net of tax effect of $1 and $1) * |
15 | 6 | ||||||
|
|
|
|
|||||
Balance at end of period |
(63) | (126) | ||||||
|
|
|
|
|||||
Accumulated other comprehensive loss, end of period |
$ | (206) | $ | (332) | ||||
|
|
|
|
* Refer to Note 9, Derivative Instruments and Hedging Activities, of the notes to consolidated financial statements for disclosure of the line items on the consolidated statements of loss affected by reclassifications from AOCI into income related to derivatives.
12. | Retirement Plans |
The Company has non-contributory defined benefit pension plans covering certain U.S. and non-U.S. employees. The benefits provided are primarily based on years of service and average compensation or a monthly retirement benefit amount. The components of the Companys net periodic benefit costs, which are primarily recorded in cost of sales in the consolidated statements of loss, are shown in the table below in accordance with ASC 715, Compensation Retirement Benefits (in millions):
Six Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Components of Net Periodic Benefit Cost: |
||||||||
Service cost |
$ | 9 | $ | 8 | ||||
Interest cost |
5 | 6 | ||||||
Expected return on plan assets |
(12 | ) | (14 | ) | ||||
|
|
|
|
|||||
Net periodic benefit cost |
$ | 2 | $ | | ||||
|
|
|
|
13. | Income Taxes |
In calculating the provision for income taxes, the Company used an estimate of the annual effective tax rate based upon the facts and circumstances known at each interim period. Quarterly, the actual effective tax rate is adjusted, as appropriate, based upon elements as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter. After application of the annual effective tax rate, interim periods were adjusted by any pertinent discrete tax expense/benefits, inclusive of applicable discrete foreign exchange fluctuation impacts.
F-26
The income tax provision for the six months ended March 31, 2021 was $137 million. The income tax provision was primarily related to income tax impacts of foreign exchange fluctuations, an increase in prior year uncertain tax positions and global mix of income.
The income tax benefit for the six months ended March 31, 2020 was ($19) million. The income tax benefit was primarily related to income tax impacts of foreign exchange fluctuations and global mix of income offset by changes in the deferred tax liability related to basis differences of certain subsidiaries.
Valuation Allowances
The Company reviews the realizability of its deferred tax assets quarterly. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since future financial results may differ from previous estimates, periodic adjustments to the Companys valuation allowances may be necessary.
Uncertain Tax Positions
During the six months ended March 31, 2021, gross unrecognized tax benefits increased from $40 million to $74 million, of which $59 million would affect the Companys effective tax rate if recognized. The increase was primarily related to tax positions from prior years, for which the Company has an indemnity from JCI related to Predecessor tax period exposures which may be directly assessed on Successor subsidiaries.
Impact of Tax Legislation and Change in Statutory Tax Rates
On December 9, 2019 the 2020 Mexican Tax Reform was published in the official gazette, with an effective date of January 1, 2020, unless an article expressly states a different effective date. In general, the legislation is meant to incorporate fundamentals of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) initiative with respect to cross-border payments and interest deductibility. Currently no guidance or specific interpretations have been issued with respect to these major provisions, which provides areas that are subject to different interpretations. Upon issuance of future guidance it could have a material impact on Clarios financial statements.
During the six months ended March 31, 2021 and 2020, tax legislation was adopted in various jurisdictions. Specific to the U.S. Consolidated Appropriations Act, 2021 and finalization of other Regulations, as the Company includes certain pass through entities, no specific U.S. income tax impacts are reflected in the Companys consolidated financial statements. Other legislative changes did not have a material impact on the Companys consolidated financial statements.
14. | Product Warranties |
The Company offers assurance warranties to its customers depending upon the specific product and terms of the customer purchase agreement. A typical warranty program requires that the Company replace defective products within a specified time period from the date of sale. The Company records an estimate for future warranty-related costs based on actual historical return rates and other known factors. Based on analysis of return rates and other factors, the Companys warranty provisions are adjusted as necessary. The Company monitors its warranty activity and adjusts its reserve estimates when it is probable that future warranty costs will be different than those estimates.
The Companys product warranty liability is recorded in the consolidated statements of financial position in other current liabilities if the warranty is less than one year and in other noncurrent liabilities if the warranty extends longer than one year.
F-27
The changes in the carrying amount of the Companys total product warranty liability for the periods presented were as follows (in millions):
Six Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Balance at beginning of period |
$ | 134 | $ | 133 | ||||
Accruals for warranties issued during the period |
97 | 81 | ||||||
Settlements made (in cash or in kind) during the period |
(90 | ) | (112 | ) | ||||
Currency translation |
1 | (1 | ) | |||||
|
|
|
|
|||||
Balance at end of period |
$ | 142 | $ | 101 | ||||
|
|
|
|
15. | Restructuring and Impairment Costs |
North America Recycling Plant Restructuring Plan
Effective January 19, 2021, the Companys Board of Directors approved managements plan to permanently close one of the Companys battery recycling plants operating within North America in order to better align the Companys operating footprint within the region to the Companys revised procurement strategy. The permanent closure of this battery recycling plant will allow the Company to further focus its resources and attention on increasing the efficiency of its other battery recycling plants within the region, and optimize its best-in-class supply chain and logistics network. As a result, the Company recorded approximately $171 million of restructuring and impairment costs in the consolidated statements of loss for the six months ended March 31, 2021. These costs included approximately $157 million of non-cash asset impairment costs related to certain assets identified as having no alternative use and $14 million of costs primarily related to workforce reductions and other costs. Non-cash asset impairment costs were primarily measured using an income approach which considers the manner in which the assets could be operated to maximize their projected future cash inflows. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, Fair Value Measurement. The Company may incur additional costs related to the closure and its estimates are subject to further refinement, which may be material, based upon changes in the facts and circumstances regarding closure activities undertaken, and the result of managements review of various alternatives to owning and operating the battery recycling plant.
The following table summarizes the changes in the Companys reserve for the North America Recycling Plant Restructuring Plan, included within other current liabilities in the consolidated statement of financial position (in millions):
Original reserve |
$ | 14 | ||
Utilized - Cash |
(3 | ) | ||
|
|
|||
Balance at March 31, 2021 |
$ | 11 | ||
|
|
Other-than-temporary impairment of equity method investment
In March 2021, upon further assessment of the Companys current strategies to penetrate emerging markets within Asia, the Company committed to a plan to divest one of its equity method investments in order to pursue alternative investment strategies within the market in which the equity method investment operates. In light of the Companys decision, it evaluated the investments future business prospects and the marketability of equity interests in the investment, determining that collectively the facts and circumstances concerning the investment suggest that the fair value of the Companys investment has declined below its carrying value and the decrease of value is deemed to be other-than-temporary. As a result, the Company recorded an impairment charge of $29 million within the restructuring and impairment costs line on the consolidated statements of loss for the six
F-28
months ended March 31, 2021 to reduce the carrying value of the Companys investment to its estimated fair value. The fair value of the equity method investment was determined by applying the income valuation method, which relies on projected financial results and discount rates based on the capital structures for similar market participants and included various risk premiums that account for risks associated with the investment. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, Fair Value Measurement. Equity income recorded in the six months ended March 31, 2021 and 2020 related to this equity method investment was not material.
Organizational Transformation Plan
In October 2020, the Company announced that it would be launching an organizational transformation initiative. The initiatives goals are, among others, to increase the efficiency and capability of its workforce through a realignment of the existing organizational structure to better meet the Companys near-term commitments and long-term strategy. In December 2020, the Company committed to a significant plan to realign its organizational structure and streamline existing processes resulting in a charge of approximately $26 million being recorded in restructuring and impairment costs on the consolidated statement of loss for the six months ended March 31, 2021. The charge, which is the total amount incurred to date and the total amount expected to be incurred in connection with this restructuring plan, consisted primarily of severance costs associated with streamlining the workforce.
The following table summarizes the changes in the Companys reserve for the Organizational Transformation Plan, included within other current liabilities in the consolidated statement of financial position (in millions):
Original reserve |
$ | 26 | ||
Utilized - Cash |
(9 | ) | ||
|
|
|||
Balance at March 31, 2021 |
$ | 17 | ||
|
|
U.S. Manufacturing Plant Restructuring Plan
As part the Companys ongoing focus on providing best-in-class service to customers, while optimizing and modernizing its operations and addressing market dynamics, the Company announced on May 4, 2020 that it will be streamlining its U.S. manufacturing network through the discontinuation of assembly operations at one of its plants in November 2020. As a result, the Company recorded $11 million of restructuring and impairment costs in the consolidated statement of income (loss) for the year ended September 30, 2020. These costs included approximately $10 million of non-cash asset impairment costs related to certain assets identified as having no alternative use and $1 million of costs primarily related to workforce reductions all of which have been paid as of March 31, 2021. Non-cash asset impairment costs were primarily measured using an income approach which considers the manner in which the assets could be operated to maximize their projected future cash inflows. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, Fair Value Measurement.
Upon further review of the U.S. manufacturing network in March 2021, the Company concluded it would not repurpose the facilities and production assets of the assembly plant operations that were shut down in November 2020 and certain other production assets located in an adjacent assembly plant as other alternative investments in the network were identified, evaluated, and approved. As a result, the Company recognized $27 million of non-cash impairments within the restructuring and impairment costs line on the consolidated statements of loss for the six months ended March 31, 2021.
The Company continuously monitors its operating, workforce, and investment strategies for opportunities to further enhance the Companys profitability, including but not limited to, opportunities to consolidate or modify its operations and/or workforce to improve efficiency and provide best-in-class levels of service to its customers. It is uncertain whether the Company will identify such opportunities in the future. The benefits of such
F-29
opportunities and actions undertaken to realize these benefits, including costs related thereto, may have a material impact on the Companys consolidated financial statements.
16. | Commitments and Contingencies |
Environmental Matters
The Company accrues for potential environmental liabilities when it is probable a liability has been incurred and the amount of the liability is reasonably estimable. As of March 31, 2021 and September 30, 2020, reserves for environmental liabilities totaled $5 million and $4 million, respectively. Such potential liabilities accrued by the Company do not take into consideration possible recoveries of future insurance proceeds. They do, however, take into account the likely share other parties will bear at remediation sites. It is difficult to estimate the Companys ultimate level of liability at many remediation sites due to the large number of other parties that may be involved, the complexity of determining the relative liability among those parties, the uncertainty as to the nature and scope of the investigations and remediation to be conducted, the uncertainty in the application of law and risk assessment, the various choices and costs associated with diverse technologies that may be used in corrective actions at the sites, and the often quite lengthy periods over which eventual remediation may occur. Nevertheless, the Company does not currently believe that any claims, penalties or costs in connection with known environmental matters will have a material adverse effect on the Companys financial position, results of operations or cash flows. In addition, the Company has identified asset retirement obligations for environmental matters that are expected to be addressed at the retirement, disposal, removal or abandonment of existing owned facilities. The fair value of these obligations are recorded as liabilities on a discounted basis which is estimated using assumptions and judgements regarding such factors as the existence of a legal obligation for an asset retirement obligation, technical assessment of the assets, estimated amounts and timing of settlements, discount rates, and inflation rates, and represent Level 3 fair value measurements. At March 31, 2021 and September 30, 2020, the Company recorded conditional asset retirement obligations within other noncurrent liabilities of $34 million and $30 million, respectively.
Insurable Liabilities
The Company records liabilities primarily for workers compensation. The determination of these liabilities and related expenses is dependent on claims experience. Claims incurred but not yet reported are estimated by utilizing actuarial valuations based upon historical claims experience. At March 31, 2021 and September 30, 2020, the insurable liabilities recorded by the Company were $4 million and $3 million, respectively.
Vernon, CA Litigation
In December 2020, the Company received notice that it was named in a lawsuit filed by the state of California seeking relief associated with environmental contamination generated by a former Exide lead recycling facility in Vernon, CA, and for reimbursement of costs incurred to date by the state of California related to its investigation and clean up. The lawsuit also names other prior owner/operators as well as several former customers of the facility, including Clarios. The Company has engaged counsel to evaluate the merits of and potential defenses to the lawsuit and its allegations. To date the Company, at the advice of its counsel, is unable to reasonably estimate the potential loss or range of potential losses. It is at least reasonably possible that after further investigation into the facts and circumstances, an estimate of the potential loss or range of potential losses may be material.
Letters of Credit
The Company has obtained letters of credit securing our subsidiaries obligations pertaining to insurable risks, banking relationships, lease arrangements, and environmental matters. The maximum liability under such letters of credit as of March 31, 2021 was $73 million. These letters of credit have various expiration dates through March 2022. We do not anticipate that the counterparties will draw upon these letters of credit, and we expect that they will be renewed to the extent necessary in the future.
F-30
Purchase Obligations
The Company enters into long-term supply contracts for raw materials and other services to mitigate both supply and price risk, and contain both variable and fixed price terms based on the nature of the raw material or services acquired. As of March 31, 2021 total purchase obligations in relation to these long-term supply contracts is as follows (in millions):
Total amounts for all years |
Less than 1 year |
1-3 years | 3-5 years | More than 5 years |
||||||||||||||||
Purchase obligations |
$ | 3,370 | $ | 1,614 | $ | 1,195 | $ | 502 | $ | 59 |
In addition, as of March 31, 2021, there are various other liabilities recorded on the balance sheet for which the timing of the payments cannot be estimated due to the nature of the liabilities and are therefore excluded from the table above.
Long-term Incentive Plan
The long-term incentive plan (LTIP) was adopted by the Company effective as of January 1, 2020. The purpose of the plan is to retain senior management personnel of the Company, to incentivize them to make decisions with a long-term view and to influence behavior in a way that is consistent with maximizing value for the pre-IPO stockholders of the Company in a prudent manner. Each participant may be allocated a number of general and/or stretch pool option units, with a maximum of 10,555,200 option units (or Option Units) in the general pool and 2,638,800 option units in the stretch pool available for allocation. Awards of Option Units generally vest in equal increments over a five-year period beginning on the first anniversary of the grant date and are subject to continued employment with the Company through each vesting date. Any unvested Option Units that have not been previously forfeited will accelerate and become fully vested upon a Change in Control (as defined below).
Option Units will generally be settled in a lump sum payment within 30 days following a Change in Control based on the Sales Proceeds (as defined below) received by Brookfield Capital Partners V, L.P. (or, together with its affiliates, Brookfield) in connection with the Change in Control. The LTIP defines Change in Control as any transaction or series of transactions (including, without limitation, the consummation of a combination, share purchases, recapitalization, redemption, issuance of capital stock, consolidation, reorganization or otherwise) pursuant to which (a) a Person not affiliated with Brookfield acquires securities representing more than seventy percent (70%) of the combined voting power of the outstanding voting securities of the Company or the entity surviving or resulting from such transaction, (b) following a public offering of the Companys stock, Brookfield has ceased to have a beneficial ownership interest in at least 30% of the Companys outstanding voting securities (effective on the first of such date), or (c) the Company sells all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis. It is intended that the occurrence of a Change in Control in which Sales Proceeds exceed the Threshold Value would constitute a substantial risk of forfeiture within the meaning of Section 409A of the Code. The LTIP defines Threshold Value as, as of any date of determination, an amount equal to $2,932,000,000 (which represents the amount of the total invested capital of Brookfield as of April 30, 2019), plus the dollar value of any cash or other consideration contributed to or invested in the Company by Brookfield after April 30, 2019. The Threshold Value shall be determined by the Board of Directors in its sole discretion. The LTIP defines Sale Proceeds as, as of any date of determination, the sum of all proceeds actually received by Brookfield, net of all Sales Costs (as defined below), (i) as consideration (whether cash or equity) upon the Change in Control and (ii) as distributions, dividends, repurchases, redemptions or otherwise as a holder of such equity interests in the Company. Proceeds that are not paid upon or prior to or in connection with the Change in Control, including earn-outs, escrows and other contingent or deferred consideration shall become Sale Proceeds only as and when such proceeds are received by Brookfield. The amount of Sale Proceeds shall be determined by Brookfield in its sole discretion. Sales Costs means any costs or expenses (including legal or other advisor costs), fees (including investment
F-31
banking fees), commissions or discounts payable directly by Brookfield in connection with, arising out of or relating to a Change in Control, as determined by Brookfield in its sole discretion.
As of March 31, 2021, the awards are 20% vested. As the Company has concluded that a Change of Control is not probable, no expense has been recognized in the consolidated financial statements.
17. | Related Party Transactions |
Related Party Transactions
In the ordinary course of business, the Company enters into transactions with related parties, such as equity method investments. Such transactions consist of the sale or purchase of goods and other arrangements.
The following table presents the net sales to and purchases from related parties included in the consolidated statements of loss for the periods presented (in millions):
Six Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Net sales |
$ | 327 | $ | 319 | ||||
Purchases |
11 | 31 |
The following table sets forth the amount of accounts receivable due from and payable to related parties in the consolidated statements of financial position (in millions):
March 31, 2021 | September 30, 2020 | |||||||
Receivable from related parties |
$ | 15 | $ | 65 | ||||
Payable to related parties |
6 | 2 |
18. | Segment Information |
ASC 280, Segment Reporting, requires operating segments to be determined based on information that is regularly reviewed by our chief operating decision maker, our Chief Executive Officer, for the purpose of allocating resources to segments and in assessing their performance. Our business is organized into three operating segments: Americas, EMEA and Asia, corresponding to the global markets the Company participates in and bases its operating and product strategies upon. The Companys operating segments are also its reportable segments.
Americas: Consists of manufacturing operations located in the United States, Mexico, Brazil, and Colombia, with distribution operations that expand across the continents of North America and South America, and equity method investments which primarily operate within the United States.
EMEA: Consists of manufacturing operations located in Germany, the Czech Republic, and Spain, with distribution operations that expand across the continents of Europe, Africa, and the transcontinental region of the Middle East, and equity method investments which primarily operate in the Middle East.
Asia: Consists of manufacturing operations located in China and Korea, with distribution operations that expand across the countries making up the Asia Pacific region, and equity method investments which primarily operate in India and China.
Management evaluates the performance of its business segments primarily on segment earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), which represents net income (loss) before income taxes and noncontrolling interests, depreciation, intangible asset amortization, net financing charges, restructuring and impairment costs, net mark-to-market adjustments related to pension and postretirement plans,
F-32
deal and stand-up costs, impacts of purchase accounting, core valuation changes and other items. Centrally incurred costs are allocated to the reportable segments by using a systematic approach whereby costs are assigned based on either underlying cost driver(s) or as a percentage of third-party revenue. Corporate activities which do not relate to the operations of the Americas, EMEA and Asia segments are not allocated. Corporate expenses primarily consist of the Companys centralized corporate-level activities, such as salaries and benefits of certain corporate staff, product research and development activities, and other administrative expenses.
Financial information relating to the Companys reportable segments is as follows (in millions):
Six Months Ended March 31, | ||||||||
Net sales |
2021 | 2020 | ||||||
Americas |
$ | 2,641 | $ | 2,419 | ||||
EMEA |
1,344 | 1,058 | ||||||
Asia |
514 | 438 | ||||||
|
|
|
|
|||||
Total net sales |
$ | 4,499 | $ | 3,915 | ||||
|
|
|
|
Six Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Adjusted EBITDA |
||||||||
Americas |
$ | 556 | $ | 505 | ||||
EMEA |
279 | 173 | ||||||
Asia |
104 | 57 | ||||||
Corporate expenses |
(62 | ) | (47 | ) | ||||
|
|
|
|
|||||
$ | 877 | $ | 688 | |||||
Depreciation |
(183 | ) | (171 | ) | ||||
Amortization of intangible assets |
(200 | ) | (193 | ) | ||||
Net financing charges |
(366 | ) | (339 | ) | ||||
Restructuring and impairment costs |
(253 | ) | | |||||
Deal and stand up costs (a) |
(17 | ) | (7 | ) | ||||
Impacts of purchase accounting (b) |
(7 | ) | (7 | ) | ||||
Core valuation change (c) |
32 | (46 | ) | |||||
Factoring fees (d) |
9 | 15 | ||||||
Other items (e) |
(3 | ) | (45 | ) | ||||
|
|
|
|
|||||
Loss before income taxes |
$ | (111 | ) | $ | (105 | ) | ||
|
|
|
|
(a) | Expenses related to establishing standalone business functions. |
(b) | The amortization of the step-up in value of our equity method investments resulted in a reduction in equity income. |
(c) | Represents the non-cash change in value of battery cores primarily due to the change in the value of lead. |
(d) | Includes costs associated with ongoing receivable factoring programs. To mitigate long collection terms for accounts receivable from certain aftermarket customers, the Company actively engages in receivable factoring programs, through which accounts receivable are sold to third-party intermediaries in exchange for a fee based on LIBOR plus a spread. |
(e) | Consists of other items including: (i) consulting costs related to operational improvement initiatives ($7 million and $27 million for the six months ended March 31, 2021 and 2020, respectively), (ii) transaction costs associated with the Bosch Transaction ($9 million for the six months ended March 31, 2020), (iii) severance costs ($7 million for the six months ended March 31, 2020), (iv) mark-to-market adjustments for investments in marketable common stock ($6 million gain for the six months ended March 31, 2021 and $2 million loss for the six months ended March 31, 2020), (v) insurance recovery on disposal of certain assets ($1 million for the six months ended March 31, 2021), (vi) equipment moving and |
F-33
installation costs related to discontinuing assembly operations of one of the Companys U.S. plants ($5 million for the six months ended March 31, 2021), (vii) stranded fixed costs and inefficiencies related to the ramp down in operations at one of the Companys North America recycling plants ($4 million for the six months ended March 31, 2021), (viii) loss on disposal of certain assets ($1 million for the six months ended March 31, 2021), (ix) remeasurement gains related to the consolidation of certain partially-owned affiliates ($6 million for the six months ended March 31, 2021), and (x) mark-to-market adjustments related to fuel forward contracts which do not qualify for hedge accounting treatment ($1 million gain for the six months ended March 31, 2021). |
19. | Subsequent Events |
Divestiture
In May 2021, the Company sold a portion of its holdings in one of its equity method investments within the Asia segment as it further assessed its current strategies to penetrate emerging markets. As a result of the sale, the Company realized an after-tax gain of $11 million and ceased applying the equity method as of the transaction date as the Company no longer possessed the ability to exercise significant influence over the partially-owned affiliate. The remaining investment will be reclassified prospectively as an investment in marketable common stock within current assets in the consolidated statement of financial position.
Debt and Financing Arrangements
In May 2021, the Company made $50 million in voluntary principal payments on the USD Term Loan. In June 2021, the Company redeemed $100 million principal amount of the 2026 USD Secured Notes and $50 million principal amount of the 2025 Secured Notes at a redemption price of 103 plus accrued interest.
F-34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners and the Board of Directors of Clarios Global LP
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Clarios Global LP and subsidiaries (the Successor Company) as of September 30, 2020 and 2019, the related consolidated statements of income (loss), statement of comprehensive income (loss), statement of cash flows, statement of equity, and the related notes and the schedule listed in the Index at Item 16 (b) (collectively referred to as the financial statements) for the year ended September 30, 2020 and the five month period ended September 30, 2019. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Successor Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for the year ended September 30, 2020 and the five month period ended September 30, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Successor Companys management. Our responsibility is to express an opinion on the Successor Companys financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Successor Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Successor Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Successor Companys internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
F-35
Emphasis-of-Matters
As discussed in Note 1 to the consolidated financial statements, effective April 30, 2019, the Successor Company was acquired in a business combination. As a result of the acquisition, the consolidated financial statements for the period after April 30, 2019 are presented on a different basis than before April 30, 2019 due to the application of purchase accounting, and, therefore, are not comparable to prior periods. The Successor Company consolidated financial statements are also not comparable as they are on a consolidated basis and the combined financial statements of the Power Solutions Business of Johnson Controls International plc (Predecessor Company) are on a combined basis. Our opinion is not modified with respect to these matters.
/s/ Deloitte & Touche LLP
Milwaukee, WI
May 4, 2021
We have served as the Successor Companys auditor since 2019.
F-36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Partners of Clarios Global LP
Opinion on the Financial Statements
We have audited the accompanying combined statements of income (loss), comprehensive income (loss), equity, and cash flows of Clarios Global LP and its subsidiaries (Predecessor) (the Company) for the seven months ended April 30, 2019 and for the year ended September 30, 2018, including the related notes and schedule of valuation and qualifying accounts for the seven months ended April 30, 2019 and for the year ended September 30, 2018 appearing under Item 16(b) (collectively referred to as the combined financial statements). In our opinion, the combined financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the seven months ended April 30, 2019 and for the year ended September 30, 2018 in conformity with accounting principles generally accepted in the United States of America.
Changes in Accounting Principles
As discussed in Note 1 to the combined financial statements, the Company changed the manner in which it
accounts for revenue from contracts with customers and the manner in which it accounts for intra-entity
asset transfers of assets other than inventory in 2019.
Basis for Opinion
These combined financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys combined financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these combined financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the combined financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
May 4, 2021
We served as the Companys auditor from 2016 to 2019.
F-37
Clarios Global LP
Consolidated & Combined Statements of Income (Loss)
(in millions)
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
|||||||||||||
Net sales |
$ | 7,602 | $ | 3,535 | $ | 4,993 | $ | 8,000 | ||||||||
Cost of sales |
6,405 | 3,214 | 4,059 | 6,293 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
1,197 | 321 | 934 | 1,707 | ||||||||||||
Selling, general and administrative expenses |
(936 | ) | (459 | ) | (359 | ) | (474 | ) | ||||||||
Equity income |
48 | 17 | 30 | 58 | ||||||||||||
Restructuring and impairment costs |
(11 | ) | | | (11 | ) | ||||||||||
Net financing charges |
(717 | ) | (274 | ) | (23 | ) | (40 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before income taxes |
(419 | ) | (395 | ) | 582 | 1,240 | ||||||||||
Income tax provision (benefit) |
(17 | ) | (31 | ) | 178 | 601 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
(402 | ) | (364 | ) | 404 | 639 | ||||||||||
Income (loss) attributable to noncontrolling interests |
(3 | ) | (8 | ) | 23 | 47 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) attributable to the Company |
$ | (399 | ) | $ | (356 | ) | $ | 381 | $ | 592 | ||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated & combined financial statements.
F-38
Clarios Global LP
Consolidated & Combined Statements of Comprehensive Income (Loss)
(in millions)
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
|||||||||||||
Net income (loss) |
$ | (402 | ) | $ | (364 | ) | $ | 404 | $ | 639 | ||||||
Other comprehensive loss, net of tax: |
||||||||||||||||
Foreign currency translation |
(176 | ) | (61 | ) | (88 | ) | (154 | ) | ||||||||
Realized and unrealized gains (losses) on derivatives |
(71 | ) | (52 | ) | 4 | (21 | ) | |||||||||
Realized and unrealized losses on marketable securities |
| | | (4 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive loss, net of tax |
(247 | ) | (113 | ) | (84 | ) | (179 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total comprehensive income (loss) |
(649 | ) | (477 | ) | 320 | 460 | ||||||||||
Comprehensive income (loss) attributable to noncontrolling interests |
1 | (20 | ) | 20 | 38 | |||||||||||
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|
|
|
|
|
|
|
|||||||||
Comprehensive income (loss) attributable to the Company |
$ | (650 | ) | $ | (457 | ) | $ | 300 | $ | 422 | ||||||
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|
|
|
|
The accompanying notes are an integral part of the consolidated & combined financial statements.
F-39
Clarios Global LP
Consolidated Statements of Financial Position
(in millions)
September 30, 2020 |
September 30, 2019 |
|||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 682 | $ | 388 | ||||
Accounts receivablenet of allowance for doubtful accounts of $13 and $12 |
1,110 | 1,282 | ||||||
Inventories |
1,235 | 1,329 | ||||||
Other current assets |
236 | 236 | ||||||
|
|
|
|
|||||
Current assets |
3,263 | 3,235 | ||||||
|
|
|
|
|||||
Operating lease right-of-use assets |
93 | 75 | ||||||
Property, plant and equipmentnet |
3,496 | 3,528 | ||||||
Goodwill |
1,742 | 1,819 | ||||||
Other intangible assetsnet |
5,993 | 6,193 | ||||||
Equity method investments |
782 | 776 | ||||||
Noncurrent income tax assets |
197 | 226 | ||||||
Other noncurrent assets |
39 | 65 | ||||||
|
|
|
|
|||||
Total assets |
$ | 15,605 | $ | 15,917 | ||||
|
|
|
|
|||||
Liabilities and Equity |
||||||||
Current portion of long-term debt |
$ | 51 | $ | 61 | ||||
Operating leasecurrent liabilities |
30 | 26 | ||||||
Accounts payable |
1,138 | 1,181 | ||||||
Accrued compensation and benefits |
151 | 139 | ||||||
Accrued interest |
114 | 134 | ||||||
Other current liabilities |
538 | 435 | ||||||
|
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|
|
|||||
Current liabilities |
2,022 | 1,976 | ||||||
|
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|
|
|||||
Long-term debt |
10,453 | 9,804 | ||||||
Operating leasenoncurrent liabilities |
62 | 49 | ||||||
Pension and postretirement benefits |
211 | 146 | ||||||
Noncurrent income tax liabilities |
810 | 902 | ||||||
Other noncurrent liabilities |
213 | 117 | ||||||
|
|
|
|
|||||
Long-term liabilities |
11,749 | 11,018 | ||||||
|
|
|
|
|||||
Commitments and contingencies (Note 16) |
||||||||
Parent company investment |
2,172 | 2,576 | ||||||
Accumulated other comprehensive loss |
(359 | ) | (101 | ) | ||||
|
|
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|
|||||
Equity attributable to the Company |
1,813 | 2,475 | ||||||
Noncontrolling interest |
21 | 448 | ||||||
|
|
|
|
|||||
Total equity |
1,834 | 2,923 | ||||||
|
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|
|||||
Total liabilities and equity |
$ | 15,605 | $ | 15,917 | ||||
|
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|
The accompanying notes are an integral part of the consolidated financial statements.
F-40
Clarios Global LP
Consolidated & Combined Statements of Cash Flows
(in millions)
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
|||||||||||||
Operating Activities |
||||||||||||||||
Net income (loss) attributable to the Company |
$ | (399 | ) | $ | (356 | ) | $ | 381 | $ | 592 | ||||||
Income (loss) attributable to noncontrolling interests |
(3 | ) | (8 | ) | 23 | 47 | ||||||||||
|
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|
|
|
|
|
|
|||||||||
Net income (loss) |
(402 | ) | (364 | ) | 404 | 639 | ||||||||||
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
||||||||||||||||
Depreciation |
346 | 136 | 144 | 243 | ||||||||||||
Amortization |
394 | 161 | 4 | 8 | ||||||||||||
Pension and postretirement benefit expense |
67 | 51 | 2 | 14 | ||||||||||||
Pension and postretirement contributions |
(4 | ) | | (36 | ) | (1 | ) | |||||||||
Earnings from equity method investments, net of dividends received |
(23 | ) | (9 | ) | (26 | ) | (38 | ) | ||||||||
Deferred income taxes |
(159 | ) | (94 | ) | 46 | (18 | ) | |||||||||
Non-cash restructuring and impairment costs |
10 | | | 6 | ||||||||||||
Unrealized foreign currency remeasurement on debt |
41 | (44 | ) | | | |||||||||||
Other |
58 | 22 | 7 | (10 | ) | |||||||||||
Changes in assets and liabilities: |
||||||||||||||||
Accounts receivable |
180 | (167 | ) | 273 | (38 | ) | ||||||||||
Inventories |
102 | 427 | (190 | ) | (2 | ) | ||||||||||
Other assets |
14 | (27 | ) | (15 | ) | 206 | ||||||||||
Accounts payable and accrued liabilities |
(60 | ) | 388 | (410 | ) | (405 | ) | |||||||||
Accrued income taxes |
53 | 30 | 14 | 141 | ||||||||||||
|
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|
|
|
|||||||||
Net cash provided by operating activities |
617 | 510 | 217 | 745 | ||||||||||||
|
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|
|
|
|
|||||||||
Investing Activities |
||||||||||||||||
Capital expenditures |
(314 | ) | (181 | ) | (192 | ) | (372 | ) | ||||||||
Proceeds from sale of property, plant and equipment |
| 1 | | | ||||||||||||
Acquisition of businesses, net of cash acquired |
113 | (12,759 | ) | | | |||||||||||
Changes in long-term investments |
(1 | ) | 24 | 23 | 13 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used by investing activities |
(202 | ) | (12,915 | ) | (169 | ) | (359 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Financing Activities |
||||||||||||||||
Increase (decrease) in short-term debtnet |
| | (5 | ) | 11 | |||||||||||
Increase in long-term debt |
1,255 | 10,495 | | | ||||||||||||
Repayment of long-term debt |
(885 | ) | (272 | ) | (24 | ) | (25 | ) | ||||||||
Debt financing costs |
(4 | ) | (358 | ) | | | ||||||||||
Equity contribution |
| 2,932 | | | ||||||||||||
Change in noncontrolling interest share |
(440 | ) | | | 15 | |||||||||||
Dividends paid to noncontrolling interests |
| | | (3 | ) | |||||||||||
Net transfers to parent |
| | (19 | ) | (387 | ) | ||||||||||
Other |
| (5 | ) | (2 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided (used) by financing activities |
(74 | ) | 12,792 | (50 | ) | (389 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Effect of exchange rate changes on cash and cash equivalents |
(47 | ) | 1 | 3 | (2 | ) | ||||||||||
|
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|
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|
|
|
|||||||||
Net increase (decrease) in cash and cash equivalents |
294 | 388 | 1 | (5 | ) | |||||||||||
Cash and cash equivalents at beginning of period |
388 | | 15 | 20 | ||||||||||||
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Cash and cash equivalents at end of period |
$ | 682 | $ | 388 | $ | 16 | $ | 15 | ||||||||
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The accompanying notes are an integral part of the consolidated & combined financial statements.
F-41
Clarios Global LP
Consolidated & Combined Statements of Equity
(in millions)
Parent Company Investment |
Accumulated Other Comprehensive Loss |
Equity Attributable to the Company |
Noncontrolling Interest |
Total Equity |
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Predecessor: |
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Balance as of September 30, 2017 |
$ | 6,071 | $ | (238 | ) | $ | 5,833 | $ | 16 | $ | 5,849 | |||||||||
Comprehensive income (loss): |
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Net income |
592 | | 592 | 12 | 604 | |||||||||||||||
Other comprehensive income (loss), net of tax |
| (170 | ) | (170 | ) | 1 | (169 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
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Comprehensive income (loss) |
592 | (170 | ) | 422 | 13 | 435 | ||||||||||||||
Change in noncontrolling interests |
| | | 15 | 15 | |||||||||||||||
Reclassification from redeemable noncontrolling interest |
| | | 231 | 231 | |||||||||||||||
Change in parent company investment |
(378 | ) | | (378 | ) | | (378 | ) | ||||||||||||
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|
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Balance as of September 30, 2018 |
$ | 6,285 | $ | (408 | ) | $ | 5,877 | $ | 275 | $ | 6,152 | |||||||||
Comprehensive income (loss): |
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Net income |
381 | | 381 | 23 | 404 | |||||||||||||||
Other comprehensive loss, net of tax |
| (81 | ) | (81 | ) | (3 | ) | (84 | ) | |||||||||||
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|
|
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|
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|
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Comprehensive income (loss) |
381 | (81 | ) | 300 | 20 | 320 | ||||||||||||||
Adoption of ASC 606 (see Note 1) |
(33 | ) | | (33 | ) | | (33 | ) | ||||||||||||
Adoption of ASU 2016-01 (see Note 1) |
(8 | ) | 8 | | | | ||||||||||||||
Adoption of ASU 2016-16 (see Note 1) |
(273 | ) | | (273 | ) | | (273 | ) | ||||||||||||
Change in parent company investment |
(12 | ) | | (12 | ) | | (12 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
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Balance as of April 30, 2019 |
$ | 6,340 | $ | (481 | ) | $ | 5,859 | $ | 295 | $ | 6,154 | |||||||||
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Successor: |
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Balance as of May 1, 2019 |
$ | 2,932 | $ | | $ | 2,932 | $ | 468 | $ | 3,400 | ||||||||||
Comprehensive loss: |
||||||||||||||||||||
Net loss |
(356 | ) | | (356 | ) | (8 | ) | (364 | ) | |||||||||||
Other comprehensive loss, net of tax |
| (101 | ) | (101 | ) | (12 | ) | (113 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive loss |
(356 | ) | (101 | ) | (457 | ) | (20 | ) | (477 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance as of September 30, 2019 |
$ | 2,576 | $ | (101 | ) | $ | 2,475 | $ | 448 | $ | 2,923 | |||||||||
Comprehensive income (loss): |
||||||||||||||||||||
Net loss |
(399 | ) | | (399 | ) | (3 | ) | (402 | ) | |||||||||||
Other comprehensive income (loss), net of tax |
| (251 | ) | (251 | ) | 4 | (247 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income (loss) |
(399 | ) | (251 | ) | (650 | ) | 1 | (649 | ) | |||||||||||
Change in noncontrolling interests |
(5 | ) | (7 | ) | (12 | ) | (428 | ) | (440 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
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Balance as of September 30, 2020 |
$ | 2,172 | $ | (359 | ) | $ | 1,813 | $ | 21 | $ | 1,834 | |||||||||
|
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|
The accompanying notes are an integral part of the consolidated & combined financial statements.
F-42
Clarios Global LP
Notes to Consolidated & Combined Financial Statements
1. | Summary of the Business and Significant Accounting Policies |
On March 12, 2018, Johnson Controls International plc (JCI) announced it was exploring strategic alternatives for its Power Solutions business (the Company or Power Solutions). On November 13, 2018, JCI entered into a Stock and Asset Purchase Agreement (Purchase Agreement) with BCP Acquisitions LLC, which subsequently assigned its rights under the Purchase Agreement to an affiliate (such entities being referred to as the Purchaser, as the context requires). The Purchaser was a newly-formed entity controlled by investment funds managed by Brookfield Asset Management Inc. Pursuant to the Purchase Agreement, on the terms and subject to the conditions therein, JCI agreed to sell, and the Purchaser agreed to acquire, Power Solutions for a purchase price of $13.2 billion. The transaction closed on April 30, 2019 (the Acquisition Date).
In the following text, the terms Company, we, us and our may refer, as the context requires, to Clarios Global LP and its consolidated subsidiaries (after giving effect to the consummation of its acquisition on the Acquisition Date from Johnson Controls International Plc (the Acquisition)) or to the Power Solutions business prior to the Acquisition Date. The term Parent Company refers to JCI as of and prior to the Acquisition Date, and refers to the Purchaser subsequent to the Acquisition Date.
As a result of the Acquisition, a new basis of accounting was created on May 1, 2019. In these consolidated & combined financial statements, the combined results of operations and cash flows of the Company for the periods ended on or prior to April 30, 2019 are referred to herein as Predecessor combined financial information, and the consolidated results of operations and cash flows of the Company beginning on May 1, 2019 and the consolidated financial position of the Company as of balance sheet dates subsequent to April 30, 2019 are referred to herein as Successor consolidated financial information. In the following text, financial statements refer to the Predecessor combined financial statements and the Successor consolidated financial statements for the respective periods presented.
The Predecessor and Successor financial information presented herein is not comparable primarily due to the fact that the Successor financial information reflects:
| The application of acquisition accounting as of May 1, 2019, as further described in Note 2, which requires the acquirer to reflect the fair value of the net assets acquired in a business combination as of the date of acquisition which often exceeds the net assets carrying value on the acquired businesss financial statements. As a result of applying acquisition accounting, the carrying value of the Successors net assets exceeds the carrying value of the Predecessors net assets on the consolidated statement of financial position. The most significant implications to the consolidated statements of income (loss) for the Successor periods due to the application of acquisition accounting are increased depreciation and amortization expense; |
| Additional debt and interest expense associated with debt financing arrangements entered into in connection with the Acquisition, as further described in Note 8; and |
| Certain pass-through entities for purposes of Canadian and U.S. income taxation and, therefore, no income taxes are reflected in the Successor financial statements for those entities. |
Certain amounts in the combined statement of cash flows for the Predecessor period have been reclassified to conform to the Successor period presentation.
These financial statements reflect the results of the operations, financial position and cash flows of the Company. JCI is a corporation organized under the laws of Ireland. Subsequent to the Acquisition, the Company is a limited partnership organized under the laws of Canada.
F-43
The separation from JCI was completed pursuant to various agreements related to the separation. These agreements include arrangements for transition services provided on a temporary basis by JCI.
Basis of Presentation
These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP).
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
For the Predecessor periods, these financial statements were prepared on a combined basis derived from the consolidated financial statements and accounting records of JCI as if the Company had been operating as a stand-alone company. The statements of income include allocations for certain support functions that are provided on a centralized basis by the Parent Company and subsequently recorded at the business unit level, such as expenses related to employee benefits, finance, human resources, risk management, information technology, facilities, and legal, among others. These expenses were allocated to the Company on the basis of direct usage when identifiable, with the remainder allocated on a proportional basis of combined sales, headcount or other measures of the Company or the Parent Company. Management believes the assumptions underlying the financial statements, including the assumptions regarding allocating general corporate expenses from the Parent Company, are reasonable and applied consistently for the periods presented. Nevertheless, the financial statements may not include all actual expenses that would have been incurred by the Company and may not reflect the combined results of operations and cash flows had it been a stand-alone company during the Predecessor periods presented. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.
COVID-19
In December 2019, a novel strain of coronavirus SARS-CoV-2, causing a disease referred to as COVID-19, was reported in Wuhan, China. The coronavirus has since spread to, and infections have been found in, the vast majority of countries around the world, including the United States and throughout Europe, Middle East and Africa (EMEA). In March 2020, the World Health Organization recognized the COVID-19 outbreak as a pandemic based on the global spread of the disease, the severity of illnesses it causes and its effects on society. In response to the COVID-19 outbreak, the governments of many countries, states and cities have imposed and re-imposed from time to time preventative or protective actions, such as imposing restrictions on travel and business operations, and advising or requiring individuals to limit or forego their time outside of their homes. Accordingly, the COVID-19 outbreak has severely restricted the level of economic activity in many countries, and continues to adversely impact global economic activity and has contributed to significant volatility in financial markets.
The Companys operating performance is subject to global economic and market conditions, including their impacts on the global automotive industry. During the year ended September 30, 2020, the COVID-19 outbreak impacted the Companys operational and financial performance, primarily due to lower sales volumes to our automotive original equipment manufacturers (OEM) customers, many of whom have experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. We also experienced operational inefficiencies as we adjusted production levels to align with changing market demand and, in response to regulatory requirements, implemented enhanced safety measures to protect the health of our employees.
F-44
Because of the impacts COVID-19 had on the Companys operations during the year ended September 30, 2020, the Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, its allowance for doubtful accounts, the carrying value of the Companys goodwill, intangible assets, and other long-lived assets and valuation allowances on deferred tax assets, with the information reasonably available to the Company and the unknown future impacts of COVID-19. As a result of these assessments, there were no impairments or material increases in allowance for doubtful accounts or valuation allowances that impacted the Companys consolidated financial statements. Although the Companys operations have resumed, there is no guarantee that COVID-19 will not require additional assessments in the future and these assessments would not result in material impacts to the consolidated financial statements in future reporting periods. Events and changes in circumstances arising after this report date, including those resulting from the impacts of COVID-19, will be reflected in managements estimates for future periods.
Principles of Consolidation
For the Successor periods, the financial statements include the accounts of the Company that are consolidated in conformity with U.S. GAAP. All intercompany transactions have been eliminated. Investments in partially-owned affiliates for which the Company exercises significant influence but does not have control are accounted for by the equity method.
Under certain criteria as provided for in Accounting Standards Codification (ASC) 810, Consolidation, the Company may consolidate a partially-owned affiliate. To determine whether to consolidate a partially-owned affiliate, the Company first determines if the entity is a variable interest entity (VIE). An entity is considered to be a VIE if it has one of the following characteristics: 1) the legal entity does not have sufficient equity investment at risk; 2) residual equity holders do not control the entity; 3) equity holders are shielded from economic losses or do not participate fully in the entitys residual economics; or 4) the entity was established with non-substantive voting. If the entity meets one of these characteristics, the Company then determines if it is the primary beneficiary of the VIE. The party with the power to direct activities of the VIE that most significantly impact the VIEs economic performance and the potential to absorb benefits or losses that could be significant to the VIE is considered the primary beneficiary and consolidates the VIE. If the entity is not considered a VIE, then the Company applies the voting interest model to determine whether or not the Company shall consolidate the partially-owned affiliate.
In August 2019, the Company fully divested its interests in certain equity method investments identified as VIEs in exchange for $42 million generating an immaterial loss. As of September 30, 2019, the Company did not hold an equity interest in any VIEs.
Effective January 2020, the Company entered into certain distribution and technology agreements with an equity method investment that resulted in the Companys counterparty in the equity method investment to no longer participate fully in the residual economics of the equity method investment, and as such, the equity method investment has been identified as a VIE. As of September 30, 2020, the Company was not considered to be the primary beneficiary of the VIE as the Company cannot make key operating decisions considered to be most significant to the VIE. Therefore, the VIE is accounted for under the equity method of accounting. Equity income related to the equity method investment for the year ended September 30, 2020 was not material. Concurrent with the distribution and technology agreements and to increase the Companys investment in developing markets, the Company entered into a definitive purchase agreement to acquire from the counterparty a majority interest in the VIE and create additional shareholder rights giving the Company key operating decision making rights considered most significant to the VIE in exchange for nominal cash value. The transaction closed in October 2020 resulting in the Company being identified as the primary beneficiary of the VIE upon closing of the agreement; the Company will consolidate the VIE prospectively. In October 2020, the Company will account for the closing of the transaction as a step-acquisition of a business, which will require the Company to recognize in its financial statements the fair value of acquired net assets and consideration transferred to effect the acquisition. The Company is in the process of finalizing its fair value measurements.
F-45
In July 2020, the Company received notification that its bid to acquire its counterpartys equity interests in a consolidated partially-owned affiliate and an equity method investment was successful. In order to increase the Companys investment in developing markets, the Company has entered into an agreement to acquire the equity interests for approximately $32 million and to refinance the equity method investments debt at acquisition for approximately $44 million. The price paid to acquire the equity interest is subject to further adjustment based upon the collection of certain outstanding receivables acquired from the equity method investment. The transaction closed on December 15, 2020 upon receiving customary regulatory approvals, resulting in both entities being wholly-owned and consolidated by the Company. The Company will account for the acquisition of the counterpartys equity interest in the equity method investment as a step-acquisition of a business, which will require the Company to recognize in its financial statements the fair value of acquired net assets and consideration transferred to effect the acquisition. The Company is in the process of preparing its fair value measurements.
Principles of Combination
For the Predecessor periods, the financial statements included certain assets and liabilities that were historically held at the Parent Company level but are specifically identifiable or otherwise attributable to the Company. All intercompany transactions and accounts within the Companys combined businesses have been eliminated. All intercompany transactions between the Company and the Parent Company have been included in these combined statements of equity as parent company investment. Expenses related to corporate allocations from the Parent Company to the Company were considered to be effectively settled for cash in the financial statements at the time the transaction was recorded. See Note 17, Related Party Transactions and Parent Company Investment, of the notes to financial statements for further details.
Description of Business
The Company is a global supplier of lead-acid automotive batteries for virtually every type of passenger car, light truck and utility vehicle. The Company serves both OEM and the general vehicle battery aftermarket. The Company also supplies advanced battery technologies to power start-stop, hybrid and EVs.
Fair Value of Financial Instruments
The fair values of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. See Note 10, Fair Value Measurements, of the notes to financial statements for fair value of financial instruments, including derivative instruments, hedging activities and long-term debt.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents in the consolidated statements of financial position represent cash legally owned by the Company, and negative cash balances are reclassified to short term debt. Cash is managed by legal entity with cash pooling agreements in place for participating businesses within each cash pool master.
In the Predecessor periods, transfers of cash to and from the Parent Companys cash management system are reflected as a component of parent company investment in the combined financial statements. Accordingly, the cash and cash equivalents held by the Parent Company were not attributed to the Company for the Predecessor periods presented, as legal ownership remained with the Parent Company.
Receivables
Receivables consist of amounts billed and currently due from customers and revenues that have been recognized for accounting purposes but not yet billed to customers. The Company extends credit to customers in the normal
F-46
course of business and maintains an allowance for doubtful accounts resulting from the inability or unwillingness of customers to make required payments. The allowance for doubtful accounts is based on historical experience, existing economic conditions and any specific customer collection issues the Company has identified. The Company enters into factoring programs to sell certain accounts receivable without recourse to third-party financial institutions. Sales of accounts receivable are reflected as a reduction of accounts receivable on the consolidated statements of financial position and the proceeds are included in cash flows from operating activities in the consolidated & combined statements of cash flows. The carrying amount of accounts receivable sold under these programs was $1,041 million and $562 million as of September 30, 2020 and 2019, respectively. Factoring fees are included within net financing charges in the consolidated & combined statements of income (loss). Refer to Note 8, Debt and Financing Arrangements, of the notes to financial statements for further details.
Inventories
Inventories are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs.
Property, Plant and Equipment
Property, plant and equipment are initially recorded at cost. Depreciation is provided over the estimated useful lives of the respective assets using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. The estimated useful lives generally range from 3 to 40 years for buildings and improvements, and from 3 to 15 years for machinery and equipment.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. The Company reviews goodwill for impairment during the fourth fiscal quarter or more frequently if events or changes in circumstances indicate the asset might be impaired. The Company performs impairment reviews for its reporting units using a fair value method based on managements judgments and assumptions or third party valuations. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. In estimating the fair value, the Successor Company uses a present value technique based on discounted cash flows to estimate the fair value of our reporting units. In estimating the fair value, the Predecessor Company used a multiples of earnings based on the average of published multiples of earnings of comparable entities with similar operations and economic characteristics and applies to the Companys average of historical and future financial results. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, Fair Value Measurement. The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill. The Company is subject to financial statement risk to the extent that the carrying amount exceeds the estimated fair value. Refer to Note 6, Goodwill and Other Intangible Assets, of the notes to financial statements for information regarding the goodwill impairment testing performed.
Indefinite-lived intangible assets are subject to at least annual impairment testing. Indefinite-lived intangible assets primarily consist of trademarks and are tested for impairment using a relief-from-royalty method. A significant amount of management judgment and assumptions are required in performing the impairment tests.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property, plant and equipment and other intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the assets carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets. ASC 360-10-15 requires the Company to
F-47
group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals. Refer to Note 15, Restructuring and Impairment Costs, of the notes to consolidated financial statements for information regarding impairments recorded in the year ended September 30, 2020.
Revenue Recognition
Net sales consist of gross sales less sales adjustments related to provisions for customer returns, allowances and rebates. The Companys revenue is generated through the manufacture and sale of automotive battery products to OEM and aftermarket customers globally, of which the delivery of goods ordered typically represents the Companys sole performance obligation with respect to distinct goods and services offered to customers. The Company recognizes revenue typically at the point in time when control over the goods transfers to the customer as specified by the shipping terms agreed upon with the customer.
Research and Development Costs
Expenditures for research activities relating to product development and improvement are charged against income as incurred and included within selling, general and administrative expenses in the consolidated & combined statements of income (loss). Such expenditures for the year ended September 30, 2020, the five months ended September 30, 2019, seven months ended April 30, 2019 and year ended September 30, 2018 were $51 million, $23 million, $31 million and $57 million, respectively.
Foreign Currency Translation
The Companys reporting currency is the U.S. dollar. Substantially all of the Companys international operations use the respective local currency as the functional currency, with the exception of Mexico which is U.S. dollar functional. Monetary assets and liabilities of the companys operations denominated in foreign currencies other than their functional currency are translated into their respective functional currencies using period end foreign currency exchange rates and expenses are translated using the exchange rate approximating those in effect on the date of the transactions during the reporting periods in which the expenses were transacted. Non-monetary assets and liabilities are translated at their historical foreign currency exchange rates. Gains and losses resulting from foreign exchange transactions are included in the determination of net income or loss for the period. The aggregate transaction losses (gains), net of the impact of foreign currency hedges, included in net income for the year ended September 30, 2020, the five months ended September 30, 2019, seven months ended April 30, 2019 and year ended September 30, 2018 were $112 million, $(24) million, $(11) million and $5 million, respectively.
Foreign currency financial statements are translated from their functional currency to the U.S. dollar at the rate of exchange in effect on the balance sheet date for all assets and liabilities. The resulting translation adjustments are accumulated as a component of accumulated other comprehensive income (AOCI). Revenue and expenses are translated at the exchange rate approximating those in effect on the date of the transactions, and exchange gains and losses arising from translation are included in other comprehensive income.
Derivative Financial Instruments
The Company has written policies and procedures that place all financial instruments under the direction of the Company and restrict all derivative transactions to those intended for hedging purposes. The use of financial instruments for speculative purposes is strictly prohibited. The Company has historically used financial instruments to manage the Companys market risk from changes in interest rates, foreign exchange rates and commodity prices.
F-48
The fair values of all derivatives are recorded in the consolidated & combined statements of financial position. The change in a derivatives fair value is recorded each period in current earnings or AOCI, depending on whether the derivative is designated as part of a hedge transaction and if so, the type of hedge transaction. See Note 9, Derivative Instruments and Hedging Activities, of the notes to financial statements for disclosure of the Companys derivative instruments and hedging activities.
Investments
The Company invests in equity securities which are classified as available for sale and are marked to market at the end of each accounting period. Unrealized gains and losses on these securities are recognized in selling, general and administrative expenses within the consolidated & combined statements of income (loss). Refer to Note 10, Fair Value Measurements, of the notes to financial statements for further details.
Short-Term and Long-Term Debt
In connection to the Acquisition, the Company entered into variable and fixed rate indebtedness. Refer to Note 8, Debt and Financing Arrangements, of the notes to financial statements for further information on short-term and long-term debt.
Pension and Postretirement Benefits
Various defined benefit plans that relate solely to the Company are included in these financial statements. The Company utilizes a mark-to-market approach for recognizing pension and postretirement benefit expenses, including measuring the market related value of plan assets at fair value and recognizing actuarial gains and losses in the fourth quarter of each fiscal year or at the date of a remeasurement event. Refer to Note 12, Retirement Plans, of the notes to financial statements for disclosure of the Companys pension and postretirement benefit plans.
In the Predecessor periods, the defined benefit plans in which the Company participates relate primarily to U.S. plans sponsored by the Parent Company and for which other wholly-owned subsidiaries (other than the Company) of the Parent Company participate (the Shared Plans). Under the guidance in ASC 715, CompensationRetirement Benefits, the Company accounts for the Shared Plans as multiemployer plans, recording contributions to the pension plans as an allocation of net periodic benefit costs associated with the Companys employees. Expenses related to the employees participation in the Shared Plans were calculated using a proportional allocation based on headcount and payroll expense for the Companys employees. The pension expense allocation related to the Shared Plans under the multiemployer approach contains all components of the periodic benefit cost, including interest and service costs and was recorded primarily as a component of selling, general and administrative expenses in the financial statements.
Loss Contingencies
Accruals are recorded for various contingencies including legal proceedings, environmental matters, self-insurance and other claims that arise in the normal course of business. The accruals are based on judgment, the probability of losses and, where applicable, the consideration of opinions of internal and/or external legal counsel and actuarially determined estimates.
The Company is subject to laws and regulations relating to protecting the environment. The Company provides for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated. Refer to Note 16, Commitments and Contingencies, of the notes to financial statements.
The Company recorded liabilities for its workers compensation, product, general and auto liabilities. The determination of these liabilities and related expenses is dependent on claims experience. For most of these liabilities, claims incurred but not yet reported are estimated by utilizing actuarial valuations based upon historical claims experience.
F-49
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets (DTAs) and deferred tax liabilities (DTLs) for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines DTAs and DTLs on the basis of the differences between the financial statement and tax basis of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date.
The Company recognizes DTAs to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If it is determined that the Company would be able to realize its DTAs in the future in excess of their net recorded amount, the Company would make an adjustment to the DTA valuation allowance, which would reduce the provision for income taxes.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being sustained upon examination by authorities. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law and until such time that the related tax benefits are recognized. Refer to Note 13, Income Taxes, of the notes to financial statements for the Companys income tax disclosures.
Parent Company Investment
Parent company investment includes capital contributions and/or dividends as well as the results of operations and other comprehensive income (loss). Refer to Note 17, Related Party Transactions and Parent Company Investment, of the notes to financial statements.
New Accounting Pronouncements
Recently Issued and Effective Accounting Pronouncements
In October 2016, the FASB issued ASU No. 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory. The ASU requires the tax effects of all intra-entity sales of assets other than inventory to be recognized in the period in which the transaction occurs. The guidance was early adopted by the Company for the quarter ending December 31, 2018. The guidance was applied under the modified retrospective approach which resulted in a reduction to parent company investment and noncurrent income tax assets of $273 million.
In January 2016, the FASB issued ASU No. 2016-01, Financial InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU No. 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including marketable securities. Additionally, in February 2018, the FASB issued ASU No. 2018-03, Technical Corrections and Improvements to Financial InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which provides additional clarification on certain topics addressed in ASU No. 2016-01. ASU No. 2016-01 and ASU No. 2018-03 were early adopted by the Company for the quarter ending December 31, 2018. The guidance was applied under the modified retrospective approach which resulted in a decrease to parent company investment of $8 million. The new standard requires the mark-to-market of marketable securities investments previously recorded within accumulated other comprehensive income on the combined statements of financial position be recorded in the consolidated & combined statements of income (loss) on a prospective basis beginning as of the adoption date.
F-50
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 and its related amendments (collectively, the New Revenue Standard) clarify the principles for recognizing revenue when an entity either enters into a contract with customers to transfer goods or services or enters into a contract for the transfer of non-financial assets. The Company early adopted the New Revenue Standard on October 1, 2018 using a modified retrospective approach. Under the New Revenue Standard, revenue recognition is impacted as certain customers return battery cores which are now included in the transaction price as noncash consideration. As of October 1, 2018, the Company applied the New Revenue Standard to contracts that were not completed as of this date under the modified retrospective approach which resulted in a decrease to parent company investment of $33 million, which relates primarily to deferred revenue recorded for certain battery core returns that represent a material right provided to customers.
The impact of adoption of the New Revenue Standard to the Companys consolidated & combined statements of income (loss) for the five months ended September 30, 2019 and seven months ended April 30, 2019 was an increase to net sales of approximately $378 million and $659 million, respectively. The impact to both gross profit and net income for the five months ended September 30, 2019 was immaterial. For the seven months ended April 30, 2019, the impact to gross profit and net income was $35 million and $26 million, respectively.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and in July 2018, ASU No. 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Leases (Topic 842)Targeted Improvements (collectively, the new lease standard). The impact of adopting the new lease standard primarily relates to the recognition of a lease right-of-use (ROU) asset and current and non-current lease liabilities for the Companys operating leases on the consolidated statement of financial position. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent the Companys obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.
The Company early adopted the new lease standard as of the Acquisition Date in accounting for the lease ROU assets and liabilities arising from the business combination in the Companys acquisition accounting (see Note 2). The Company elected the practical expedient to exclude short-term leases from recognition in the Companys consolidated statement of financial position. The result of adopting the new lease standard resulted in the recognition of additional lease ROU assets and liabilities of approximately $83 million for the Companys operating leases on the consolidated statement of financial position as of the Acquisition Date. The adoption of the new lease standard did not have a material impact on the Companys consolidated statement of income (loss), equity or cash flows as of the adoption date.
Recently Issued But Not Effective Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), and related amendments (ASU 2016-03), which replaces the incurred loss impairment methodology under prior U.S. GAAP with an expected credit loss model. ASU 2016-13 affects trade receivables, loans, contract assets, certain beneficial interests, off-balance sheet credit exposures not accounted for as insurance and other financial assets that are not subject to fair value through net income, as defined by the standard. Under the expected credit loss model, the Company is required to consider future economic trends to estimate expected credit losses over the lifetime of the asset. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align our credit loss methodology with the new standard. The amendments will be effective for the Companys annual and interim periods beginning October 1, 2021, with early adoption permitted. The Company is currently evaluating the impact of this pronouncement on the Companys consolidated financial statements and disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASU 2020-04). ASU 2020-04 provides optional guidance for a limited period of time to ease potential accounting impact associated with
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transitioning away from reference rates that are expected to be discontinued, such as the London Interbank Offered Rate (LIBOR). The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The amendments in ASU 2020-04 can be adopted as of March 12, 2020 and are effective through December 31, 2022. The Company is currently evaluating whether it will adopt this pronouncement and the resulting impacts, if any, of adoption on the Companys consolidated financial statements and disclosures.
In August 2018, the FASB issued ASU 2018-15, IntangiblesGoodwill and OtherInternal-Use Software (Subtopic 350-40): Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15). ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the non-cancellable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider. The standard can be adopted either using the prospective or retrospective transition approach, and is effective for the Companys annual and interim periods beginning October 1, 2020. The Company is currently evaluating which transition approach it will elect and the impact of this pronouncement on the Companys consolidated financial statements and disclosures.
Other recently issued accounting pronouncements are not expected to have a material impact on the Companys financial statements.
2. | Acquisitions |
Power Solutions Transaction
As disclosed in Note 1, Summary of the Business and Significant Accounting Policies, JCI agreed to sell, and the Purchaser agreed to acquire, the Company for a gross purchase price of $13.2 billion. The transaction closed on April 30, 2019. As of April 30, 2020, the Company completed the analysis to assign fair values to all assets acquired and liabilities assumed, finalizing the purchase price allocation. The Company accounted for the Acquisition as a business combination using the acquisition method of accounting. At closing, the Company issued its equity interest valued at $2.9 billion, and utilized $9.9 billion of the proceeds from the Companys issuance of $10.3 billion of debt (see Note 8) to finance the net purchase price of $12.8 billion as defined by the Purchase Agreement. For the five months ended September 30, 2019 and seven months ended April 30, 2019, selling, general and administrative expenses included transaction costs of $79 million and $58 million, respectively. There were no transaction costs incurred for the years ended September 30, 2020 and 2018.
The assets acquired and liabilities assumed were recorded at their respective fair values as of the Acquisition Date. The Company engaged independent valuation specialists to assist with the determination of the fair value of assets acquired, liabilities assumed, noncontrolling interest, and goodwill, based on business valuation methodologies and utilized income, market, and cost valuation methods to estimate fair value. The income valuation method represents the present value of future cash flows over the life of the asset or asset group using: (i) discrete financial forecasts, which rely on managements estimate of the results of future revenues and operating expenses; (ii) long-term growth rates; (iii) appropriate discount rates; and (iv) expected future capital requirements. The market valuation method uses prices paid for a similar asset by other purchasers in the market, normalized for any differences between the assets. The cost valuation method is based on the replacement cost of a comparable asset at the time of the acquisition adjusted for depreciation and economic and functional obsolescence of the asset.
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The purchase price allocation of the Acquisition is as follows (in millions):
Purchase Price Allocation |
||||
Purchase price (a) |
$ | 12,657 | ||
Cash |
11 | |||
Accounts receivable |
1,130 | |||
Inventories (b) |
1,765 | |||
Other current assets |
341 | |||
Property, plant and equipment (c) |
3,494 | |||
Operating lease right-of-use assets |
83 | |||
Other intangible assets (d) |
6,550 | |||
Equity method investments (e) | 833 | |||
Noncurrent income tax assets (f) |
17 | |||
Other noncurrent assets |
25 | |||
|
|
|||
Assets acquired |
14,249 | |||
Finance lease liabilities |
38 | |||
Operating lease liabilities |
83 | |||
Accounts payable |
1,034 | |||
Accrued compensation and benefits |
103 | |||
Other current liabilities |
536 | |||
Pension and postretirement benefits |
96 | |||
Noncurrent income tax liabilities (f) |
867 | |||
Other noncurrent liabilities |
84 | |||
|
|
|||
Liabilities assumed |
2,841 | |||
|
|
|||
Net identifiable assets acquired |
11,408 | |||
|
|
|||
Noncontrolling interest (g) |
(468 | ) | ||
|
|
|||
Goodwill acquired |
$ | 1,717 | ||
|
|
(a) | Subsequent to September 30, 2019 and prior to closing the measurement period, the Company recorded a reduction of the purchase price due to certain working capital adjustments in accordance with the Purchase Agreement in the amount of $113 million. |
(b) | The fair value of finished goods and work-in-process inventory is based on the income valuation method, which relies on estimates of inventory selling prices, cost-to-dispose of inventory, and cost-to-convert work-in-process to finished goods inventory. The fair value of raw materials inventory is based on the cost valuation method. |
(c) | The fair value of property, plant and equipment is based on applying the cost valuation method, which relies on published market cost data for comparable assets and estimates of the remaining useful life of subject assets. |
(d) | The fair value of other intangible assets was determined by applying the income valuation method. The fair value of customer relationships, technology and trademarks relies on projected financial results with the fair value of customer relationships relying upon estimated customer attrition rates, and the fair value of both technology and trademarks relying upon published royalty rate market data. Subsequent to September 30, 2019 and prior to closing the measurement period, adjustments were made to increase the fair value of customer relationships, trademarksdefinite-life, and trademarks -indefinite-life, by $40 million, $20 million, and $70 million, respectively, and the weighted average life of trademarksdefinite-life was decreased from 14 years to 11 years. These adjustments reflect the measurement of acquired other intangible assets using finalized discount rates and did not have a material impact on the consolidated statement of income (loss) and consolidated statement of cash flows. |
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(e) | The fair value of the Companys significant equity method investments was primarily determined by applying the income valuation method, which relies on projected financial results and discount rates based on the capital structures for similar market participants and included various risk premiums that account for risks associated with the specific investments. The remainder of the fair value of the Companys significant equity method investments was determined by applying the market valuation method which considers the price that would be paid to acquire a similar asset in an orderly transaction between market participants. This includes equity method goodwill of $222 million due to the excess estimated fair value over the book value of the investments. |
(f) | Deferred income tax assets and liabilities represent the future tax benefit or tax expense associated with the differences between the fair value allocated to assets (excluding goodwill) and liabilities and the historical carryover tax basis of these assets and liabilities, where applicable. A deferred tax liability has not been recognized for the basis difference inherent in the fair value allocated to goodwill. Subsequent to September 30, 2019 and prior to closing the measurement period, adjustments were made to decrease noncurrent income tax assets by $154 million and noncurrent income tax liabilities by $94 million. These adjustments reflect the measurement of deferred taxes taking into account the reduction of the purchase price, increase in other intangible assets, and other matters, and did not have a material impact on the consolidated statement of income (loss) and consolidated statement of cash flows. |
(g) | The fair value of noncontrolling interest was determined by applying the income valuation method, which relies on projected financial results, long-term growth rates, and discount rates associated with the noncontrolling interests lack of control. |
The excess of the purchase price over the estimated fair values of the assets acquired and the liabilities assumed was recognized as goodwill at the Acquisition Date. Refer to Note 6, Goodwill and Other Intangible Assets, of the notes to financial statements for further information. The goodwill reflects the value paid primarily for future customer growth, the development of future technology, and the assembled workforce.
The purchase price allocation to identifiable other intangible assets acquired is as follows (in millions):
Fair Value | Weighted Average Life (in years) |
|||||||
Definite-lived intangible assets |
||||||||
Customer relationships |
$ | 5,010 | 16 | |||||
Technology |
940 | 14 | ||||||
Trademarksdefinite-life |
30 | 11 | ||||||
|
|
|||||||
Total definite-lived intangible assets |
5,980 | |||||||
Trademarksindefinite-life |
570 | |||||||
|
|
|||||||
Total other intangible assets |
$ | 6,550 | ||||||
|
|
F-54
Bosch Transaction
On August 9, 2019, the Company entered into an agreement with Robert Bosch GmbH (Bosch), pursuant to which the Company agreed to acquire from Bosch the 20% interests held by Bosch in the joint venture in which the Company holds the remaining interests. The transaction closed on December 12, 2019, the purchase price being funded through the Companys available liquidity. The effect of the change in the Companys ownership interest in the joint venture with Bosch is as follows (in millions):
Equity Attributable to the Company |
Noncontrolling Interest |
Total Equity |
||||||||||
Balance as of September 30, 2019 |
$ | 2,475 | $ | 448 | $ | 2,923 | ||||||
Net loss |
(399 | ) | (3 | ) | (402 | ) | ||||||
Other comprehensive income (loss), net of tax |
(251 | ) | 4 | (247 | ) | |||||||
Change in noncontrolling interests |
(12 | ) | (428 | ) | (440 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance as of September 30, 2020 |
$ | 1,813 | $ | 21 | $ | 1,834 | ||||||
|
|
|
|
|
|
3. | Revenue |
The Company services both automotive OEM and the battery aftermarket by providing advanced battery technology. The Companys revenue is generated through the manufacture and sale of automotive battery products, of which the delivery of goods ordered typically represents the Companys sole performance obligation with respect to distinct goods and services offered to customers. The Company recognizes revenue typically at the point in time when control over the goods transfers to the customer as specified by the shipping terms agreed upon with the customer.
The transaction price includes the total consideration expected to be received under the contract which may include both cash and noncash components. The calculation of the transaction price for contracts containing noncash consideration includes the fair value of the noncash consideration to be received as of the contracts inception date. Noncash consideration received from customers consists of spent battery cores for which the Company estimates fair value based on the lead content to be obtained from their reclamation and the market price of the relevant lead index as of the contracts inception date; this is considered to be a level 2 fair value measurement. Certain customer agreements contain future price discounts for additional product purchases if the customer returns batteries cores. These material rights are accounted for as separate performance obligations and recognized as deferred revenue within other current liabilities in the consolidated statements of financial position each time the battery cores are received. Material rights are recognized as revenue in the month following the receipt of the returned battery core as options are either exercised when the customer purchase additional product or expire at the end of the month.
The Company considers the contractual consideration payable by the customer and assesses variable consideration that may affect the total transaction price, including discounts, rebates, refunds, credits or other similar sources of variable consideration, when determining the transaction price of each contract. The Company includes variable consideration in the estimated transaction price when it is probable that significant reversal of revenue recognized would not occur when the uncertainty associated with variable consideration is subsequently resolved. These estimates are based on the amount of consideration that the Company expects to be entitled to.
Shipping and handling costs billed to customers are included in sales and the related costs are included in cost of sales when control transfers to the customer. The Company has elected to present amounts collected from customers for sales and other taxes net of the related amounts remitted.
F-55
Disaggregated Revenue
The following table presents disaggregation of revenues by geography (in millions):
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
|||||||||||||
Americas |
$ | 4,710 | $ | 2,230 | $ | 3,090 | $ | 4,349 | ||||||||
EMEA |
2,036 | 946 | 1,281 | 2,478 | ||||||||||||
Asia |
856 | 359 | 622 | 1,173 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 7,602 | $ | 3,535 | $ | 4,993 | $ | 8,000 | ||||||||
|
|
|
|
|
|
|
|
Contract Balances
Contract assets in accounts receivablenet relate to the Companys right to consideration for performance obligations satisfied but not billed and consist primarily of unbilled receivables. Contract assets in other current assets relate to noncash consideration of spent battery cores to be received from customers. Contract liabilities relate to deferred revenue resulting from customer payments received in both cash and noncash consideration in advance of satisfaction of performance obligations under the contract. Contract balances are classified as assets or liabilities on a contract-by-contract basis at the end of each reporting period.
The following table presents the location and amount of contract balances in the Companys consolidated statements of financial position (in millions):
Location of contract balances | September 30, 2020 |
September 30, 2019 |
||||||||
Contract assetscurrent |
Accounts receivablenet | $ | 3 | $ | 22 | |||||
Contract assetscurrent |
Other current assets | 11 | 23 | |||||||
Contract liabilitiescurrent |
Other current liabilities | (16 | ) | (12 | ) |
For the year ended September 30, 2020 and seven months ended April 30, 2019, the Company recognized revenue of $12 million and $64 million, respectively, that was included in the beginning contract liability balance for the respective periods.
Remaining Performance Obligations
A performance obligation is a distinct good, service, or a bundle of goods and services promised in a contract. A contracts transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For product sales, each product sold to a customer typically represents a distinct performance obligation. The Company satisfies performance obligations at a point in time. The Company has applied the practical expedient to exclude the value of remaining performance obligations for contracts with an original expected duration of one year or less.
4. | Inventories |
Inventories consisted of the following (in millions):
September 30, 2020 |
September 30, 2019 |
|||||||
Raw materials and supplies |
$ | 396 | $ | 336 | ||||
Work-in-process |
377 | 448 | ||||||
Finished goods |
462 | 545 | ||||||
|
|
|
|
|||||
Inventories |
$ | 1,235 | $ | 1,329 | ||||
|
|
|
|
F-56
5. | Property, Plant and Equipment |
Property, plant and equipment consisted of the following (in millions):
September 30, 2020 |
September 30, 2019 |
|||||||
Buildings and improvements |
$ | 877 | $ | 808 | ||||
Machinery and equipment |
2,362 | 2,024 | ||||||
Construction in progress |
520 | 623 | ||||||
Land |
197 | 193 | ||||||
|
|
|
|
|||||
Total property, plant and equipment |
3,956 | 3,648 | ||||||
Less: accumulated depreciation |
(460 | ) | (120 | ) | ||||
|
|
|
|
|||||
Property, plant and equipmentnet |
$ | 3,496 | $ | 3,528 | ||||
|
|
|
|
Fixed asset acquisitions in accounts payable at September 30, 2020 and 2019 were $95 million and $123 million, respectively.
6. | Goodwill and Other Intangible Assets |
The changes in the carrying amount of goodwill are as follows (in millions):
September 30, 2019 |
Acquisition Goodwill |
Currency Translation |
September 30, 2020 |
|||||||||||||
Americas |
$ | 310 | $ | 122 | $ | (6 | ) | $ | 426 | |||||||
EMEA |
1,323 | (284 | ) | 37 | 1,076 | |||||||||||
Asia |
186 | 49 | 5 | 240 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,819 | $ | (113 | ) | $ | 36 | $ | 1,742 |
Acquisition Date Goodwill |
Currency Translation |
September 30, 2019 |
||||||||||
Americas |
$ | 311 | $ | (1 | ) | $ | 310 | |||||
EMEA |
1,335 | (12 | ) | 1,323 | ||||||||
Asia |
184 | 2 | 186 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 1,830 | $ | (11 | ) | $ | 1,819 |
At September 30, 2020 and 2019 the carrying amount of goodwill was $1,742 million and $1,819 million, respectively. The decrease in the carrying amount of goodwill for the year ended September 30, 2020 was the result of $113 million of net activity related to the Acquisition, including a purchase price reduction and various allocation adjustments, partially offset by $36 million of foreign currency translation. There were no goodwill impairments resulting from the annual impairment tests performed in the Successor and Predecessor periods presented. At September 30, 2020 there were no accumulated impairment charges. The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining fair value, including long-term revenue growth projections, profitability, discount rates, recent market valuations from transactions by comparable companies, and general industry, market and macro-economic conditions. It is possible that future changes in such circumstances, or in the variables associated with the judgments, assumptions and estimates used in assessing the fair value of the reporting unit, would require the Company to record a non-cash impairment charge.
The assumptions included in the impairment tests require judgment, and changes to these inputs could impact the results of the calculations. The primary assumptions used in the impairment tests were the business growth rates and discount rates. Although the Companys forecasts are based on assumptions that are considered reasonable by management and consistent with the plans and estimates management is using to operate the underlying businesses, there are significant judgments in determining the expected future growth rates of a reporting unit.
F-57
The Companys other intangible assets, primarily from business acquisitions valued based on independent valuations, consisted of (in millions):
September 30, 2020 | September 30, 2019 | |||||||||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net | Gross Carrying Amount |
Accumulated Amortization |
Net | |||||||||||||||||||
Definite-lived intangible assets |
||||||||||||||||||||||||
Customer relationships |
$ | 5,001 | $ | (459 | ) | $ | 4,542 | $ | 4,921 | $ | (130 | ) | $ | 4,791 | ||||||||||
Technology |
945 | (96 | ) | 849 | 927 | (29 | ) | 898 | ||||||||||||||||
Trademarks and miscellaneous |
30 | (4 | ) | 26 | 13 | | 13 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total definite-lived intangible assets |
5,976 | (559 | ) | 5,417 | 5,861 | (159 | ) | 5,702 | ||||||||||||||||
Trademarksindefinite-life |
576 | | 576 | 491 | | 491 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other intangible assets |
$ | 6,552 | $ | (559 | ) | $ | 5,993 | $ | 6,352 | $ | (159 | ) | $ | 6,193 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The amortization of other intangible assets for the periods presented were as follows (in millions):
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
|||||||||||||
Amortization expense |
$ | 394 | $ | 161 | $ | 4 | $ | 8 |
Excluding the impact of any future acquisitions, the Company anticipates amortization for the years ending September 30, 2021, 2022, 2023, 2024 and 2025 will be approximately $386 million per year.
7. | Leases |
The Company leases certain warehouses, office space, equipment and vehicles.
Some leases include one or more options to renew with renewal terms that can extend the lease term, and or options to purchase leased assets. The exercise of either a lease renewal or a purchase option is at the Companys sole discretion. We have lease agreements that include both lease and non-lease components such as additional products and services provided to support the lease asset. Lease payments are allocated to non-lease components based on estimated stand-alone prices. The Companys lease agreements do not contain restrictions or covenants. The depreciable life of assets and leasehold improvements are limited by the expected lease term. The amounts disclosed in our consolidated statements of financial position as of September 30, 2020 and September 30, 2019 pertaining to the ROU assets and lease liabilities were measured based on current expectations of exercising available renewal options.
We utilize our incremental borrowing rate (IBR) as the basis to calculate the present value of future lease payments, which includes residual value guarantees, purchase options and variable lease payments, where applicable, at lease commencement. Our IBR represents the rate that we would have to pay to borrow funds on a collateralized basis over a similar term and in a similar economic environment.
Leases with an initial term of 12 months or less are not recorded on our consolidated statements of financial position; we recognize lease expense for these leases on a straight-line basis over the lease term.
As of September 30, 2020, we have not entered into any leases, which have not yet commenced, that would entitle us to significant rights or create additional obligations.
F-58
The following table presents the components of the Companys lease expense and the classification in the consolidated & combined statements of income (loss) for the periods presented (in millions):
Classification | Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
||||||||||
Operating lease cost (1) |
|
Cost of sales / Selling, general and administrative expenses |
|
$ | 41 | $ | 18 | |||||
Finance lease cost |
||||||||||||
Amortization |
|
Cost of sales / Selling, general and administrative expenses |
|
8 | 2 | |||||||
Interest |
Net financing charges | 2 | 1 | |||||||||
|
|
|
|
|||||||||
Net lease cost |
$ | 51 | $ | 21 | ||||||||
|
|
|
|
(1) | Includes short-term leases and variable lease costs, which are immaterial. |
The following table presents the balance and classifications of our ROU assets and lease liabilities included in our consolidated statements of financial position for the periods presented (in millions):
Classification | September 30, 2020 |
September 30, 2019 |
||||||||||
Assets |
||||||||||||
Operating lease assets |
Operating lease right-of-use assets | $ | 93 | $ | 75 | |||||||
Finance lease assets (1) |
Property, plant and equipmentnet | 50 | 43 | |||||||||
|
|
|
|
|||||||||
Total leased assets |
$ | 143 | $ | 118 | ||||||||
|
|
|
|
|||||||||
Liabilities |
||||||||||||
Current |
||||||||||||
Operating lease liabilities |
Operating leasecurrent liabilities | $ | 30 | $ | 26 | |||||||
Finance lease liabilities |
Current portion of long-term debt | 9 | 19 | |||||||||
Noncurrent |
||||||||||||
Operating lease liabilities |
|
Operating leasenoncurrent liabilities |
|
62 | 49 | |||||||
Finance lease liabilities |
Long-term debt | 43 | 27 | |||||||||
|
|
|
|
|||||||||
Total lease liabilities |
$ | 144 | $ | 121 | ||||||||
|
|
|
|
(1) | Finance lease assets are recorded net of accumulated amortization of $10 million and $2 million as of September 30, 2020 and 2019, respectively. |
The following table presents our weighted-average remaining lease terms and weighted-average IBR for our operating and financing leases for the periods presented:
September 30, 2020 |
September 30, 2019 |
|||||||
Weighted-average remaining lease term (years) |
||||||||
Operating leases |
3.93 | 3.39 | ||||||
Finance leases |
3.23 | 2.91 | ||||||
Weighted-average IBR |
||||||||
Operating leases |
6.63 | % | 6.67 | % | ||||
Finance leases |
6.76 | % | 5.02 | % |
F-59
The following table presents additional information related to cash paid for amounts included in the measurement of lease liabilities included in our consolidated statement of cash flows for the periods presented (in millions):
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
|||||||
Operating cash flows for operating leases |
$ | (41 | ) | $ | (18 | ) | ||
Operating cash flows for finance leases |
(2 | ) | (1 | ) | ||||
Financing cash flows for finance leases |
(8 | ) | (2 | ) | ||||
Noncash right-of-use assets obtained in exchange for operating lease liabilities |
46 | 3 | ||||||
Noncash right-of-use assets obtained in exchange for financing lease liabilities |
14 | 10 |
The following table presents the future undiscounted maturities of our operating and financing leases at September 30, 2020 and for each of the next five fiscal years and thereafter (in millions):
Operating Leases |
Finance Lease |
Total | ||||||||||
2021 |
$ | 35 | $ | 12 | $ | 47 | ||||||
2022 |
25 | 20 | 45 | |||||||||
2023 |
20 | 20 | 40 | |||||||||
2024 |
13 | 3 | 16 | |||||||||
2025 |
5 | 3 | 8 | |||||||||
After 2025 |
7 | 2 | 9 | |||||||||
|
|
|
|
|
|
|||||||
Total lease payments |
$ | 105 | $ | 60 | $ | 165 | ||||||
Less: interest |
(13 | ) | (8 | ) | (21 | ) | ||||||
|
|
|
|
|
|
|||||||
Present value of lease liabilities |
$ | 92 | $ | 52 | $ | 144 | ||||||
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|
|
|
8. | Debt and Financing Arrangements |
Long-term debt consisted of the following (in millions):
September 30, 2020 |
September 30, 2019 |
|||||||
2026 USD Secured Notes (a) |
$ | 1,000 | $ | 1,000 | ||||
2025 Secured Notes (a) |
500 | | ||||||
Euro Secured Notes (a) |
821 | 765 | ||||||
Unsecured Notes (a) |
1,950 | 1,950 | ||||||
USD Term Loan (b) |
4,158 | 4,200 | ||||||
Euro Term Loan (b) |
2,294 | 2,138 | ||||||
ABL Facility (b) |
| 75 | ||||||
Deferred financing cost |
(271 | ) | (309 | ) | ||||
Finance lease liabilities (Note 7) |
52 | 46 | ||||||
|
|
|
|
|||||
Gross long-term debt |
10,504 | 9,865 | ||||||
Less: current portion |
||||||||
USD Term Loan |
42 | 42 | ||||||
Finance lease liabilities (Note 7) |
9 | 19 | ||||||
|
|
|
|
|||||
Net long-term debt |
$ | 10,453 | $ | 9,804 | ||||
|
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|
|
(a) | In connection with the Acquisition, we issued $1,000 million aggregate principal amount of 6.250% Senior Secured Notes due 2026 (the 2026 USD Secured Notes), 700 million aggregate principal amount of |
F-60
4.375% Senior Secured Notes due 2026 (the Euro Secured Notes and, together with the 2026 USD Secured Notes, the 2026 Secured Notes) and $1,950 million aggregate principal amount of 8.500% Senior Notes due 2027 (the Unsecured Notes and, together with the Secured Notes, the Acquisition Financing Notes). The Company used the net proceeds from the issuance of the Acquisition Financing Notes to finance the Acquisition. |
In addition, on May 20, 2020, we issued $500 million aggregate principal amount of 6.750% Senior Secured Notes due 2025 (the 2025 Secured Notes). The Company used the net proceeds from the issuance of the 2025 Secured Notes for general corporate purposes.
(b) | In connection with the Acquisition, the Company also entered into (i) senior secured credit facilities, initially consisting of (x) a 7-year $6,409 million equivalent principal amount first lien term loan facility (the Term Loan Facility) consisting of (1) a $4,200 million US Dollar denominated tranche (the USD Term Loan) with effective interest rates of 3.648% and 5.516% as of September 30, 2020 and September 30, 2019, respectively, and (2) a 1,955 million euro-denominated tranche (the Euro Term Loan) with an effective interest rate of 3.750% as of September 30, 2020 and September 30, 2019, and (y) a 5-year $750 million first lien revolving credit facility (the Revolving Facility), and (ii) a 5-year $500 million asset-based revolving credit facility (the ABL Facility). The Company used the proceeds of the borrowings under the Term Loan Facility and the ABL Facility to pay the cash consideration for the Acquisition and pay related fees and expenses. On March 5, 2020, the Company entered into an incremental amendment to the ABL Facility pursuant to which the aggregate commitments were increased by $250 million to $750 million in the aggregate. There were no outstanding borrowings under the Revolving Facility as of September 30, 2020 and as of September 30, 2019. There were no outstanding borrowings under the ABL facility as of September 30, 2020 and $75 million of outstanding borrowings as of September 30, 2019. During the year ended September 30, 2020, the Company made $42 million in scheduled principal payments on the USD Term Loan. |
The ABL facility is secured by a first-priority lien on the accounts receivable, excluding accounts receivable eligible under the Companys receivables factoring programs and other defined ineligible items, and inventory of certain subsidiaries operating in the United States, Germany and Mexico. The Companys Senior Secured Notes, Term Loan Facility and Revolving Facility are secured by a first-priority lien on substantially all of the Companys assets excluding those secured under the ABL facility, and by a second-priority lien on the assets which secure the ABL facility.
The installments of long-term debt, excluding lease obligations and deferred financing costs, maturing in the years ending September 30, 2021, 2022, 2023, 2024, 2025 and 2026 and thereafter are $42 million, $42 million, $42 million, $42 million, $542 million and $10.0 billion, respectively.
Total cash paid for interest on debt for the year ended September 30, 2020 was $596 million. Total cash paid for interest on debt for the five months ended September 30, 2019, seven months ended April 30, 2019 and year ended September 30, 2018 was $144 million, $5 million and $14 million, respectively.
F-61
The Companys net financing charges line item in the consolidated & combined statements of income (loss) for the periods presented contained the following components (in millions):
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
|||||||||||||
Interest expense |
$ | 578 | $ | 283 | $ | 5 | $ | 14 | ||||||||
Factoring fees |
26 | 19 | 16 | 27 | ||||||||||||
Banking fees and bond cost amortization |
58 | 22 | 1 | 1 | ||||||||||||
Interest income |
(1 | ) | (12 | ) | (1 | ) | (3 | ) | ||||||||
Net foreign exchange results for financing activities |
56 | (38 | ) | 2 | 1 | |||||||||||
|
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|
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|
|||||||||
Net financing charges |
$ | 717 | $ | 274 | $ | 23 | $ | 40 | ||||||||
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9. | Derivative Instruments and Hedging Activities |
The Company selectively uses derivative instruments to reduce the Companys market risk associated with changes in interest rates, foreign currency and commodities. Under the Companys policy, the use of derivatives is restricted to those intended for hedging purposes; the use of any derivative instrument for speculative purposes is strictly prohibited. A description of each type of derivative utilized by the Company to manage the Companys risk is included in the following paragraphs.
Cash Flow Hedges
Subsequent to the Acquisition, the Company has USD denominated variable-rate debt obligations and selectively enters into variable to fixed interest rate swaps to minimize variability in cash flows for interest payments associated with the designated proportion of the hedged debt. As cash flow hedges under ASC 815, Derivatives and Hedging, the hedge gains or losses due to changes in fair value are initially recorded as a component of accumulated other comprehensive income (AOCI) and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in interest rates during the year ended September 30, 2020 and the five months ended September 30, 2019. The Company entered into nine interest rate swaps to hedge the variability in future cash flows associated with a portion of the Companys variable-rate term loans. Four interest rate swaps, which became effective in May 2019 (the May 2019 Interest Rate Swaps), convert $1,000 million of the Companys variable-rate USD term loans to a weighted average fixed interest rate of 2.153% plus the applicable margin. Four interest rate swaps, which became effective in July 2019 (the July 2019 Interest Rate Swaps), convert $1,000 million of the Companys variable-rate USD term loans to a weighted average fixed interest rate of 1.653% plus the applicable margin. One interest rate swap, which became effective in June 2020 (the June 2020 Interest Rate Swap), converts $250 million of the Companys variable-rate USD term loans to a weighted average fixed interest rate 0.519% plus the applicable margin (inclusive of a 0.0% LIBOR floor). The May 2019 Interest Rate Swaps and July 2019 Interest Rate Swaps mature on May 31, 2024. The June 2020 Interest Rate Swap matures on April 30, 2025.
Subsequent to the Acquisition, the Company has Euro denominated variable-rate debt obligations and selectively enters into interest rate caps to minimize extreme adverse variability in cash flows for interest payments associated with the designated proportion of the hedged debt. As cash flow hedges, the hedge gains or losses due to changes in fair value are initially recorded as a component of AOCI and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. The option premiums paid for the caps are recorded to interest expense over the life of the cap on a straight-line basis. The foreign currency transaction gains and losses on the Euro caps are recognized in earnings each period. The hedged interest rate was below the
F-62
strike price on the caps during the year ended September 30, 2020 and the five months ended September 30, 2019. The Company entered into four interest rate caps to further mitigate the Companys exposure to increasing interest rates on its variable-rate Euro term loans. Two interest rate caps were effective beginning in May 2019 with a maturity of May 31, 2024, and they cap the interest on 500 million of the Companys variable-rate term loans at 0.5%, plus the applicable margin. In executing these interest rate caps, the Company paid a premium of $3.7 million. Two interest rate caps were effective beginning in July 2019 with a maturity of May 31, 2024, and they cap the interest on 500 million of the Companys variable-rate term loans at 0.0%, plus the applicable margin. In executing these interest rate caps, the Company paid a premium of $3.6 million.
The Company has global operations and participates in the foreign exchange markets to minimize its risk of loss from fluctuations in foreign currency exchange rates. The Company selectively hedges the Companys anticipated transactions that are subject to foreign exchange rate risk primarily using foreign currency exchange hedge contracts. Prior to the Acquisition, the Parent Company hedged 70% to 90% of the nominal amount of each of the Companys known foreign exchange transactional exposures. As cash flow hedges under ASC 815, Derivatives and Hedging, the hedge gains or losses due to changes in fair value were initially recorded as a component of AOCI and were subsequently reclassified into earnings when the hedged transactions occurred and affected earnings. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates during the Predecessor periods presented. As of September 30, 2020, the Company does not have any outstanding foreign currency exchange hedge contracts designated as hedging instruments.
Prior and subsequent to the Acquisition, the Company selectively hedged anticipated transactions that were subject to commodity price risk, primarily using commodity hedge contracts, to minimize overall price risk associated with the Companys purchases of lead, tin and polypropylene in cases where commodity price risk cannot be naturally offset or hedged through supply base fixed price contracts. Commodity risks were systematically managed pursuant to policy guidelines. As cash flow hedges, the hedge gains or losses due to changes in fair value were initially recorded as a component of AOCI and were subsequently reclassified into earnings when the hedged transactions, typically sales, occurred and affected earnings. The maturities of the commodity hedge contracts coincided with the expected purchase of the commodities. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in commodity prices during the periods presented.
The Company had the following outstanding contracts to hedge forecasted commodity purchases (in metric tons):
Volume Outstanding as of | ||||||||
Commodity |
September 30, |
September 30, |
||||||
Polypropylene |
39,017 | 21,365 | ||||||
Lead |
67,578 | 21,241 | ||||||
Tin |
2,517 | 3,190 |
Net Investment Hedges
The Company enters into foreign currency denominated debt obligations to selectively hedge portions of its net investment in non-U.S. subsidiaries. The currency effects of the debt obligations are reflected in the AOCI account within equity where they offset currency gains and losses recorded on the Companys net investments in Europe. At September 30, 2020 and September 30, 2019, the Company had 2.1 billion and 1.9 billion, respectively, of debt designated as a net investment hedge in the Companys net investment in Europe. Pre-tax gains (losses) on net investment hedges recorded in foreign currency translation adjustments within AOCI were ($170) million and $53 million for the twelve months ended September 30, 2020 and 2019, respectively. For the twelve months ended September 30, 2020 and 2019, no gains or losses were reclassified from AOCI into the Companys consolidated statements of income (loss).
F-63
Derivatives Not Designated as Hedging Instruments
The Company also holds certain foreign currency forward contracts which do not qualify for hedge accounting treatment. The change in fair value of foreign currency exchange derivatives not designated as hedging instruments under ASC 815 are recorded in the consolidated & combined statements of income (loss).
Fair Value of Derivative Instruments
The following table presents the location and fair values of derivative instruments and hedging activities included in the Companys consolidated statements of financial position (in millions):
Derivatives and Hedging Activities Designated as Hedging Instruments under ASC 815 |
Derivatives and Hedging Activities Not Designated as Hedging Instruments under ASC 815 |
|||||||||||||||
September 30, 2020 |
September 30, 2019 |
September 30, 2020 |
September 30, 2019 |
|||||||||||||
Other current assets |
||||||||||||||||
Foreign currency exchange derivatives |
$ | | $ | | $ | 1 | $ | 1 | ||||||||
Commodity derivatives |
4 | 2 | | | ||||||||||||
Other noncurrent assets |
||||||||||||||||
Interest rate caps |
1 | 2 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 5 | $ | 4 | $ | 1 | $ | 1 | ||||||||
|
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|
|
|
|
|
|
|||||||||
Other current liabilities |
||||||||||||||||
Foreign currency exchange derivatives |
$ | | $ | | $ | 4 | $ | 3 | ||||||||
Commodity derivatives |
6 | 6 | | | ||||||||||||
Other noncurrent liabilities |
||||||||||||||||
Interest rate swaps |
119 | 44 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 125 | $ | 50 | $ | 4 | $ | 3 | ||||||||
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|
|
Counterparty Credit Risk
The use of derivative financial instruments exposes the Company to counterparty credit risk. The Company has established policies and procedures to limit the potential for counterparty credit risk, including establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. As a matter of practice, the Company deals with major banks worldwide having strong investment grade long-term credit ratings. To further reduce the risk of loss, the Company generally enters into International Swaps and Derivatives Association master netting agreements with substantially all of its counterparties. The Companys derivative contracts do not contain any credit risk related contingent features and do not require collateral or other security to be furnished by the Company or the counterparties. The Companys exposure to credit risk associated with its derivative instruments is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. The Company does not anticipate any non-performance by any of its counterparties, and the concentration of risk with financial institutions does not present significant credit risk to the Company.
F-64
Derivatives Impact on the Consolidated & Combined Statements of Income (Loss) and Statements of Comprehensive Income (Loss)
The following table presents the pre-tax gains (losses) recorded in other comprehensive income (loss) related to cash flow hedges for the periods presented (in millions):
Successor | Predecessor | |||||||||||||||
Derivatives in ASC 815 Cash Flow Hedging Relationships |
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
||||||||||||
Foreign currency exchange derivatives |
$ | | $ | | $ | (2 | ) | $ | | |||||||
Commodity derivatives |
(12 | ) | (4 | ) | | (15 | ) | |||||||||
Interest rate swaps |
(93 | ) | (44 | ) | | | ||||||||||
Interest rate caps |
(1 | ) | (4 | ) | | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | (106 | ) | $ | (52 | ) | $ | (2 | ) | $ | (10 | ) | ||||
|
|
|
|
|
|
|
|
The following table presents the location and amount of the pre-tax gains (losses) on cash flow hedges reclassified from AOCI into the Companys consolidated & combined statements of income (loss) for the periods presented (in millions):
Successor | Predecessor | |||||||||||||||||||
Derivatives in ASC 815 Cash Flow |
Location of Gain
(Loss) |
Year Ended September 30, |
Five Months Ended September 30, |
Seven Months Ended April 30, |
Year Ended September 30, |
|||||||||||||||
Commodity derivatives |
Cost of sales | $ | (15 | ) | $ | | $ | (10 | ) | $ | 7 | |||||||||
Foreign currency exchange derivatives |
Cost of sales | | | | 2 | |||||||||||||||
Interest rate swaps |
Net financing charges | (18 | ) | | | | ||||||||||||||
Interest rate caps |
Net financing charges | (1 | ) | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | (34 | ) | $ | | $ | (10 | ) | $ | 9 | ||||||||||
|
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|
|
|
|
|
|
The following table presents the location and amount of pre-tax gains (losses) on derivatives not designated as hedging instruments recognized in the Companys consolidated & combined statements of income (loss) for the periods presented (in millions):
Successor | Predecessor | |||||||||||||||||||
Derivatives Not Designated as Hedging |
Location of Gain
(Loss) |
Year Ended September 30, |
Five Months Ended September 30, |
Seven Months Ended April 30, |
Year Ended September 30, |
|||||||||||||||
Foreign currency exchange derivatives |
Cost of sales | $ | (10 | ) | $ | | $ | (1 | ) | $ | 1 | |||||||||
Foreign currency exchange derivatives |
Net financing charges | (2 | ) | (1 | ) | 53 | (9 | ) | ||||||||||||
Foreign currency exchange derivatives |
Income tax provision | | | | 1 | |||||||||||||||
|
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|
|
|
|
|
|
|||||||||||||
Total |
$ | (12 | ) | $ | (1 | ) | $ | 52 | $ | (7 | ) | |||||||||
|
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10. | Fair Value Measurements |
ASC 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
F-65
ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:
Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2: Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.
ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
Recurring Fair Value Measurements
The following tables present the Companys fair value hierarchy for those assets and liabilities measured at fair value as of September 30, 2020 and September 30, 2019 (in millions):
Fair Value Measurements Using: | ||||||||||||||||
Total as of September 30, 2020 |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Other current assets |
||||||||||||||||
Foreign currency exchange derivatives |
$ | 1 | $ | | $ | 1 | $ | | ||||||||
Commodity derivatives |
4 | | 4 | | ||||||||||||
Other noncurrent assets |
||||||||||||||||
Investments in marketable common stock |
2 | 2 | | | ||||||||||||
Interest rate caps |
1 | | 1 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 8 | $ | 2 | $ | 6 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other current liabilities |
||||||||||||||||
Foreign currency exchange derivatives |
$ | 4 | $ | | $ | 4 | $ | | ||||||||
Commodity derivatives |
6 | | 6 | | ||||||||||||
Other noncurrent liabilities |
||||||||||||||||
Interest rate swaps |
119 | | 119 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 129 | $ | | $ | 129 | $ | | ||||||||
|
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|
F-66
Fair Value Measurements Using: | ||||||||||||||||
Total as of September 30, 2019 |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Other current assets |
||||||||||||||||
Foreign currency exchange derivatives |
$ | 1 | $ | | $ | 1 | $ | | ||||||||
Commodity derivatives |
2 | | 2 | | ||||||||||||
Other noncurrent assets |
||||||||||||||||
Investments in marketable common stock |
3 | 3 | | | ||||||||||||
Interest rate caps |
2 | | 2 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 8 | $ | 3 | $ | 5 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other current liabilities |
||||||||||||||||
Foreign currency exchange derivatives |
$ | 3 | $ | | $ | 3 | $ | | ||||||||
Commodity derivatives |
6 | | 6 | | ||||||||||||
Other noncurrent liabilities |
||||||||||||||||
Interest rate swaps |
44 | | 44 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 53 | $ | | $ | 53 | $ | | ||||||||
|
|
|
|
|
|
|
|
Valuation Methods
Foreign currency exchange derivatives: The foreign currency exchange derivatives are valued under a market approach using publicized spot and forward prices.
Commodity derivatives: The commodity derivatives are valued under a market approach using publicized prices, where available, or dealer quotes.
Investments in marketable common stock: Investments in marketable common stock are valued using a market approach based on the quoted market prices. During the year ended September 30, 2020, the unrealized gains (losses) recognized in the consolidated statements of income (loss) on these investments that were still held as of September 30, 2020 were approximately ($1 million). During the five months ended September 30, 2019 and seven months ended April 30, 2019, the Company recognized minimal unrealized gains or losses in the consolidated & combined statements of income (loss) on these investments that were still held as of those dates.
Interest rate caps: The interest rate caps are valued under a market approach based on pricing models. These models use discounted cash flows that utilize the appropriate market-based forward swap curves and interest rates.
Interest rate swaps: The interest rate swaps are valued under a market approach based on pricing models. These models use discounted cash flows that utilize the appropriate market-based forward swap curves and interest rates.
The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate their carrying values. The fair value of the Acquisitions Financing Notes, 2025 Secured Notes, and term loans were $10.8 billion at September 30, 2020, which was determined based on quoted market prices for similar instruments classified as Level 2 inputs within the ASC 820 fair value hierarchy. The carrying value of other long-term debt approximates fair value.
F-67
11. | Accumulated Other Comprehensive Loss |
The following schedules present changes in AOCI attributable to the Company (in millions, net of tax):
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
|||||||||||||
Foreign currency translation adjustments |
||||||||||||||||
Balance at beginning of period |
$ | (49 | ) | $ | | $ | (391 | ) | $ | (237 | ) | |||||
Aggregate adjustment for the period (net of tax effect of $(3), $0, $0 and $0) |
(180 | ) | (49 | ) | (85 | ) | (154 | ) | ||||||||
Change in noncontrolling interests (net of tax effect of $0, $0, $0 and $0) |
(7 | ) | | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
(236 | ) | (49 | ) | (476 | ) | (391 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Realized and unrealized gains (losses) on derivatives |
||||||||||||||||
Balance at beginning of period |
(52 | ) | | (7 | ) | 5 | ||||||||||
Current period changes in fair value (net of tax effect of $(3), $0, $0 and $(4)) |
(103 | ) | (52 | ) | (2 | ) | (6 | ) | ||||||||
Reclassification to income (net of tax effect of $2, $0, $4 and $(3)) * |
32 | | 6 | (6 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
(123 | ) | (52 | ) | (3 | ) | (7 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Realized and unrealized losses on marketable securities |
||||||||||||||||
Balance at beginning of period |
| | (8 | ) | (4 | ) | ||||||||||
Adoption of ASU 2016-01 ** |
| | 8 | | ||||||||||||
Current period changes in fair value (net of tax effect of $0) |
| | | (4 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
| | | (8 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Pension and postretirement plans |
||||||||||||||||
Balance at beginning of period |
| | (2 | ) | (2 | ) | ||||||||||
Other changes |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
| | (2 | ) | (2 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Accumulated other comprehensive loss, end of period |
$ | (359 | ) | $ | (101 | ) | $ | (481 | ) | $ | (408 | ) | ||||
|
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|
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|
* | Refer to Note 9, Derivative Instruments and Hedging Activities, of the notes to financial statements for disclosure of the line items on the consolidated & combined statements of income (loss) affected by reclassifications from AOCI into income related to derivatives. |
** | As previously disclosed, during the quarter ended December 31, 2018, the Company adopted ASU 2016-01, Financial InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. As a result, the Company reclassified $8 million of unrealized losses on marketable securities to parent company investment as of October 1, 2018. |
12. | Retirement Plans |
Participation in JCI Defined Benefit Pension Plans
Certain retired U.S. employees of the Company receive defined benefit pension benefits through various JCI pension plans. Eligible active employees will also receive defined benefit pension benefits through various JCI pension plans in the United States upon retirement. These assets or liabilities are not reflected in the consolidated
F-68
statements of financial position. Allocated income in connection with these plans was immaterial for the seven months ended April 30, 2019 and $7 million for the year ended September 30, 2018. There is no impact to the Successor financial statements related to JCI pension plans.
Pension Benefits
The Company has non-contributory defined benefit pension plans covering certain U.S. and non-U.S. employees. The benefits provided are primarily based on years of service and average compensation or a monthly retirement benefit amount. Funding for U.S. pension plans equals or exceeds the minimum requirements of the Employee Retirement Income Security Act of 1974. Funding for non-U.S. plans observes the local legal and regulatory limits.
For pension plans with accumulated benefit obligations (ABO) that exceed plan assets, the projected benefit obligation (PBO), ABO and fair value of plan assets of those plans were $590 million, $536 million and $384 million, respectively, as of September 30, 2020 and $546 million, $496 million and $405 million, respectively, as of September 30, 2019.
In the year ended September 30, 2020 total contributions to the defined benefit pension plans were $4 million, of which $3 million were voluntary contributions made by the Company. The Company expects to contribute approximately $5 million in cash to its defined benefit pension plans in the year ending September 30, 2021. Projected benefit payments from the plans as of September 30, 2020 are estimated as follows (in millions):
2021 |
$ | 39 | ||
2022 |
36 | |||
2023 |
36 | |||
2024 |
35 | |||
2025 |
35 | |||
20262030 |
175 |
Postretirement Benefits
The Company provides certain health care and life insurance benefits for eligible retirees and their dependents primarily in the U.S. Most non-U.S. employees are covered by government sponsored programs. The cost to the Company is immaterial.
Eligibility for coverage is based on meeting certain years of service and retirement age qualifications. These benefits may be subject to deductibles, co-payment provisions and other limitations, and the Company has reserved the right to modify these benefits.
The health care cost trend assumption does not have a material impact on the amounts reported.
For the year ended September 30, 2020, total employer contributions to the postretirement plans were not material. The Company does not expect to make any material contributions to its postretirement plans in the year ending September 30, 2021. Projected benefit payments from the plans as of September 30, 2020 are not expected to be material.
In December 2003, the U.S. Congress enacted the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act) for employers sponsoring postretirement care plans that provide prescription drug benefits. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans providing a benefit that is at least actuarially equivalent to Medicare Part D.1. Under the Act, the Medicare subsidy amount is received directly by the plan sponsor and not the related plan. Further, the plan sponsor is not required to use the subsidy amount to fund postretirement benefits and may use the subsidy for any valid business purpose. Projected subsidy receipts for each of the next ten years are not expected to be material.
F-69
As a result of the Acquisition (see Note 1 and Note 2), postretirement benefit plans were separated between participants with active status and retiree status. JCI retained participants with retiree status and the Company retained participants with active status. As such, the Companys postretirement PBO and fair value of plan assets as of April 30, 2019 was reduced from September 30, 2018 by $31 million and $51 million, respectively. Remaining PBO and fair value of plan assets are immaterial as of September 30, 2020 and September 30, 2019.
Plan Assets
The Companys investment policies employ an approach whereby a mix of equities, fixed income and alternative investments are used to maximize the long-term return of plan assets for a prudent level of risk. The investment portfolio primarily contains a diversified blend of equity, fixed income and real estate investments. Equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value and small to large capitalization. Fixed income investments include corporate and government issues, with short-, mid- and long-term maturities, with a focus on investment grade when purchased and a target duration close to that of the plan liability. Investment and market risks are measured and monitored on an ongoing basis through regular investment portfolio reviews, annual liability measurements and periodic asset/liability studies. The majority of the real estate component of the portfolio is invested in a diversified portfolio of high-quality, operating properties with cash yields greater than the targeted appreciation. As a result of the Companys diversification strategies, there are no significant concentrations of risk within the portfolio of investments.
The Companys actual asset allocations are generally in line with target allocations, which targets approximately 50% equity securities 35% governmental, investment grade and other bonds, and 15% real estate. The Company re-balances asset allocations as appropriate, in order to stay within a range of allocation for each asset category. The expected return on plan assets is based on the Companys expectation of the long-term average rate of return of the capital markets in which the plans invest. The average market returns are adjusted, where appropriate, for active asset management returns. The expected return reflects the investment policy target asset mix and considers the historical returns earned for each asset category.
The Companys plan assets at September 30, 2020 and 2019 by asset category are as follows (in millions):
Fair Value Measurements Using: | ||||||||||||||||
Asset Category |
Total as of September 30, 2020 |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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U.S. Pension |
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Cash and Cash Equivalents |
$ | 9 | $ | | $ | 9 | $ | | ||||||||
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Total Investments in the Fair Value Hierarchy |
$ | 9 | $ | | $ | 9 | $ | | ||||||||
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Investments Measured at Net Asset Value, as Practical Expedient: |
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Common Collective Trusts* |
329 | |||||||||||||||
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Total Plan Assets |
$ | 338 | ||||||||||||||
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Non-U.S. Pension |
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Investments Measured at Net Asset Value, as Practical Expedient: |
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Common Collective Trusts* |
46 | |||||||||||||||
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Total Plan Assets |
$ | 46 | ||||||||||||||
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F-70
Fair Value Measurements Using: | ||||||||||||||||
Asset Category |
Total as of September 30, 2019 |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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U.S. Pension |
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Cash and Cash Equivalents |
$ | 9 | $ | | $ | 9 | $ | | ||||||||
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Total Investments in the Fair Value Hierarchy |
$ | 9 | $ | | $ | 9 | $ | | ||||||||
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Investments Measured at Net Asset Value, as Practical Expedient: |
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Common Collective Trusts* |
352 | |||||||||||||||
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Total Plan Assets |
$ | 361 | ||||||||||||||
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Non-U.S. Pension |
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Investments Measured at Net Asset Value, as Practical Expedient: |
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Common Collective Trusts* |
44 | |||||||||||||||
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Total Plan Assets |
$ | 44 | ||||||||||||||
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* | The fair value of certain investments do not have a readily determinable fair value and requires the fund managers to independently arrive at fair value by calculating net asset value (NAV) per share. Due to the fact that the fund managers calculate NAV per share, the Company utilizes a practical expedient for measuring the fair value of certain investments, as provided for under ASC 820, Fair Value Measurement. In applying the practical expedient, the Company is not required to further adjust the NAV provided by the fund manager in order to determine the fair value of its investment as the NAV per share is calculated in a manner consistent with the measurement principles of ASC 946, Financial ServicesInvestment Companies, and as of the Companys measurement date. The Company believes this is an appropriate methodology to obtain the fair value of these assets. In accordance with ASU No. 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), investments for which fair value is measured using the net asset value per share practical expedient should be disclosed separate from the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of total plan assets to the amounts presented in the notes to financial statements. For real estate, in order to calculate NAV per share, the fund managers value the real estate investments using any one, or a combination of, the following methods: independent third party appraisals, discounted cash flow analysis of net cash flows projected to be generated by the investment and recent sales of comparable investments. Assumptions used to revalue the properties are updated every quarter. For the component of the real estate portfolio under development, the investments are carried at cost until they are completed and valued by a third party appraiser. |
The following is a description of the valuation methodologies used for assets measured at fair value. Certain assets are held within commingled funds which are valued at the unitized NAV or percentage of the net asset value as determined by the manager of the fund. These values are based on the fair value of the underlying net assets owned by the fund.
Cash and Cash Equivalents: The fair value of cash is valued at cost.
Common collective trusts: Fair value represents the net asset value of the fund shares. The NAV is based on the value of the underlying assets owned by the funds. The common collective trusts can be purchased or sold continuously.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
F-71
There were no Level 3 assets as of September 30, 2020 or 2019 or any Level 3 asset activity for the Successor and Predecessor periods presented.
Funded Status
The table that follows contains the ABO and reconciliation of the changes in the PBO, the changes in plan assets and the funded status (in millions):
U.S. Plans | Non-U.S. Plans | |||||||||||||||||||||||
Successor | Predecessor | Successor | Predecessor | |||||||||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
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Accumulated Benefit Obligation |
$ | 443 | $ | 407 | $ | 353 | $ | 93 | $ | 89 | $ | 80 | ||||||||||||
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Change in Projected Benefit Obligation |
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Projected benefit obligation at beginning of period (1) |
449 | 400 | 395 | 96 | 90 | 89 | ||||||||||||||||||
Transfers in |
| | | | | 1 | ||||||||||||||||||
Service cost |
15 | 5 | 8 | 1 | 1 | 1 | ||||||||||||||||||
Interest cost |
11 | 5 | 8 | 1 | 1 | 1 | ||||||||||||||||||
Actuarial loss |
49 | 52 | | 3 | 9 | | ||||||||||||||||||
Benefits and settlements paid |
(35 | ) | (13 | ) | (21 | ) | (4 | ) | (2 | ) | (3 | ) | ||||||||||||
Currency translation adjustment |
| | | 4 | (3 | ) | (2 | ) | ||||||||||||||||
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Projected benefit obligation at end of period |
$ | 489 | $ | 449 | $ | 390 | $ | 101 | $ | 96 | $ | 87 | ||||||||||||
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Change in Plan Assets |
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Fair value of plan assets at beginning of period (1) |
$ | 361 | $ | 351 | $ | 343 | $ | 44 | $ | 47 | $ | 46 | ||||||||||||
Actual return on plan assets |
12 | 23 | 14 | | 1 | 2 | ||||||||||||||||||
Employer and employee contributions |
| | 35 | 4 | (1 | ) | 1 | |||||||||||||||||
Benefits paid |
(35 | ) | (13 | ) | (21 | ) | (4 | ) | (2 | ) | (3 | ) | ||||||||||||
Settlement payments |
| | | | | | ||||||||||||||||||
Currency translation adjustment |
| | | 2 | (1 | ) | (1 | ) | ||||||||||||||||
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Fair value of plan assets at end of period |
$ | 338 | $ | 361 | $ | 371 | $ | 46 | $ | 44 | $ | 45 | ||||||||||||
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Funded status |
$ | (151 | ) | $ | (88 | ) | $ | (19 | ) | $ | (55 | ) | $ | (52 | ) | $ | (42 | ) | ||||||
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Amounts recognized in the consolidated & combined statements of financial position consist of: |
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Accrued compensation and benefits |
$ | (1 | ) | $ | | $ | | $ | | $ | | $ | | |||||||||||
Pension and postretirement benefits |
(150 | ) | (88 | ) | (19 | ) | (55 | ) | (52 | ) | (42 | ) | ||||||||||||
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Net amount recognized |
$ | (151 | ) | $ | (88 | ) | $ | (19 | ) | $ | (55 | ) | $ | (52 | ) | $ | (42 | ) | ||||||
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Weighted Average Assumptions (2) |
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Discount rate (3) |
2.50 | % | 3.09 | % | 4.15 | % | 1.81 | % | 1.77 | % | 2.75 | % | ||||||||||||
Rate of compensation increase |
3.50 | % | 3.50 | % | 3.50 | % | 4.13 | % | 4.05 | % | 4.20 | % |
F-72
(1) | The beginning balances for the five months ended September 30, 2019 reflect the respective fair values as of the Acquisition Date. Refer to Note 2, Acquisitions, of the notes to financial statements for further information. |
(2) | Plan assets and obligations are determined based on a September 30 measurement date at September 30, 2020 and 2019. |
(3) | The Company considers the expected benefit payments on a plan-by-plan basis when setting assumed discount rates. As a result, the Company uses different discount rates for each plan depending on the plan jurisdiction, the demographics of participants and the expected timing of benefit payments. For the U.S. pension plans, the Company uses a discount rate provided by an independent third party calculated based on an appropriate mix of high quality bonds. For the non-U.S. pension plans, the Company consistently uses the relevant country specific benchmark indices for determining the various discount rates. The Company has elected to utilize a full yield curve approach in the estimation of service and interest components of net periodic benefit cost (credit) for pension plans that utilize a yield curve approach. The full yield curve approach applies the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. |
Accumulated Other Comprehensive Income
The amounts in AOCI on the consolidated and combined statements of financial position, exclusive of tax impacts, that have not yet been recognized as components of net periodic benefit cost at September 30, 2020 and 2019 related to pension and postretirement benefits are not material.
The amounts in AOCI expected to be recognized as components of net periodic benefit cost (credit) over the year ending September 30, 2021 related to pension and postretirement benefits are not material.
Net Periodic Benefit Cost
The components of the Companys net periodic benefit costs, which are primarily recorded in cost of sales in the consolidated statements of income (loss), are shown in the table below in accordance with ASC 715, CompensationRetirement Benefits, (in millions):
U.S. Plans | Non-U.S. Plans | |||||||||||||||||||||||||||||||
Successor | Predecessor | Successor | Predecessor | |||||||||||||||||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
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Components of Net Periodic Benefit Cost (Credit): |
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Service cost |
$ | 15 | $ | 5 | $ | 8 | $ | 13 | $ | 1 | $ | 1 | $ | 1 | $ | 2 | ||||||||||||||||
Interest cost |
11 | 5 | 8 | 13 | 1 | 1 | 1 | 2 | ||||||||||||||||||||||||
Expected return on plan assets |
(24 | ) | (9 | ) | (14 | ) | (26 | ) | (3 | ) | (1 | ) | (2 | ) | (2 | ) | ||||||||||||||||
Net actuarial loss |
60 | 39 | | 5 | 6 | 9 | | 5 | ||||||||||||||||||||||||
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Net periodic benefit cost |
$ | 62 | $ | 40 | $ | 2 | $ | 5 | $ | 5 | $ | 10 | $ | | $ | 7 | ||||||||||||||||
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Weighted Average Expense Assumptions: |
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Discount rate |
3.09 | % | 3.86 | % | 4.15 | % | 3.85 | % | 1.77 | % | 2.48 | % | 2.75 | % | 2.80 | % | ||||||||||||||||
Expected return on plan assets |
7.00 | % | 7.00 | % | 7.10 | % | 7.50 | % | 5.73 | % | 5.82 | % | 5.76 | % | 4.45 | % | ||||||||||||||||
Rate of compensation increase |
3.50 | % | 3.50 | % | 3.50 | % | 3.20 | % | 4.05 | % | 4.03 | % | 4.20 | % | 4.45 | % |
13. | Income Taxes |
As disclosed in Note 1, Summary of the Business and Significant Accounting Policies, as a result of the Acquisition, a new basis of accounting was created on May 1, 2019. The Predecessor and Successor income tax
F-73
information presented herein is not comparable due to the fact that the Successor information reflects the application of acquisition accounting as of May 1, 2019, which requires recognition of deferred taxes for assets acquired or liabilities assumed, net of necessary valuation allowances, as well as accounting for the potential tax effects of temporary differences, carryforwards and any income tax uncertainties that exist at the Acquisition Date. Further, the Successor Company includes certain pass-through entities for purposes of Canadian and U.S. income taxation and, therefore, no income taxes are reflected in the Successor financial statements for those entities.
The significant components of income (loss) before income taxes and the income tax provision (benefit) were as follows (in millions):
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
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Income (loss) before income taxes and noncontrolling interests: |
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U.S. |
$ | (443 | ) | $ | (269 | ) | $ | 167 | $ | 489 | ||||||
Non-U.S. |
24 | (126 | ) | 415 | 751 | |||||||||||
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$ | (419 | ) | $ | (395 | ) | $ | 582 | $ | 1,240 | |||||||
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Income tax provision (benefit): |
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Current provision (benefit) |
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U.S. federal |
$ | 6 | $ | | $ | 16 | $ | 123 | ||||||||
U.S. state |
2 | | 1 | 9 | ||||||||||||
Non-U.S. |
134 | 63 | 115 | 487 | ||||||||||||
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142 | 63 | 132 | 619 | |||||||||||||
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Deferred provision (benefit) |
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U.S. federal |
| | 110 | 129 | ||||||||||||
U.S. state |
| | 3 | 2 | ||||||||||||
Non-U.S. |
(159 | ) | (94 | ) | (67 | ) | (149 | ) | ||||||||
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(159 | ) | (94 | ) | 46 | (18 | ) | ||||||||||
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Income tax provision (benefit) |
$ | (17 | ) | $ | (31 | ) | $ | 178 | $ | 601 | ||||||
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The reconciliation between the Canadian statutory income tax rate of 26.5% and the Clarios effective tax rate is as follows (in millions):
Successor | ||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
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Income tax provision (benefit) at Canadian statutory rate |
$ | (111 | ) | $ | (105 | ) | ||
Reversal of tax impacts on pass through earnings |
64 | 103 | ||||||
Foreign tax rate differential |
(58 | ) | (70 | ) | ||||
Change in valuation allowance |
93 | 27 | ||||||
Foreign exchange |
(42 | ) | (4 | ) | ||||
Net withholding taxes |
26 | 4 | ||||||
Basis difference in subsidiaries and equity method investments |
13 | 13 | ||||||
Other |
(2 | ) | 1 | |||||
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Income tax provision (benefit) |
$ | (17 | ) | $ | (31 | ) | ||
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F-74
The income tax provision in the Predecessor combined statements of income has been calculated as if the Company filed separate income tax returns and operated as a stand-alone business. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of the actual tax balances of the Company as part of consolidated JCI. The Companys operations have historically been included in the Parent Companys U.S. federal and state tax returns or non-U.S. jurisdiction tax returns.
The reconciliation between the U.S. federal income tax rate and the Clarios effective tax rate is as follows (in millions):
Predecessor | ||||||||
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
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Income tax provision (benefit) at U.S. statutory rate |
$ | 122 | $ | 304 | ||||
U.S. state income taxes, net of federal benefit |
4 | 9 | ||||||
Non-U.S. income tax expense at different rates |
(42 | ) | 8 | |||||
U.S. tax on non-U.S. income |
6 | (49 | ) | |||||
Valuation allowance adjustments |
| 39 | ||||||
U.S. Tax Reform discrete items |
| 161 | ||||||
Legal entity restructuring |
| 129 | ||||||
Change in assertion for reinvestment |
88 | | ||||||
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Income tax provision |
$ | 178 | $ | 601 | ||||
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The U.S. federal statutory tax rate (21% for the seven months ended April 30, 2019 and 24.5% for the year ended September 30, 2018) is being used as a comparison for the Predecessor periods due to the Companys legal entity structure prior to the Acquisition.
In the seven months ended April 30, 2019, the Company recorded a discrete non-cash tax charge of $88 million related to a change in the deferred tax liability related to the outside basis of certain subsidiaries.
In the fourth quarter of the year ended September 30, 2018, the Company recorded a tax charge of $129 million due to legal entity restructuring.
Income taxes paid for the year ended September 30, 2020 and five months ended September 30, 2019 were $89 million and $34 million, respectively. For the Predecessor periods, as portions of the Companys operations were included in the Parent Companys tax returns, payments to certain tax authorities were made by the Parent Company, and not by the Company. The Company did not maintain taxes payable to/from JCI and the Companys subsidiaries were deemed to settle the annual current tax balances immediately with the legal tax-paying entities in the respective jurisdictions. For the seven months ended April 30, 2019 and year ended September 30, 2018 these settlements were $118 million and $478 million, respectively, and are reflected as changes in the parent company investment.
Deferred taxes were classified in the consolidated statements of financial position as follows (in millions):
September 30, 2020 |
September 30, 2019 |
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Noncurrent income tax assets |
$ | 197 | $ | 226 | ||||
Noncurrent income tax liabilities |
(806 | ) | (902 | ) | ||||
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Net deferred tax asset (liability) |
$ | (609 | ) | $ | (676 | ) | ||
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F-75
Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities included (in millions):
September 30, 2020 |
September 30, 2019 |
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Deferred tax assets: |
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Accrued expenses and reserves |
$ | 48 | $ | 47 | ||||
Employee and retiree benefits |
20 | 18 | ||||||
Net operating loss and other credit carryforwards |
367 | 188 | ||||||
Other |
5 | 10 | ||||||
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440 | 263 | |||||||
Valuation allowances |
(214 | ) | (148 | ) | ||||
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226 | 115 | |||||||
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Deferred tax liabilities: |
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Intangible assets |
626 | 530 | ||||||
Property, plant and equipment |
115 | 143 | ||||||
Basis difference in subsidiaries and equity method investments |
94 | 118 | ||||||
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835 | 791 | |||||||
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Net deferred tax asset (liability) |
$ | (609 | ) | $ | (676 | ) | ||
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The income tax provision considers net operating loss carryback and carryforward rules under applicable federal, state and foreign tax laws. At September 30, 2020, the Company had available foreign tax attribute carryforwards of approximately $1.1 billion. Net operating and capital loss carryforwards of $771 million will expire between 2021 and 2037. Net operating loss carryforwards of $282 million have an unlimited carryforward period. Foreign tax credit carryforwards of $11 million will expire between 2020 and 2025.
The valuation allowances cover tax loss carryforwards and other assets where there is uncertainty as to the ultimate realization of a benefit given the lack of sustained profitability or limited carryforward periods in certain countries. The Company reviews the realizability of its deferred tax assets quarterly. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since future financial results may differ from previous estimates, periodic adjustments to the Companys valuation allowances may be necessary.
At September 30, 2020 and 2019, the Company analyzed the realizability of its worldwide deferred tax assets. As a result, and after considering feasible tax planning initiatives and other positive and negative evidence, the Company determined that no material changes were needed to its valuation allowances.
At May 1, 2019, the Company analyzed the realizability of the established deferred tax assets and recorded the appropriate valuation allowances as part of its acquisition accounting.
At April 30, 2019 and September 30, 2018, the Company analyzed the realizability of its worldwide deferred tax assets. As a result, and after considering feasible tax planning initiatives and other positive and negative evidence, the Company determined that it was more likely than not that certain deferred tax assets primarily within Germany and Mexico would not be realized. Therefore, the Company recorded $39 million of valuation allowances as income tax expense in the year ended September 30, 2018.
As of September 30, 2020, the Company has $3.3 billion and $0.1 billion of undistributed earnings on investments in foreign subsidiaries and corporate equity method investments, respectively. The Company asserts permanent reinvestment on less than $0.1 billion of the undistributed earnings.
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Uncertain Tax Positions
The Company is subject to income taxes in numerous jurisdictions. Judgment is required in determining its worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of the Companys business, there are many transactions and calculations where the ultimate tax determination is uncertain. The Company is regularly under audit by tax authorities. Currently there are no tax years within the Successor period under audit or examination.
The changes in the balance of our gross unrecognized tax benefits were as follows:
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
|||||||||||||
Gross unrecognized tax benefits, beginning (1) |
$ | 34 | $ | 25 | $ | 211 | $ | 51 | ||||||||
Increases related to tax positions from prior years |
| | 4 | 4 | ||||||||||||
Decreases related to tax positions from prior years |
| | (5 | ) | | |||||||||||
Increases related to tax provisions taken during the current year |
6 | 2 | 10 | 156 | ||||||||||||
Settlements with tax authorities |
| | | | ||||||||||||
Lapses of statute of limitations |
| | | | ||||||||||||
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Gross unrecognized tax benefits, ending |
$ | 40 | $ | 27 | $ | 220 | $ | 211 | ||||||||
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(1) | The beginning balances for the year ended September 30, 2020 and the five months ended September 30, 2019 reflect adjustments to record unrecognized tax benefits at their respective fair values as of the Acquisition Date. Refer to Note 2, Acquisitions, of the notes to financial statements for further information. |
During the Predecessor periods, of the total amount of gross unrecognized tax benefits, $220 million and $211 million would affect the Companys effective tax rate if realized at the periods ended April 30, 2019 and September 30, 2018, respectively.
In the Predecessor period, interest and penalties associated with uncertain tax positions recognized as part of the provision for income taxes in the combined statements of income was zero and $1 million of expense for the periods ended April 30, 2019 and September 30, 2018, respectively. Interest and penalties of $6 million were accrued as of both April 30, 2019 and September 30, 2018.
During the Successor periods, of the total amount of gross unrecognized tax benefits, $25 million and $26 million would affect the Companys effective tax rate if realized at the periods ended September 30, 2020 and 2019, respectively. In accordance with the Purchase Agreement, JCI has retained the majority of the unrecognized tax benefits reported in the Predecessor financial statements as they are legally and directly liable for these tax positions. Further, the Company has an indemnity from JCI related to Predecessor tax period exposures which may be directly assessed on Successor subsidiaries.
We did not recognize interest or penalties associated with uncertain tax positions as part of the provision for income taxes in the consolidated statements of income (loss) during the Successor periods. No interest or penalties were accrued as of September 30, 2020 and 2019.
The Company files federal and state income tax returns globally where statutes of limitations generally range from three to five years. Years beginning on or after 2012 are still open to examination by certain foreign taxing authorities, including Germany, Spain, and other major taxing jurisdictions.
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During 2021, the Company expects to resolve certain tax matters related to foreign jurisdictions. As of September 30, 2020, we estimate the impact of resolving these tax matters over the next 12 months will not materially impact the unrecognized tax benefits.
Impacts of Tax Legislation and Change in Statutory Tax Rates
On March 27, 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES) was signed into law by the President of the United States. As the Successor Company includes certain U.S. pass through entities, no material U.S. income tax impacts are reflected in the Successor financial statements.
On December 9, 2019 the 2020 Mexican Tax Reform was published in the official gazette, with an effective date of January 1, 2020, unless an article expressly states a different effective date. In general, the legislation is meant to incorporate fundamentals of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) initiative with respect to cross-border payments and interest deductibility. Currently no guidance or specific interpretations have been issued with respect to these major provisions, which provides areas that are subject to different interpretations. Upon issuance of future guidance it could have a material impact on Clarios financial statements.
On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) was enacted and significantly revises U.S. corporate income tax by, among other things, lowering corporate income tax rates, imposing a one-time transition tax on deemed repatriated earnings of non-U.S. subsidiaries, and implementing a territorial tax system and various base erosion minimum tax provisions.
In connection with the Companys analysis of the impact of the U.S. tax law changes, the Company recorded a provisional net tax charge of $161 million during the year ended September 30, 2018 consistent with guidance prescribed by Staff Accounting Bulletin 118. This provisional net tax charge arises from expense of $50 million due to the remeasurement of U.S. deferred tax assets and liabilities as well as the one-time transition tax on deemed repatriated earnings, inclusive of all relevant taxes, of $111 million. In the seven months ended April 30, 2019, the Company completed its analysis of all enactment-date income tax effects of the U.S. tax law change with no further adjustment to the provisional amounts recorded as of September 30, 2018.
During the periods ended September 30, 2020, 2019 and 2018, other tax legislation was adopted in various jurisdictions. These law changes did not have a material impact on the Companys financial statements.
14. | Product Warranties |
The Company offers assurance warranties to its customers depending upon the specific product and terms of the customer purchase agreement. A typical warranty program requires that the Company replace defective products within a specified time period from the date of sale. The Company records an estimate for future warranty-related costs based on actual historical return rates and other known factors. Based on analysis of return rates and other factors, the Companys warranty provisions are adjusted as necessary. The Company monitors its warranty activity and adjusts its reserve estimates when it is probable that future warranty costs will be different than those estimates.
The Companys product warranty liability is recorded in the consolidated statements of financial position in other current liabilities if the warranty is less than one year and in other noncurrent liabilities if the warranty extends longer than one year.
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The changes in the carrying amount of the Companys total product warranty liability for the periods presented were as follows (in millions):
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
|||||||||||||
Balance at beginning of period (1) |
$ | 133 | $ | 108 | $ | 74 | $ | 86 | ||||||||
Accruals for warranties issued during the period |
184 | 78 | 98 | 180 | ||||||||||||
Accruals related to pre-existing warranties (including changes in estimates) |
(3 | ) | (1 | ) | (3 | ) | (12 | ) | ||||||||
Settlements made (in cash or in kind) during the period |
(181 | ) | (65 | ) | (100 | ) | (179 | ) | ||||||||
Currency translation |
1 | | | (1 | ) | |||||||||||
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|||||||||
Balance at end of period |
$ | 134 | $ | 120 | $ | 69 | $ | 74 | ||||||||
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(1) | The beginning balances for the year ended September 30, 2020 and the five months ended September 30, 2019 reflect adjustments to record product warranty liabilities at their respective fair values as of the Acquisition Date. Refer to Note 2, Acquisitions, of the notes to financial statements for further information. |
15. | Restructuring and Impairment Costs |
As part the Companys ongoing focus on providing best-in-class service to customers, while optimizing and modernizing its operations and addressing market dynamics, the Company announced on May 4, 2020 that it will be streamlining its U.S. manufacturing network through the discontinuation of assembly operations at one of its plants in November 2020. As a result, the Company recorded $11 million of restructuring and impairment costs in the consolidated statement of income (loss) within the Americas segment for the year ended September 30, 2020. These costs included approximately $10 million of non-cash asset impairment costs related to certain assets identified as having no alternative use and $1 million of costs primarily related to workforce reductions. Non-cash asset impairment costs were primarily measured using an income approach which considers the manner in which the assets could be operated to maximize their projected future cash inflows. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, Fair Value Measurement. Liabilities for workforce reduction costs incurred but not yet paid are included in other current liabilities on the consolidated statement of financial position as of September 30, 2020.
Subsequent event: Upon further review of the U.S. manufacturing network in March 2021, the Company concluded it would not repurpose the facilities and production assets of the assembly plant operations that were shut down in November 2020 and certain other production assets located in an adjacent assembly plant as other alternative investments in the network were identified, evaluated, and approved. As a result, the Company recognized $27 million of non-cash impairments within the Americas Segment for the period ending March 31, 2021.
16. | Commitments and Contingencies |
Environmental Matters
The Company accrues for potential environmental liabilities when it is probable a liability has been incurred and the amount of the liability is reasonably estimable. As of September 30, 2020 and 2019, reserves for environmental liabilities totaled $4 million. Such potential liabilities accrued by the Company do not take into consideration possible recoveries of future insurance proceeds. They do, however, take into account the likely share other parties will bear at remediation sites. It is difficult to estimate the Companys ultimate level of
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liability at many remediation sites due to the large number of other parties that may be involved, the complexity of determining the relative liability among those parties, the uncertainty as to the nature and scope of the investigations and remediation to be conducted, the uncertainty in the application of law and risk assessment, the various choices and costs associated with diverse technologies that may be used in corrective actions at the sites, and the often quite lengthy periods over which eventual remediation may occur. Nevertheless, the Company does not currently believe that any claims, penalties or costs in connection with known environmental matters will have a material adverse effect on the Companys financial position, results of operations or cash flows. In addition, the Company has identified asset retirement obligations for environmental matters that are expected to be addressed at the retirement, disposal, removal or abandonment of existing owned facilities. The fair value of these obligations are recorded as liabilities on a discounted basis which is estimated using assumptions and judgements regarding such factors as the existence of a legal obligation for an asset retirement obligation, technical assessment of the assets, estimated amounts and timing of settlements, discount rates, and inflation rates, and represent Level 3 fair value measurements. At September 30, 2020 and 2019, the Company recorded conditional asset retirement obligations within other noncurrent liabilities of $30 million and $26 million, respectively.
Insurable Liabilities
The Company records liabilities primarily for workers compensation. The determination of these liabilities and related expenses is dependent on claims experience. Claims incurred but not yet reported are estimated by utilizing actuarial valuations based upon historical claims experience. Claims incurred prior to the Acquisition Date remain the obligation of the Parent Company. At September 30, 2020 and 2019, the insurable liabilities recorded by the Company were $3 million.
The Company is involved in various lawsuits, claims and proceedings incident to the operation of its businesses, including those pertaining to product liability, environmental, safety and health, intellectual property, employment, commercial and contractual matters, and various other casualty matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, it is managements opinion that none of these will have a material adverse effect on the Companys financial position, results of operations or cash flows. Costs related to such matters were not material to the periods presented.
Letters of Credit
The Company has obtained letters of credit securing our subsidiaries obligations pertaining to insurable risks, banking relationships, lease arrangements, and environmental matters. The maximum liability under such letters of credit as of September 30, 2020 was $56 million. These letters of credit have various expiration dates through May 2021. We do not anticipate that the counterparties will draw upon these letters of credit, and we expect that they will be renewed to the extent necessary in the future.
Purchase Obligations
The Company enters into long-term supply contracts for raw materials and other services to mitigate both supply and price risk, and contain both variable and fixed price terms based on the nature of the raw material or services acquired. Total purchase obligations in relation to these long-term supply contracts is as follows (in millions):
Total amounts for all years |
Less than 1 year |
1-3 years | 3-5 years | More than 5 years |
||||||||||||||||
Purchase obligations |
$ | 2,002 | $ | 1,149 | $ | 664 | $ | 169 | $ | 20 |
In addition, as of September 30, 2020, there are various other liabilities recorded on the balance sheet for which the timing of the payments cannot be estimated due to the nature of the liabilities and are therefore excluded from the table above.
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Long-term Incentive Plan
The long-term incentive plan (LTIP) was adopted by the Company effective as of January 1, 2020. The purpose of the plan is to retain senior management personnel of the Company, to incentivize them to make decisions with a long-term view and to influence behavior in a way that is consistent with maximizing value for the pre-IPO stockholders of the Company in a prudent manner. Each participant may be allocated a number of general and/or stretch pool option units, with a maximum of 10,555,200 option units (or Option Units) in the general pool and 2,638,800 option units in the stretch pool available for allocation. Awards of Option Units generally vest in equal increments over a five-year period beginning on the first anniversary of the grant date and are subject to continued employment with the Company through each vesting date. Any unvested Option Units that have not been previously forfeited will accelerate and become fully vested upon a Change in Control (as defined below).
Option Units will generally be settled in a lump sum payment within 30 days following a Change in Control based on the Sales Proceeds (as defined below) received by Brookfield Capital Partners V, L.P. (or, together with its affiliates, Brookfield) in connection with the Change in Control. The LTIP defines Change in Control as any transaction or series of transactions (including, without limitation, the consummation of a combination, share purchases, recapitalization, redemption, issuance of capital stock, consolidation, reorganization or otherwise) pursuant to which (a) a Person not affiliated with Brookfield acquires securities representing more than seventy percent (70%) of the combined voting power of the outstanding voting securities of the Company or the entity surviving or resulting from such transaction, (b) following a public offering of the Companys stock, Brookfield has ceased to have a beneficial ownership interest in at least 30% of the Companys outstanding voting securities (effective on the first of such date), or (c) the Company sells all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis. It is intended that the occurrence of a Change in Control in which Sales Proceeds exceed the Threshold Value would constitute a substantial risk of forfeiture within the meaning of Section 409A of the Code. The LTIP defines Threshold Value as, as of any date of determination, an amount equal to $2,932,000,000 (which represents the amount of the total invested capital of Brookfield as of April 30, 2019), plus the dollar value of any cash or other consideration contributed to or invested in the Company by Brookfield after April 30, 2019. The Threshold Value shall be determined by the Board of Directors in its sole discretion. The LTIP defines Sale Proceeds as, as of any date of determination, the sum of all proceeds actually received by Brookfield, net of all Sales Costs (as defined below), (i) as consideration (whether cash or equity) upon the Change in Control and (ii) as distributions, dividends, repurchases, redemptions or otherwise as a holder of such equity interests in the Company. Proceeds that are not paid upon or prior to or in connection with the Change in Control, including earn-outs, escrows and other contingent or deferred consideration shall become Sale Proceeds only as and when such proceeds are received by Brookfield. The amount of Sale Proceeds shall be determined by Brookfield in its sole discretion. Sales Costs means any costs or expenses (including legal or other advisor costs), fees (including investment banking fees), commissions or discounts payable directly by Brookfield in connection with, arising out of or relating to a Change in Control, as determined by Brookfield in its sole discretion.
As of September 30, 2020, the awards have not vested. As the Company has concluded that a Change of Control is not probable, no expense has been recognized in the consolidated financial statements.
17. | Related Party Transactions, Equity Method Investments, and Parent Company Investment |
Related Party Transactions
In the ordinary course of business, the Company enters into transactions with related parties, such as equity method investments. Such transactions consist of the sale or purchase of goods and other arrangements.
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The following table presents the net sales to and purchases from related parties included in the consolidated & combined statements of income (loss) for the periods presented (in millions):
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
|||||||||||||
Net sales |
$ | 658 | $ | 316 | $ | 373 | $ | 737 | ||||||||
Purchases |
34 | 54 | 85 | 140 |
The following table sets forth the amount of accounts receivable due from and payable to related parties in the consolidated statements of financial position (in millions):
September 30, 2020 |
September 30, 2019 |
|||||||
Receivable from related parties |
$ | 65 | $ | 97 | ||||
Payable to related parties |
2 | 16 |
Equity Method Investments
Investments in the net assets of nonconsolidated partially-owned affiliates accounted for by the equity method are reported in the Equity method investments line in the consolidated statements of financial position. The Companys share of net income generated by the equity method investments is reported in the Equity income line in the consolidated and combined statements of income (loss).
The following table presents aggregated summarized financial data for the Companys equity method investments. The amounts included in the table below represent 100% of the results of continuing operations of the equity method investments in aggregate.
Summarized balance sheet data is as follows (in millions):
September 30, 2020 |
September 30, 2019 |
|||||||
Current assets |
$ | 1,264 | $ | 1,161 | ||||
Noncurrent assets |
675 | 841 | ||||||
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Total assets |
$ | 1,939 | $ | 2,002 | ||||
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Current liabilities |
$ | 649 | $ | 639 | ||||
Noncurrent liabilities |
204 | 238 | ||||||
Shareholders equity |
1,086 | 1,125 | ||||||
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Total liabilities and shareholders equity |
$ | 1,939 | $ | 2,002 | ||||
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Summarized income statement data is as follows (in millions):
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
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Net sales |
$ | 2,964 | $ | 1,307 | $ | 2,078 | $ | 3,497 | ||||||||
Gross profit |
702 | 319 | 441 | 729 | ||||||||||||
Net income |
142 | 60 | 81 | 156 |
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Corporate Allocations and Parents Net Investment
For the Predecessor periods, the combined statements of income include allocations for certain support functions that were provided on a centralized basis by the Parent Company and subsequently recorded at the business unit level, such as expenses related to employee benefits, finance, human resources, risk management, information technology, facilities, and legal, among others. These expenses have been allocated to the Company on the basis of direct usage when identifiable, with the remainder allocated on a proportional basis of combined sales, headcount or other measures of the Company or the Parent Company. Management believes the assumptions underlying the Predecessor financial statements, including the assumptions regarding allocating general corporate expenses from the Parent Company, are reasonable. Nevertheless, the Predecessor financial statements may not include all actual expenses that would have been incurred by the Company and may not reflect the combined results of operations, financial position and cash flows had it been a stand-alone company during the Predecessor periods presented. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.
In addition to the transactions discussed above, certain intercompany transactions in the Predecessor periods between the Company and the Parent Company have not been reflected as related party transactions. These transactions are considered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the combined statement of cash flows as a financing activity and in the combined statements of equity as parent company investment.
18. | Redeemable Noncontrolling Interests |
Prior to September 30, 2018, the Company consolidated certain subsidiaries in which the noncontrolling interest party had within their control the right to require the Company to redeem all or a portion of its interest in the subsidiary. The redeemable noncontrolling interests were reported at their estimated redemption value. Any adjustment to the redemption value impacted parent company investment but did not impact net income. Redeemable noncontrolling interests which were redeemable only upon future events, the occurrence of which was not currently probable, were recorded at carrying value. As of September 30, 2020 and September 30, 2019, the Company does not have any subsidiaries for which the noncontrolling interest party has within their control the right to require the Company to redeem any portion of its interests.
Changes in the redeemable noncontrolling interests for the year ended September 30, 2018 were as follows (in millions):
Year Ended September 30, 2018 |
||||
Predecessor: |
||||
Beginning balance, September 30 |
$ | 209 | ||
Net income |
35 | |||
Foreign currency translation adjustments |
(1 | ) | ||
Realized and unrealized losses on derivatives |
(9 | ) | ||
Dividends |
(3 | ) | ||
Reclassification to noncontrolling interest |
(231 | ) | ||
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Ending balance, September 30 |
$ | | ||
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19. | Segment Information |
ASC 280, Segment Reporting, requires operating segments to be determined based on information that is regularly reviewed by our chief operating decision maker, our Chief Executive Officer, for the purpose of allocating resources to segments and in assessing their performance. Effective as of the Acquisition Date, the
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Company reorganized the reportable segments to align with its new management reporting structure and business activities. Historical information has been recasted to reflect the new reportable segments. Our business is organized into three operating segments: Americas, EMEA and Asia, corresponding to the global markets the Company participates in and bases its operating and product strategies upon. The Companys operating segments are also its reportable segments.
Americas: Consists of manufacturing operations located in the United States, Mexico, Brazil, and Colombia, with distribution operations that expand across the continents of North America and South America, and equity method investments which primarily operate within the United States.
EMEA: Consists of manufacturing operations located in Germany, the Czech Republic, and Spain, with distribution operations that expand across the continents of Europe, Africa, and the transcontinental region of the Middle East, and equity method investments which primarily operate in the Middle East.
Asia: Consists of manufacturing operations located in China and Korea, with distribution operations that expand across the countries making up the Asia Pacific region, and equity method investments which primarily operate in India and China.
Management evaluates the performance of its business segments primarily on segment earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), which represents net income (loss) before income taxes and noncontrolling interests, depreciation, intangible asset amortization, net financing charges, restructuring and impairment costs, net mark-to-market adjustments related to pension and postretirement plans, deal and stand-up costs, impacts of purchase accounting, core valuation changes and other items. Centrally incurred costs are allocated to the reportable segments by using a systematic approach whereby costs are assigned based on either underlying cost driver(s) or as a percentage of third-party revenue. Corporate activities which do not relate to the operations of the Americas, EMEA and Asia segments are not allocated. Corporate expenses primarily consist of the Companys centralized corporate-level activities, such as salaries and benefits of certain corporate staff, product research and development activities, and other administrative expenses.
Financial information relating to the Companys reportable segments is as follows (in millions):
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
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Net sales |
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Americas |
$ | 4,710 | $ | 2,230 | $ | 3,090 | $ | 4,349 | ||||||||
EMEA |
2,036 | 946 | 1,281 | 2,478 | ||||||||||||
Asia |
856 | 359 | 622 | 1,173 | ||||||||||||
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Total net sales |
$ | 7,602 | $ | 3,535 | $ | 4,993 | $ | 8,000 | ||||||||
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Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
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Adjusted EBITDA |
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Americas |
$ | 924 | $ | 432 | $ | 581 | $ | 1,059 | ||||||||
EMEA |
324 | 163 | 245 | 469 | ||||||||||||
Asia |
112 | 38 | 85 | 142 | ||||||||||||
Corporate expenses |
(100 | ) | (39 | ) | (50 | ) | (85 | ) | ||||||||
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$ | 1,260 | $ | 594 | $ | 861 | $ | 1,585 | |||||||||
Depreciation |
(346 | ) | (136 | ) | (144 | ) | (243 | ) | ||||||||
Amortization of intangible assets |
(394 | ) | (161 | ) | (4 | ) | (8 | ) | ||||||||
Net financing charges |
(717 | ) | (274 | ) | (23 | ) | (40 | ) | ||||||||
Restructuring and impairment costs |
(11 | ) | | | (11 | ) | ||||||||||
Allocation for support functions (a) |
| | (62 | ) | (94 | ) | ||||||||||
Deal and stand up costs (b) |
(29 | ) | (84 | ) | (58 | ) | | |||||||||
Impacts of purchase accounting (c) |
(13 | ) | (302 | ) | | | ||||||||||
Pension mark-to market adjustment (d) |
(66 | ) | (50 | ) | | (14 | ) | |||||||||
Core valuation change (e) |
(49 | ) | 14 | | | |||||||||||
Factoring fees (f) |
26 | 19 | 15 | 27 | ||||||||||||
Other items (g) |
(80 | ) | (15 | ) | (3 | ) | 38 | |||||||||
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Income (loss) before income taxes |
$ | (419 | ) | $ | (395 | ) | $ | 582 | $ | 1,240 | ||||||
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(a) | General corporate expenses and other allocations for certain support functions provided by JCI. |
(b) | Expenses related to the Acquisition and costs to establish standalone business functions. Acquisition related expenses were $70 million for the five months ended September 30, 2019 and $58 million for the seven months ended April 30, 2019. Costs to establish standalone business functions were $29 million for the year ended September 30, 2020 and $14 million for the five months ended September 30, 2019. |
(c) | Impacts of purchase accounting adjustments related to the Acquisition. The sell through of inventory at fair value resulted in increased cost of sales of $296 million for the five months ended September 30, 2019. The amortization of the step-up in value of our equity method investments resulted in a reduction in equity income of $13 million for the year ended September 30, 2020 and $6 million for the five months ended September 30, 2019. |
(d) | Non-cash accounting impact of net mark-to-market losses related to pension and other postretirement benefit plans. |
(e) | Represents the non-cash change in value of battery cores primarily due to the change in the value of lead. |
(f) | Includes costs associated with ongoing receivable factoring programs. To mitigate long collection terms for accounts receivable from certain aftermarket customers, the Company actively engages in receivable factoring programs, through which accounts receivable are sold to third-party intermediaries in exchange for a fee based on LIBOR plus a spread. |
(g) | Consists of other items including, among others: (i) restructuring costs and discontinued operation losses at certain equity method investments ($3 million for the seven months ended April 30, 2019 and $7 million for the year ended September 30, 2018), (ii) consulting costs related to operational improvement initiatives ($44 million for the year ended September 30, 2020 and $15 million for the five months ended September 30, 2019), (iii) transaction costs associated with the Bosch Transaction ($9 million for the year ended September 30, 2020), (iv) severance costs ($19 million for the year ended September 30, 2020), (v) mark-to-market adjustments for investments in marketable common stock ($1 million loss for the year ended September 30, 2020), (vi) loss on disposal of certain assets ($1 million for the year ended September 30, 2020), (vii) equipment moving and installation costs related to discontinuing assembly operations of one of the Companys U.S. plants ($6 million for the year ended September 30, 2020), (viii) |
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adjustment to asset retirement obligations due to a modification in the underlying calculation assumptions (($13) million for the year ended September 30, 2018), (ix) gain on deconsolidation of a subsidiary (($15) million for the year ended September 30, 2018), (x) gain on partial divestiture of equity interests in a non-consolidated subsidiary (($7) million for the year ended September 30, 2018) and (xi) reversal of a license fee received in connection with the renegotiation of an existing IP agreement (($10) million for the year ended September 30, 2018). |
Successor | ||||||||
September 30, 2020 |
September 30, 2019 |
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Assets | ||||||||
Americas |
$ | 8,813 | $ | 9,265 | ||||
EMEA |
4,536 | 4,474 | ||||||
Asia |
2,116 | 2,011 | ||||||
Corporate |
140 | 167 | ||||||
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Total |
$ | 15,605 | $ | 15,917 | ||||
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Successor | ||||||||
September 30, 2020 |
September 30, 2019 |
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Equity method investments | ||||||||
Americas |
$ | 285 | $ | 254 | ||||
EMEA |
58 | 66 | ||||||
Asia |
439 | 456 | ||||||
|
|
|
|
|||||
Total |
$ | 782 | $ | 776 | ||||
|
|
|
|
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
|||||||||||||
Depreciation/Amortization | ||||||||||||||||
Americas |
$ | 457 | $ | 193 | $ | 88 | $ | 143 | ||||||||
EMEA |
204 | 74 | 30 | 53 | ||||||||||||
Asia |
66 | 25 | 23 | 42 | ||||||||||||
Corporate |
13 | 5 | 7 | 13 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 740 | $ | 297 | $ | 148 | $ | 251 | ||||||||
|
|
|
|
|
|
|
|
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
|||||||||||||
Capital Expenditures | ||||||||||||||||
Americas |
$ | 199 | $ | 123 | $ | 125 | $ | 223 | ||||||||
EMEA |
64 | 33 | 29 | 42 | ||||||||||||
Asia |
27 | 12 | 24 | 104 | ||||||||||||
Corporate |
24 | 13 | 14 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 314 | $ | 181 | $ | 192 | $ | 372 | ||||||||
|
|
|
|
|
|
|
|
F-86
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
|||||||||||||
Equity Income | ||||||||||||||||
Americas |
$ | 41 | $ | 10 | $ | 17 | $ | 25 | ||||||||
EMEA |
3 | 4 | 2 | 14 | ||||||||||||
Asia |
4 | 3 | 11 | 19 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 48 | $ | 17 | $ | 30 | $ | 58 | ||||||||
|
|
|
|
|
|
|
|
In the periods presented, no customer exceeded 10% of consolidated net sales.
Geographic Information
Financial information relating to the Companys operations by geographic area is as follows (in millions):
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
|||||||||||||
Net Sales | ||||||||||||||||
United States |
$ | 3,646 | $ | 1,691 | $ | 2,398 | $ | 3,319 | ||||||||
Mexico |
697 | 346 | 437 | 627 | ||||||||||||
Other Americas |
367 | 193 | 255 | 403 | ||||||||||||
Germany |
1,075 | 518 | 702 | 1,346 | ||||||||||||
Other EMEA |
961 | 428 | 579 | 1,132 | ||||||||||||
China |
457 | 197 | 373 | 741 | ||||||||||||
South Korea |
399 | 162 | 249 | 432 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 7,602 | $ | 3,535 | $ | 4,993 | $ | 8,000 | ||||||||
|
|
|
|
|
|
|
|
Successor | ||||||||
September 30, 2020 |
September 30, 2019 |
|||||||
Long-Lived Assets | ||||||||
United States |
$ | 1,521 | $ | 1,498 | ||||
Mexico |
547 | 563 | ||||||
Other Americas |
116 | 141 | ||||||
Germany |
431 | 413 | ||||||
Other EMEA |
327 | 339 | ||||||
China |
495 | 505 | ||||||
South Korea |
59 | 69 | ||||||
|
|
|
|
|||||
Total |
$ | 3,496 | $ | 3,528 | ||||
|
|
|
|
Net sales attributed to geographic locations are based on the location of the assets producing the sales. Long-lived assets by geographic location consist of net property, plant and equipment.
20. | Subsequent Events |
Restructuring and Impairment costs
In October 2020, the Company announced that it would be launching an organizational transformation initiative. The initiatives goals are, among others, to increase the efficiency and capability of its workforce through a realignment of the existing organizational structure to better meet the Companys near-term commitments and
F-87
long-term strategy. In December 2020, the Company committed to a significant plan to realign its organizational structure and streamline existing processes resulting in a charge of approximately $26 million being recorded in restructuring and impairment costs on the consolidated statement of loss for the three months ended December 31, 2020. Of the charge recorded, $17 million related to the EMEA segment, $4 million related to the Americas segment, $2 million related to the Asia segment, and $3 million related to Corporate. The charge, which is the total amount incurred and the total amount expected to be incurred in connection with this restructuring plan, consisted primarily of severance costs associated with streamlining the workforce.
Effective January 19, 2021, the Companys Board of Directors approved managements plan to permanently close one of the Companys battery recycling plants operating within North America in order to better align the Companys operating footprint within the region to the Companys revised procurement strategy. The permanent closure of this battery recycling plant will allow the Company to further focus its resources and attention on increasing the efficiency of its other battery recycling plants within the region, and optimize its best-in-class supply chain and logistics network. As a result, the Company recorded approximately $171 million of restructuring and impairment costs in the consolidated statement of income (loss) within the Americas segment for the three months ended March 31, 2021. These costs included approximately $157 million of non-cash asset impairment costs related to certain assets identified as having no alternative use and $14 million of costs primarily related to workforce reductions and other costs. The Company may incur additional costs related to the closure and its estimates are subject to further refinement, which may be material, based upon changes in the facts and circumstances regarding closure activities undertaken, and the result of managements review of various alternatives to owning and operating the battery recycling plant.
In March 2021, upon further assessment of the Companys current strategies to penetrate emerging markets within its Asia Segment, the Company committed to a plan to divest one of its equity method investments in order to pursue alternative investment strategies within the market in which the equity method investment operates. In light of the Companys decision, it evaluated the investments future business prospects and the marketability of equity interests in the investment determining that collectively the facts and circumstances concerning the investment suggest that the fair value of the Companys investment has declined below its carrying value and the decrease of value is deemed to be other-than-temporary. As a result, an impairment charge of $29 million was recorded as of and for period ended March 31, 2021 to reduce the carrying value of the Companys investment to its estimated fair value.
Debt and Financing Arrangements
In October 2020, the Company made approximately $150 million in voluntary principal payments on the Term Loan Facility ($75 million on the USD Term Loan and 65 million on the Euro Term Loan). In March 2021, the Company closed on the repricing of the Term Loan Facility, which resulted in a 50 basis point rate reduction on the EUR Term Loan (issued with an original issue discount of 25 basis points) and 25 basis point rate reduction on the USD Term Loan. As part of the repricing, the Company also made $100 million in principal payments on the USD Term Loan and the First Lien Credit Agreement was amended to include provisions broadly consistent with the hardwired approach recommended prior to the repricing by the Alternative Rates Reference Committee convened by the Federal Reserve Board in relation to addressing the discontinuation of US dollar LIBOR.
Vernon, CA Litigation
In December 2020, the Company received notice that it was named in a lawsuit filed by the state of California seeking relief associated with environmental contamination generated by a former Exide lead recycling facility in Vernon, CA, and for reimbursement of costs incurred to date by the state of California related to its investigation and clean up. The lawsuit also names other prior owner/operators as well as several former customers of the facility, including Clarios. The Company has engaged counsel to evaluate the merits of and potential defenses to the lawsuit and its allegations. To date the Company, at the advice of its counsel, is unable to reasonably estimate the potential loss or range of potential losses. It is at least reasonably possible that after further investigation into the facts and circumstances, an estimate of the potential loss or range of potential losses may be material.
F-88
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.
[Alternative Pages for Series A Mandatory Convertible Preferred Stock Prospectus]
Subject to Completion, Dated , 2021
Preliminary Prospectus
Clarios International Inc.
Shares
of
% Series A Mandatory Convertible Preferred Stock
Clarios International Inc. is offering shares of its % Series A Mandatory Convertible Preferred Stock, par value $0.01 per share (the Mandatory Convertible Preferred Stock).
Dividends on our Mandatory Convertible Preferred Stock will be payable on a cumulative basis when, as and if declared by our board of directors, or an authorized committee of our board of directors, at an annual rate of % of the liquidation preference of $50.00 per share. We may pay declared dividends in cash or, subject to certain limitations, in shares of our common stock, par value $0.01 per share, or in any combination of cash and shares of our common stock on , , and of each year, commencing on, and including, , 2021 and ending on, and including, , 2024.
Each share of our Mandatory Convertible Preferred Stock has a liquidation preference of $50.00. Unless earlier converted, each share of the Mandatory Convertible Preferred Stock will automatically convert on the second business day immediately following the last Trading Day (as defined herein) of the Settlement Period (as defined herein) into between and shares of our common stock (respectively, the Minimum Conversion Rate and Maximum Conversion Rate), each subject to anti-dilution adjustments. The number of shares of our common stock issuable on conversion of the Mandatory Convertible Preferred Stock will be determined based on the Average VWAP (as defined herein) per share of our common stock over the 20 consecutive Trading Day period commencing on, and including, the 21st Scheduled Trading Day (as defined herein) immediately preceding , 2024. At any time prior to , 2024, holders may elect to convert each share of the Mandatory Convertible Preferred Stock into shares of common stock at the Minimum Conversion Rate of shares of our common stock per share of the Mandatory Convertible Preferred Stock, subject to anti-dilution adjustments. If you elect to convert any shares of the Mandatory Convertible Preferred Stock during a specified period beginning on the effective date of a Fundamental Change (as defined herein), such shares of the Mandatory Convertible Preferred Stock will be converted into shares of our common stock at the Fundamental Change Conversion Rate (as defined herein), and you will also be entitled to receive a Fundamental Change Dividend Make-whole Amount and Accumulated Dividend Amount (each as defined herein).
Concurrently with this offering, we are also making an initial public offering of shares of our common stock, par value $0.01 per share (the Concurrent Offering) at an initial public offering price that we anticipate will be between $ and $ per share. The Concurrent Offering is being made by means of a separate prospectus and not by means of this prospectus. We have granted the underwriters of that offering an option for a period of 30 days to purchase up to an additional shares of our common stock to cover over-allotments. The closing of this offering of the Mandatory Convertible Preferred Stock is conditioned upon the closing of the Concurrent Offering, but the closing of the Concurrent Offering is not conditioned upon the closing of this offering of Mandatory Convertible Preferred Stock. We cannot assure you that the Concurrent Offering will be completed or, if completed, on what terms it will be completed.
We intend to use the net proceeds of this offering, together with the net proceeds of the Concurrent Offering, for repayment of outstanding indebtedness. See SummaryUse of Proceeds.
This is our initial public offering and no public market exists for the Mandatory Convertible Preferred Stock or the common stock into which it is convertible. We have applied to list the Mandatory Convertible Preferred Stock and the common stock on the New York Stock Exchange (NYSE), under the symbols BTRY PRA and BTRY, respectively.
After the completion of this offering and the Concurrent Offering, certain entities affiliated with Brookfield Asset Management Inc. (Brookfield) and Caisse de dépôt et placement du Québec (collectively, the Sponsor Group) will continue to own a majority of the voting power of shares eligible to vote in the election of our directors, representing approximately % of the combined voting power of our outstanding common stock assuming no exercise of the Concurrent Offering underwriters option to purchase additional shares of common stock. As a result, we will be a controlled company within the meaning of the corporate governance standards of the NYSE. See ManagementControlled Company Exception and Principal Stockholders. Following the completion of the Concurrent Offering, public investors will own approximately %, representing approximately % of the combined voting power, of our outstanding shares of common stock assuming no exercise of the Concurrent Offering underwriters option to purchase additional shares of common stock.
Investing in our Mandatory Convertible Preferred Stock involves risks. See Risk Factors beginning on page 26.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Share | Total | |||||||
Initial public offering price |
$ | $ | ||||||
Underwriting discounts and commissions |
$ | $ | ||||||
Proceeds to us before expenses (1) |
$ | $ |
(1) | See Underwriting for a description of compensation to be paid to the underwriters. |
We have granted the underwriters an option for a period of 30 days to purchase up to an additional shares of Mandatory Convertible Preferred Stock to cover over-allotments, if any. See Underwriting.
The underwriters expect to deliver the shares of Mandatory Convertible Preferred Stock to purchasers on or about , 2021.
BofA Securities | J.P. Morgan |
Barclays | BMO Capital Markets | Credit Suisse |
Deutsche Bank Securities | Goldman Sachs & Co. LLC |
Citigroup | HSBC | RBC Capital Markets |
Scotiabank | TD Securities |
CIBC Capital Markets | Guggenheim Securities |
Credit Agricole CIB | ING | National Bank of Canada Financial Inc. |
Natixis | Santander | Siebert Williams Shank |
The date of this prospectus is , 2021
A-1
THE OFFERING
The summary below describes the principal terms of the Mandatory Convertible Preferred Stock. Certain of the terms and conditions described below are subject to important limitations and exceptions. Refer to the section of this prospectus entitled Description of Mandatory Convertible Preferred Stock for a more detailed description of the terms and conditions of the Mandatory Convertible Preferred Stock.
As used in this section, the terms the Company, us, we or our refer to Clarios International Inc. and not any of its subsidiaries or affiliates.
Issuer | Clarios International Inc., a Delaware corporation. | |
Securities Offered | shares of our % Series A Mandatory Convertible Preferred Stock, par value $0.01 per share (the Mandatory Convertible Preferred Stock). | |
Underwriters Option to Purchase Additional Shares | Up to shares, solely to cover over-allotments. | |
Public Offering Price | $ per share of Mandatory Convertible Preferred Stock. | |
Liquidation Preference | $50.00 per share of Mandatory Convertible Preferred Stock. | |
Dividends | % of the liquidation preference of $50.00 per share of the Mandatory Convertible Preferred Stock per year.
Dividends shall accumulate from the most recent date as to which dividends shall have been paid or, if no dividends have been paid, from (and including) the first original issue date of the shares of the Mandatory Convertible Preferred Stock, whether or not in any dividend period or periods there have been funds legally available or shares of common stock legally permitted for the payment of such dividends. When, as and if our board of directors, or an authorized committee thereof, declares (out of funds legally available for payment, in the case of dividends paid in cash, and shares of common stock legally permitted to be issued, in the case of dividends paid in common stock) a dividend payable with respect to the Mandatory Convertible Preferred Stock, we will pay such dividend in cash, by delivery of shares of our common stock or through any combination of cash and shares of our common stock, as determined by us in our sole discretion (subject to certain limitations); provided that any unpaid dividends will continue to accumulate, except as described below.
If declared, dividends will be payable on the dividend payment dates (as described below) to holders of record of the Mandatory Convertible Preferred Stock at the Close of Business on the , , or , as the case may be, immediately preceding the relevant dividend payment date (each a Regular Record Date), whether or not such holders early convert their shares of Mandatory Convertible Preferred Stock, or such shares of Mandatory Convertible Preferred Stock are automatically converted, after a Regular Record Date and on or prior to the immediately succeeding dividend payment date. If |
A-2
declared, the dividend payable on the first dividend payment date will be approximately $ per share of the Mandatory Convertible Preferred Stock. If declared, each subsequent dividend will be $ per share of the Mandatory Convertible Preferred Stock. Accumulated dividends on shares of the Mandatory Convertible Preferred Stock will not bear interest, nor shall additional dividends be payable thereon, if they are paid subsequent to the applicable dividend period in which they accumulate. See Description of Mandatory Convertible Preferred StockDividends.
We will make each payment of a declared dividend on the Mandatory Convertible Preferred Stock in cash, except to the extent we elect to make all or any portion of such payment in shares of our common stock. If we elect to make any payment of a declared dividend, or any portion thereof, in shares of our common stock, such shares shall be valued for such purpose at the Average VWAP (as defined under Description of Mandatory Convertible Preferred StockMandatory ConversionDefinitions) per share of our common stock over the five consecutive Trading Day period beginning on, and including, the sixth Scheduled Trading Day immediately preceding the applicable dividend payment date (such average, the Average Price), multiplied by 97%. Notwithstanding the foregoing, in no event will the number of shares of our common stock delivered in connection with any declared dividend, including any declared dividend payable in connection with a conversion, exceed a number equal to the declared dividend divided by $ , which amount represents approximately 35% of the Initial Price (as defined below) (subject to adjustment in a manner inversely proportional to any anti-dilution adjustment to each Fixed Conversion Rate as described below) (such dollar amount, as adjusted, the Floor Price). To the extent that the amount of the declared dividend exceeds the product of the number of shares of our common stock delivered in connection with such declared dividend and 97% of the Average Price, we will, if we are legally able to do so and to the extent permitted under the terms of the documents governing our indebtedness, notwithstanding any notice by us to the contrary, pay such excess amount in cash. Any such payment in cash may not be permitted by our then existing debt instruments. To the extent that we are not able to pay such excess amount in cash under applicable law and in compliance with our indebtedness, we will not have any obligation to pay such amount in cash or deliver additional shares of our common stock in respect of such amount.
The Initial Price is calculated by dividing $50.00 by the Maximum Conversion Rate of shares of common stock and initially equals approximately $ , which is the anticipated initial public offering price per share of our common stock in the Concurrent Offering. |
A-3
Dividend Payment Dates | , , and of each year, commencing on, and including, , 2021 and ending on, and including, , 2024. | |
Mandatory Conversion Date | The second business day immediately following the last Trading Day of the Settlement Period (as defined herein). The Mandatory Conversion Date is expected to be , 2024. | |
Mandatory Conversion | Upon conversion on the Mandatory Conversion Date, each outstanding share of the Mandatory Convertible Preferred Stock, unless previously converted, will automatically convert into a number of shares of our common stock equal to not more than shares of our common stock (the Maximum Conversion Rate) and not less than shares of our common stock (the Minimum Conversion Rate), depending on the Applicable Market Value of our common stock, as described below, and subject to certain anti-dilution adjustments.
The Applicable Market Value of our common stock is the Average VWAP per share of our common stock over the 20 consecutive Trading Day period commencing on, and including, the 21st Scheduled Trading Day immediately preceding , 2024 (the Settlement Period). The conversion rate will be calculated as described under Description of Mandatory Convertible Preferred StockMandatory Conversion, and the following table illustrates the conversion rate per share of the Mandatory Convertible Preferred Stock, subject to certain anti-dilution adjustments. |
Assumed Applicable Market Value of our common stock |
Conversion rate (number of shares of our common stock issuable upon conversion of each share of the Mandatory Convertible Preferred Stock) | |
Greater than the Threshold Appreciation Price | shares of common stock | |
Equal to or less than the Threshold Appreciation Price but greater than or equal to the Initial Price | Between and shares of common stock, determined by dividing $50.00 by the Applicable Market Value | |
Less than the Initial Price | shares of common stock |
The Threshold Appreciation Price is calculated by dividing $50.00 by the Minimum Conversion Rate of shares of common stock, which is equal to approximately $ , and represents an approximately % appreciation over the Initial Price.
If we declare a dividend for the dividend period ending on, but excluding, , 2024, we will pay such dividend to the holders of record as of the immediately preceding Regular Record Date. If, on or prior to , 2024 we have not declared all or any portion of the accumulated and unpaid dividends on the Mandatory Convertible Preferred Stock, the |
A-4
conversion rate will be adjusted so that holders receive an additional number of shares of our common stock equal to (i) the amount of such accumulated and unpaid dividends that have not been declared (such amount, the Additional Conversion Amount), divided by (ii) the greater of (A) the Floor Price and (B) 97% of the Average Price (calculated using , 2024 as the applicable dividend date). To the extent that the Additional Conversion Amount exceeds the product of the number of additional shares and 97% of the Average Price, we will, if we are able to do so under applicable law and in compliance with our indebtedness, declare and pay such excess amount in cash pro rata to the holders of the Mandatory Convertible Preferred Stock. To the extent that we are not able to pay such excess amount in cash under applicable law and in compliance with our indebtedness, we will not have any obligation to pay such amount in cash or deliver additional shares of our common stock in respect of such amount. | ||
Early Conversion at the Option of the Holder | Other than during a Fundamental Change Conversion Period (as defined herein), at any time prior to , 2024, holders of the Mandatory Convertible Preferred Stock have the option to elect to convert their shares of Mandatory Convertible Preferred Stock, in whole or in part (but in no event less than one share of Mandatory Convertible Preferred Stock), into shares of our common stock at the Minimum Conversion Rate of shares of our common stock per share of the Mandatory Convertible Preferred Stock as described under Description of Mandatory Convertible Preferred StockEarly Conversion at the Option of the Holder. This Minimum Conversion Rate is subject to certain anti-dilution adjustments.
If, as of the conversion date of any early conversion (the Early Conversion Date), we have not declared all or any portion of the accumulated and unpaid dividends for all full dividend periods ending on or before the dividend payment date prior to such Early Conversion Date, the conversion rate for such early conversion will be adjusted so that holders converting their Mandatory Convertible Preferred Stock at such time receive an additional number of shares of our common stock equal to such amount of accumulated and unpaid dividends that have not been declared for such full dividend periods (the Early Conversion Additional Conversion Amount), divided by the greater of (i) the Floor Price and (ii) the Average VWAP per share of our common stock over the 20 consecutive Trading Day period commencing on, and including, the 21st Scheduled Trading Day immediately preceding the Early Conversion Date (the Early Conversion Average Price). To the extent that the Early Conversion Additional Conversion Amount exceeds the product of such number of additional shares and the Early Conversion Average Price, we will not have any obligation to pay the shortfall in cash or to deliver shares of our common stock in respect of such shortfall. |
A-5
Conversion at the Option of the Holder Upon a Fundamental Change; Fundamental Change Dividend Make-whole Amount | If a Fundamental Change (as defined under Description of Mandatory Convertible Preferred StockConversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount) occurs on or prior to , 2024, holders of the Mandatory Convertible Preferred Stock will have the right, during the Fundamental Change Conversion Period (as defined under Description of Mandatory Convertible Preferred StockConversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount), to convert their shares of Mandatory Convertible Preferred Stock, in whole or in part (but in no event less than one share of the Mandatory Convertible Preferred Stock), into shares of our common stock (or units of exchange property as described in Description of Mandatory Convertible Preferred StockConversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount) at the Fundamental Change Conversion Rate. The Fundamental Change Conversion Rate will be determined based on the effective date of the Fundamental Change and the price paid (or deemed paid) per share of our common stock in such Fundamental Change.
Holders who convert their Mandatory Convertible Preferred Stock during the Fundamental Change Conversion Period will also receive a Fundamental Change Dividend Make-whole Amount equal to the present value (computed using a discount rate of % per annum) of all remaining dividend payments on their shares of Mandatory Convertible Preferred Stock (excluding any Accumulated Dividend Amount (as defined under Description of Mandatory Convertible Preferred StockConversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole AmountFundamental Change Dividend Make-whole Amount and Accumulated Dividend Amount)) from and including such effective date to, but excluding, , 2024. We may elect to pay the Fundamental Change Dividend Make-whole Amount in cash, shares of our common stock or a combination thereof. If we elect to pay the Fundamental Change Dividend Make-whole Amount in shares of our common stock (or units of exchange property) in lieu of cash, the number of shares of our common stock (or units of exchange property) that we will deliver will equal (x) the Fundamental Change Dividend Make-whole Amount divided by (y) the greater of the Floor Price and 97% of the price paid, or deemed paid, per share of our common stock in the Fundamental Change.
To the extent that the Accumulated Dividend Amount exists as of the effective date of the Fundamental Change, holders who convert their Mandatory Convertible Preferred Stock within the Fundamental Change Conversion Period will be entitled to |
A-6
receive, upon conversion, such Accumulated Dividend Amount in cash (to the extent we are legally permitted to make such payment in cash and to the extent permitted under the terms of the documents governing our indebtedness) or shares of our common stock (or units of exchange property as described in this prospectus) or any combination thereof, at our election, upon conversion. If we elect to pay the Accumulated Dividend Amount in shares of our common stock (or units of exchange property) in lieu of cash, the number of shares of our common stock (or units of exchange property) that we will deliver will equal (x) the Accumulated Dividend Amount divided by (y) the greater of the Floor Price and 97% of the price paid, or deemed paid, per share of our common stock in the transaction resulting in such Fundamental Change.
To the extent that the sum of the Fundamental Change Dividend Make-whole Amount and Accumulated Dividend Amount or the dollar amount of any portion thereof paid in shares of our common stock (or units of exchange property) exceeds the product of (x) the number of additional shares we deliver in respect thereof and (y) 97% of the price paid (or deemed paid) per share of our common stock in the relevant Fundamental Change, we will, if we are legally able to do so, and to the extent permitted under the terms of the documents governing our indebtedness, pay such excess amount in cash. Any such payment in cash may not be permitted by our then existing debt instruments, including any restricted payment covenants. To the extent that we are not able to pay such excess amount in cash under applicable law and in compliance with our indebtedness, we will not have any obligation to pay such amount in cash or deliver additional shares of our common stock in respect of such amount.
However, if we are prohibited from paying or delivering, as the case may be, the Fundamental Change Dividend Make-whole Amount (whether in cash or in shares of our common stock), in whole or in part, due to limitations of applicable Delaware law, the Fundamental Change Conversion Rate will instead be increased by a number of shares of common stock equal to the cash amount of the aggregate unpaid and undelivered Fundamental Change Dividend Make-whole Amount, divided by the greater of (i) the Floor Price and (ii) 97% of the price paid (or deemed paid) per share of our common stock in the Fundamental Change. To the extent that the cash amount of the aggregate unpaid and undelivered Fundamental Change Dividend Make-whole Amount exceeds the product of such number of additional shares and 97% of the price paid (or deemed paid) per share of our common stock in the Fundamental Change, we will not have any obligation to pay the shortfall in cash or to deliver shares of our common stock in respect of such shortfall.
See Description of Mandatory Convertible Preferred StockConversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount |
A-7
Fundamental Change Dividend Make-whole Amount and Accumulated Dividend Amount. | ||
Voting Rights | Except as specifically required by applicable Delaware law or by our amended and restated certificate of incorporation from time to time, the holders of Mandatory Convertible Preferred Stock will have no voting rights.
Whenever dividends on any shares of Mandatory Convertible Preferred Stock have not been declared and paid for the equivalent of six or more dividend periods, whether or not for consecutive dividend periods, the authorized number of directors on our board of directors will, at the next annual meeting of stockholders or at a special meeting of stockholders, automatically be increased by two and the holders of such shares of the Mandatory Convertible Preferred Stock, voting together as a single class with holders of any and all other series of preferred stock ranking equally with the Mandatory Convertible Preferred Stock and having similar voting rights, will be entitled, at our next annual meeting of stockholders or at a special meeting of stockholders, to vote for the election of a total of two additional members of our board of directors, subject to certain limitations described herein.
So long as any shares of Mandatory Convertible Preferred Stock remain outstanding, we will not, without the affirmative vote or consent of the holders of at least two-thirds in voting power of the outstanding shares of Mandatory Convertible Preferred Stock and all other series of preferred stock ranking equally with the Mandatory Convertible Preferred Stock and having similar voting rights, voting together as a single class, (i) amend or alter the provisions of our amended and restated certificate of incorporation so as to authorize or create, or increase the authorized amount of, any specific class or series of stock ranking senior to the Mandatory Convertible Preferred Stock, (ii) amend, alter or repeal the provisions of our amended and restated certificate of incorporation or the certificate of designations with respect to the Mandatory Convertible Preferred Stock so as to adversely affect the special rights, preferences, privileges or voting powers of the Mandatory Convertible Preferred Stock; or (iii) consummate a binding share exchange or reclassification involving the Mandatory Convertible Preferred Stock or a merger or consolidation of us with another entity unless the Mandatory Convertible Preferred Stock remains outstanding or is converted into or exchanged for preference securities with terms not materially less favorable to holders, taken as a whole, in each case, subject to certain limitations described herein.
See Description of Mandatory Convertible Preferred StockVoting Rights. |
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Ranking | The Mandatory Convertible Preferred Stock, with respect to dividend rights and/or distribution rights upon our liquidation, winding-up or dissolution, as applicable, will rank:
senior to (i) our common stock and (ii) each other class or series of our capital stock established after the first original issue date of shares of the Mandatory Convertible Preferred Stock, the terms of which do not expressly provide that such class or series ranks either (x) senior to the Mandatory Convertible Preferred Stock as to dividend rights or distribution rights upon our liquidation, winding-up or dissolution or (y) on parity with the Mandatory Convertible Preferred Stock as to dividend rights and distribution rights upon our liquidation, winding-up or dissolution;
on parity with any class or series of our capital stock established after the first original issue date of shares of the Mandatory Convertible Preferred Stock the terms of which expressly provide that such class or series will rank on parity with the Mandatory Convertible Preferred Stock as to dividend rights and distribution rights upon our liquidation, winding-up or dissolution;
junior to each class or series of our capital stock established after the first original issue date of shares of the Mandatory Convertible Preferred Stock the terms of which expressly provide that such class or series will rank senior to the Mandatory Convertible Preferred Stock as to dividend rights or distribution rights upon our liquidation, winding-up or dissolution; and
junior to our existing and future indebtedness.
In addition, with respect to dividend rights and distribution rights upon our liquidation, winding-up or dissolution, the Mandatory Convertible Preferred Stock will be structurally subordinated to existing and future indebtedness and other obligations of each of our subsidiaries.
As of March 31, 2021, we had total outstanding indebtedness of approximately $10.5 billion, and no outstanding shares of preferred stock. | |
Use of Proceeds | We estimate that the net proceeds to us from this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $ (or approximately $ if the underwriters exercise their over-allotment option in full).
We estimate that the net proceeds to us from the Concurrent Offering will be approximately $ million, or approximately $ million if the underwriters of the Concurrent Offering exercise their over-allotment option in full, assuming an initial public offering price of $ per share (the midpoint of the range set forth on the cover page of the prospectus for the Concurrent Offering), after deducting estimated underwriting discounts and commissions and estimated offering expenses. |
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Each $1.00 increase (decrease) in the public offering price per share of common stock in the Concurrent Offering would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions, by $ million (assuming no exercise of the underwriters over-allotment option).
We intend to use the net proceeds of this offering and the Concurrent Offering to (i) redeem approximately $ of the 2026 USD Secured Notes (as defined herein), (ii) redeem approximately $ of the 2025 Secured Notes (as defined herein), (iii) redeem approximately $ million of the Unsecured Notes (as defined herein) and (iv) repay approximately $ of outstanding indebtedness under the USD Term Loan (as defined herein). See Use of Proceeds. | ||
Material U.S. Federal Income Tax Considerations | The material U.S. federal income tax considerations of owning and disposing of the Mandatory Convertible Preferred Stock and any common stock received upon conversion thereof are described in Material U.S. Federal Income Tax Considerations. | |
Listing | We have applied to list our common stock and the Mandatory Convertible Preferred Stock on the NYSE under the symbols BTRY and BTRY PRA, respectively. | |
Concurrent Common Stock Offering | Concurrently with this offering, we are offering, by means of a separate prospectus, shares of our common stock in the initial public offering of our common stock at an initial public offering price that we anticipate will be between $ and $ per share. We have granted the underwriters of that offering a 30-day option to purchase up to an additional shares of our common stock to cover over-allotments. We estimate that the net proceeds to us from the sale of shares of our common stock in the Concurrent Offering, if completed, will be approximately $ (or approximately $ if the underwriters exercise their over-allotment option to purchase additional shares of our common stock in full), assuming an initial public offering price of $ per share (which is the midpoint of the estimated price range shown on the cover page of the prospectus relating to the Concurrent Offering), in each case after deducting estimated expenses and underwriting discounts and commissions. The closing of the offering of Mandatory Convertible Preferred Stock is conditioned upon the closing of the Concurrent Offering, but the closing of the Concurrent Offering is not conditioned upon the closing of the offering of Mandatory Convertible Preferred Stock. We cannot assure you that the Concurrent Offering will be completed or, if completed, on what terms it will be completed. | |
Common Stock to be Outstanding after the Concurrent Offering | shares (or shares if the underwriters of the Concurrent Offering exercise their option to purchase additional shares of common stock in full). |
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Controlled Company | Upon the closing of this offering and the Concurrent Offering, entities affiliated with the Sponsor Group will continue to beneficially own more than 50% of the voting power for the election of members of our board of directors and we will be a controlled company under NYSE rules. As a controlled company, we qualify for, and intend to rely on, exemptions from certain corporate governance requirements of the NYSE. See ManagementControlled Company Exception. Following the completion of the Concurrent Offering, our insiders and affiliates will own approximately % and our public investors will own approximately % of our outstanding shares of common stock assuming no exercise of the underwriters option to purchase additional shares of common stock. | |
Transfer Agent, Registrar and Conversion and Dividend Disbursing Agent | Computershare Trust Company, N.A. is the transfer agent, registrar, conversion agent and dividend disbursement agent for the Mandatory Convertible Preferred Stock. | |
Risk Factors | Investing in our Mandatory Convertible Preferred Stock involves a high degree of risk. See Risk Factors beginning on page 26 of this prospectus for a discussion of factors you should consider carefully before deciding to invest in shares of our Mandatory Convertible Preferred Stock. |
Unless we specifically state otherwise, the information in this prospectus does not take into account the issuance of up to shares of Mandatory Convertible Preferred Stock which the underwriters have the option to purchase from us solely to cover over-allotments and shares of common stock which the underwriters of the Concurrent Offering have the option to purchase from us solely to cover over-allotments in the Concurrent Offering.
The number of shares of common stock that will be outstanding after this offering and the Concurrent Offering is based on shares of common stock outstanding as of , 2021, and excludes:
| shares of common stock reserved for issuance under our 2021 Long-Term Incentive Plan, as more fully described in Executive CompensationNarrative Description to the Summary Compensation Table and Grants of Plan-Based Awards Table2021 Long-Term Incentive Plan, and the cash-settled restricted stock units we expect to grant under this plan in connection with this offering to certain non-employee directors, with a value at grant of $145,000 (or $312,500 for the chair of our board of directors) based on the initial public offering price per share of common stock, as more fully described in Executive CompensationCompensation of our Directors; and |
| shares of our common stock (or shares if the underwriters exercise their overallotment option in full) issuable upon conversion of the Mandatory Convertible Preferred Stock being offered in this offering, in each case assuming mandatory conversion based on an Applicable Market Value of our common stock equal to the assumed initial public offering price in the Concurrent Offering of $ per share of common stock, which is the midpoint of the estimated offering price range shown on the cover page of the prospectus for the Concurrent Offering, subject to anti-dilution, make-whole and other adjustments or any shares of our common stock that may be issued in payment of a dividend, Fundamental Change Dividend Make-whole Amount or Accumulated Dividend Amount. |
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In addition, unless we specifically state otherwise, the information in this prospectus assumes:
| the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering; and |
| the completion of the Concurrent Offering and no exercise by the underwriters of that offering of their over-allotment option to purchase additional shares of common stock. |
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RISK FACTORS
Risks Relating to the Mandatory Convertible Preferred Stock and Our Common Stock
You will bear the risk of a decline in the market price of our common stock between the pricing date for the Mandatory Convertible Preferred Stock and the Mandatory Conversion Date.
The number of shares of our common stock that you will receive upon mandatory conversion of the Mandatory Convertible Preferred Stock is not fixed but instead will depend on the Applicable Market Value of our common stock, which will be determined in the future. The aggregate market value of the shares of our common stock that you would receive upon mandatory conversion may be less than the aggregate Liquidation Preference of the Mandatory Convertible Preferred Stock. Specifically, if the Applicable Market Value of our common stock is less than the Initial Price, which is calculated by dividing $50.00 by the Maximum Conversion Rate and initially equals approximately $ (the anticipated initial public offering price per share of our common stock in the Concurrent Offering), the market value of our common stock that you would receive upon mandatory conversion of each share of the Mandatory Convertible Preferred Stock will be less than the $50.00 liquidation preference per share of Mandatory Convertible Preferred Stock, and an investment in the Mandatory Convertible Preferred Stock would result in a loss, without taking into consideration the payment of dividends. Accordingly, you will bear the entire risk of a decline in the market price of our common stock. Any such decline could be substantial.
In addition, because the number of shares delivered to you upon mandatory conversion will be based upon the Applicable Market Value, which is the Average VWAP per share of our common stock over the Settlement Period, which is the 20 consecutive Trading Day period beginning on, and including, the 21st Scheduled Trading Day immediately preceding , 2024, the shares of common stock you receive upon mandatory conversion may be worth less than the shares of common stock you would have received had the Applicable Market Value been equal to the VWAP per share of our common stock on the Mandatory Conversion Date or the Average VWAP of our common stock over a different period of days.
Purchasers of our Mandatory Convertible Preferred Stock may not realize any or all of the benefit of an increase in the market price of shares of our common stock. The opportunity for equity appreciation provided by your investment in the Mandatory Convertible Preferred Stock is less than that provided by a direct investment in our common stock.
The market value of each share of our common stock that you would receive upon mandatory conversion of each share of the Mandatory Convertible Preferred Stock on the Mandatory Conversion Date (assuming that all dividends on shares of Mandatory Convertible Preferred Stock will be declared and paid in cash) will only exceed the Liquidation Preference of $50.00 per share of the Mandatory Convertible Preferred Stock if the Applicable Market Value of our common stock exceeds the Threshold Appreciation Price, which is calculated by dividing $50.00 by the Minimum Conversion Rate and initially equals approximately $ . The Threshold Appreciation Price represents a premium of approximately % over the Initial Price. If the Applicable Market Value of our common stock is greater than the Threshold Appreciation Price, you would receive on the Mandatory Conversion Date approximately % (which percentage is approximately equal to the Initial Price divided by the Threshold Appreciation Price) of the value of our common stock that you would have received if you had made a direct investment in shares of our common stock on the date of this prospectus. This means that the opportunity for equity appreciation provided by an investment in the Mandatory Convertible Preferred Stock is less than that provided by a direct investment in shares of our common stock.
In addition, if the market value of our common stock appreciates and the Applicable Market Value of our common stock is equal to or greater than the Initial Price but less than or equal to the Threshold Appreciation Price, the aggregate market value of shares of our common stock that you would receive upon mandatory conversion (assuming that all dividends on the shares of Mandatory Convertible Preferred Stock will be declared and paid in cash) will only be equal to the aggregate Liquidation Preference of the Mandatory Convertible Preferred Stock, and you will realize no equity appreciation on our common stock.
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The market price of our common stock will directly affect the market price for our Mandatory Convertible Preferred Stock.
We expect that, generally, the market price of our common stock will significantly affect the market price of our Mandatory Convertible Preferred Stock. This may result in greater volatility in the market price of our Mandatory Convertible Preferred Stock than would be expected for nonconvertible preferred stock. Significant fluctuations in the market price and trading volume of our common stock may result not only from general stock market conditions but also from a change in sentiment in the market regarding our operations, business prospects, future funding, this offering or the Concurrent Offering. The price and volume volatility of our common stock may be affected by factors including those outlined under Risks Related to Our Common Stock and this Offering.
In addition, we expect that the market price of our Mandatory Convertible Preferred Stock will be influenced by yield and interest rates in the capital markets, the time remaining to the Mandatory Conversion Date, our creditworthiness and the occurrence of any events affecting us that do not require an adjustment to the Fixed Conversion Rates. Fluctuations in yield rates in particular may give rise to arbitrage opportunities based upon changes in the relative values of our Mandatory Convertible Preferred Stock and our common stock. Any such arbitrage could, in turn, affect the market prices of our common stock and our Mandatory Convertible Preferred Stock. The market price of our common stock could also be affected by possible sales of our common stock by investors who view our Mandatory Convertible Preferred Stock as a more attractive means of equity participation in us and by hedging or arbitrage trading activity that we expect to develop involving our common stock. This trading activity could, in turn, affect the market price of our Mandatory Convertible Preferred Stock.
The adjustment to the conversion rate and the payment of the Fundamental Change Dividend Make-whole Amount upon the occurrence of certain Fundamental Changes may not adequately compensate you for the lost option value and lost dividends as a result of early conversion upon a Fundamental Change.
If a Fundamental Change (as defined in Description of Mandatory Convertible Preferred StockConversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount) occurs on or prior to , 2024, holders will be entitled to convert their Mandatory Convertible Preferred Stock during the Fundamental Change Conversion Period at the Fundamental Change Conversion Rate (in each case, as defined in Description of Mandatory Convertible Preferred StockConversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount). In addition, with respect to those shares of Mandatory Convertible Preferred Stock converted during the Fundamental Change Conversion Period, you will also receive, among other consideration, a Fundamental Change Dividend Make-whole Amount in cash (subject to our right to deliver shares of common stock in lieu of all or part of such amount in cash), subject to the limitations described in Description of Mandatory Convertible Preferred StockConversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount. If these limitations to the delivery of shares of our common stock in payment of the Fundamental Change Dividend Make-whole Amount are reached, we will pay the shortfall in cash to the extent we are legally permitted to do so and to the extent permitted under the terms of the documents governing our indebtedness. To the extent we are not permitted to pay cash or deliver shares, as the case may be, in respect of the Fundamental Change Dividend Make-whole Amount, in whole in part, due to limitations of applicable Delaware law, we will make an adjustment to the Fundamental Change Conversion Rate subject to certain limitations; provided that if these limitations to the adjustment of the Fundamental Change Conversion Rate are reached, we will not have an obligation to pay the shortfall in cash or deliver shares of our common stock in respect of such amount.
Although this adjustment to the conversion rate and the payment of the Fundamental Change Dividend Make-whole Amount are designed to compensate you for the lost option value of the Mandatory Convertible Preferred Stock and lost dividends that you will suffer as a result of converting your Mandatory Convertible Preferred Stock upon a Fundamental Change, the Fundamental Change Conversion Rate and Fundamental Change Dividend Make-whole Amount are only an approximation of such lost option value and lost dividends and may
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not adequately compensate you for your actual loss. In addition, if the price of our common stock is less than $ per share or more than $ per share, the feature of the Fundamental Change Conversion Rate will not compensate you for any loss suffered in connection with a Fundamental Change.
In addition, the agreements governing any of our and our subsidiaries future indebtedness may limit our ability to pay cash or deliver shares of our common stock, as the case may be, to converting holders upon a Fundamental Change unless we can repay or refinance the amounts outstanding under such agreements.
Furthermore, our obligation to adjust the conversion rate in connection with a Fundamental Change and pay the Fundamental Change Dividend Make-whole Amount (whether paid or delivered, as the case may be, in cash or shares of our common stock or any combination thereof) could be considered a penalty under state law, in which case the enforceability thereof would be subject to general principles of reasonableness and equitable remedies and therefore may not be enforceable in whole or in part.
The Fixed Conversion Rates of the Mandatory Convertible Preferred Stock may not be adjusted for all dilutive events that may adversely affect the market price of the Mandatory Convertible Preferred Stock or the common stock issuable upon conversion of the Mandatory Convertible Preferred Stock.
The Fixed Conversion Rates of the Mandatory Convertible Preferred Stock are subject to adjustment only for the issuance of certain stock dividends on our common stock, subdivisions or combinations of our common stock, the issuance of certain rights, options or warrants to holders of our common stock, spin-offs, distributions of capital stock, indebtedness, or assets to holders of our common stock, cash dividends, and certain issuer tender or exchange offers as described under Description of Mandatory Convertible Preferred StockAnti-dilution Adjustments. However, other events, such as employee and director grants that are settled in common stock and option grants, offerings of our common stock or securities convertible into shares of our common stock (other than those set forth in Description of Mandatory Convertible Preferred StockAnti-Dilution Adjustments) for cash or in connection with acquisitions, or third-party tender or exchange offers, which may adversely affect the market price of our common stock, may not result in any adjustment. Further, if any of these other events adversely affects the market price of our common stock it may also adversely affect the market price of the Mandatory Convertible Preferred Stock. In addition, the terms of our Mandatory Convertible Preferred Stock do not restrict our ability to offer common stock or securities convertible into common stock in the future or to engage in other transactions that could dilute our common stock. We have no obligation to consider the interests of the holders of our Mandatory Convertible Preferred Stock in engaging in any such offering or transaction.
Purchasers of the Mandatory Convertible Preferred Stock may be adversely affected upon the issuance of a new series of preferred stock ranking senior to or equally with the Mandatory Convertible Preferred Stock.
Our amended and restated certificate of incorporation will authorize our board of directors, without the approval of our common stockholders, to issue up to shares of our preferred stock, par value of $0.01 per share, subject to limitations prescribed by applicable law, rules and regulations and the provisions of our amended and restated certificate of incorporation, as shares of preferred stock in series, to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The powers, preferences and rights of these additional series of preferred stock may be senior to or on parity with the Mandatory Convertible Preferred Stock, which may reduce its value.
The terms of the Mandatory Convertible Preferred Stock will require the affirmative vote or consent of the holders of record of at least two-thirds in voting power of the outstanding shares of the Mandatory Convertible Preferred Stock and all other series of Voting Preferred Stock (as defined under Description of Mandatory Convertible Preferred StockVoting Rights) at the time outstanding and entitled to vote thereon, voting together as a single class, in order to amend or alter the provisions of our amended and restated certificate of incorporation so as to authorize or create, or increase the authorized amount of, any class or series of our capital
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stock the terms of which expressly provide that such class or series will rank senior to the Mandatory Convertible Preferred Stock as to dividend rights or distribution rights upon our liquidation, winding-up or dissolution but will not otherwise restrict our ability to offer a new series of preferred stock that ranks senior to or equally with the Mandatory Convertible Preferred Stock as to dividend payments or liquidation preference in the future. We have no obligation to consider the interests of the holders of the Mandatory Convertible Preferred Stock in engaging in any such offering or transaction.
Regulatory actions may adversely affect the trading price and liquidity of the Mandatory Convertible Preferred Stock.
Investors in, and potential purchasers of, the Mandatory Convertible Preferred Stock who employ, or seek to employ, a convertible arbitrage strategy with respect to the Mandatory Convertible Preferred Stock may be adversely impacted by regulatory developments that may limit or restrict such a strategy. The SEC and other regulatory and self-regulatory authorities have implemented various rules and may adopt additional rules in the future that restrict and otherwise regulate short selling and over-the-counter swaps and security-based swaps, which restrictions and regulations may adversely affect the ability of investors in, or potential purchasers of, the Mandatory Convertible Preferred Stock to conduct a convertible arbitrage strategy with respect to the Mandatory Convertible Preferred Stock. This could, in turn, adversely affect the trading price and liquidity of the Mandatory Convertible Preferred Stock.
You will have no rights with respect to our common stock until the Mandatory Convertible Preferred Stock is converted, but you may be adversely affected by certain changes made with respect to our common stock.
You will have no rights, powers or preferences with respect to our common stock, including voting rights, rights to respond to common stock tender offers, if any, and rights to receive dividends or other distributions on shares of our common stock, if any (other than through a conversion rate adjustment), prior to the conversion date with respect to a conversion of the Mandatory Convertible Preferred Stock, but your investment in the Mandatory Convertible Preferred Stock may be negatively affected by these events. Upon conversion, you will be entitled to exercise the rights of a holder of shares of our common stock only as to matters for which the record date occurs on or after the date you are deemed to be a record holder of the shares. For example, in the event that an amendment is proposed to our amended and restated certificate of incorporation or bylaws requiring stockholder approval and the record date for determining the stockholders of record entitled to vote on the amendment occurs prior to the date you are deemed to be a record holder of the shares of common stock issuable upon conversion of your Mandatory Convertible Preferred Stock, you will not be entitled to vote on the amendment (subject to certain limited exceptions and unless it would adversely affect the special rights, preferences, privileges and voting powers of the Mandatory Convertible Preferred Stock), although you will nevertheless be subject to any changes in the powers, preferences or special rights of our common stock, even if your Mandatory Convertible Preferred Stock has been converted into shares of our common stock prior to the effective date of such change. See Description of Capital Stock for further discussion of our common stock.
You will have no voting rights with respect to the Mandatory Convertible Preferred Stock except under limited circumstances.
You will have no voting rights with respect to the Mandatory Convertible Preferred Stock, except with respect to certain amendments to the terms of the Mandatory Convertible Preferred Stock, in the case of certain dividend arrearages, in certain other limited circumstances and except as specifically required by applicable Delaware law or by our amended and restated certificate of incorporation. You will have no right to vote for any members of our board of directors except in the case of certain dividend arrearages.
If dividends on any shares of the Mandatory Convertible Preferred Stock have not been declared and paid for the equivalent of six or more dividend periods, whether or not for consecutive dividend periods, the authorized number of directors on our board of directors will, at the next annual meeting of stockholders or at a special
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meeting of stockholders, if any, automatically be increased by two and the holders of such shares of Mandatory Convertible Preferred Stock, voting together as a single class with holders of all other series of Voting Preferred Stock then outstanding, will be entitled at our next annual meeting of stockholders or at a special meeting of stockholders, if any, to vote for the election of a total of two additional members of our board of directors, subject to the terms and limitations described in Description of Mandatory Convertible Preferred StockVoting Rights.
The Mandatory Convertible Preferred Stock will rank junior to all of our and our subsidiaries consolidated liabilities.
In the event of a bankruptcy, liquidation, dissolution or winding up, our assets will be available to pay obligations on the Mandatory Convertible Preferred Stock only after all of our consolidated liabilities have been paid. In addition, the Mandatory Convertible Preferred Stock will rank structurally junior to all existing and future liabilities of our subsidiaries. Your rights to participate in the assets of our subsidiaries upon any bankruptcy, liquidation, dissolution or winding up of any subsidiary will rank junior to the prior claims of that subsidiarys creditors. In the event of a bankruptcy, liquidation, dissolution or winding up, there may not be sufficient assets remaining, after paying our and our subsidiaries liabilities, to pay amounts due on any or all of the Mandatory Convertible Preferred Stock then outstanding.
As of March 31, 2021, we had total outstanding indebtedness of approximately $10.5 billion, and no outstanding shares of preferred stock. In addition, we have the ability to, and may, incur additional indebtedness in the future.
Our amended and restated certificate of incorporation authorizes our board of directors to issue one or more additional series of preferred stock and set the terms of the preferred stock without seeking any further approval from our stockholders. Any preferred stock that is issued will rank ahead of our common stock in terms of dividends and liquidation rights. If we issue additional preferred stock, it may adversely affect the market price of our common stock. Our board of directors also has the power, without stockholder approval, subject to applicable law, to set the terms of any such series of preferred stock that may be issued, including voting rights, dividend rights and preferences over our common stock with respect to dividends or upon our dissolution, winding-up and liquidation and other terms. If we issue additional preferred stock in the future that has a preference over our common stock with respect to the payment of dividends or upon our liquidation, dissolution, or winding up, or if we issue additional preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of shares of the Mandatory Convertible Preferred Stock and our common stock or the market price of the Mandatory Convertible Preferred Stock and our common stock could be adversely affected.
We may be unable to, or may choose not to, pay dividends on the Mandatory Convertible Preferred Stock.
Any future payments of cash dividends, and the amount of any dividends we pay, on our capital stock, including on the shares of Mandatory Convertible Preferred Stock, will be determined by our board of directors (or an authorized committee thereof) in its sole discretion and will depend on, among other things, our financial condition, capital requirements and results of operations, earnings, growth prospects, other uses of cash, funding requirements, applicable law and other factors our board of directors deems relevant.
The agreements governing any of our and our subsidiaries future indebtedness may limit our ability to declare and pay cash dividends on the shares of our capital stock, including the shares of Mandatory Convertible Preferred Stock. In the event that the agreements governing any such indebtedness restrict our ability to declare and pay dividends in cash on the shares of Mandatory Convertible Preferred Stock, we may be unable to declare and pay dividends in cash on the shares of our capital stock, including the Mandatory Convertible Preferred Stock, unless we can repay or refinance the amounts outstanding under such agreements or obtain an amendment or waiver of the applicable restrictions. We are under no obligation to attempt to refinance such amounts or seek
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such an amendment or waiver, nor can there be any assurance that we would be successful in doing so. In such circumstance, we may instead elect to defer the payment of dividends or to pay the dividend in shares of common stock.
In addition, under applicable Delaware law, our board of directors (or an authorized committee thereof) may only declare and pay dividends on shares of our capital stock out of our statutory surplus (which is defined as the amount equal to total assets minus total liabilities, in each case at fair market value, minus statutory capital), or if there is no such surplus, out of our net profits for the then current and/or immediately preceding fiscal year. Further, even if we are permitted under our contractual obligations and Delaware law to declare and pay cash dividends on the shares of our capital stock, including the Mandatory Convertible Preferred Stock, we may not have sufficient cash to do so. If we fail to declare or pay scheduled dividends on the shares of our capital stock, including the Mandatory Convertible Preferred Stock, on the dividend payment dates, it would likely have a material adverse impact on the market price of the Mandatory Convertible Preferred Stock and would prohibit us, under the terms of the Mandatory Convertible Preferred Stock, from paying cash dividends on or repurchasing shares of our common stock (subject to limited exceptions) until such time as we have paid all accumulated and unpaid dividends on the Mandatory Convertible Preferred Stock.
If upon mandatory conversion we have not declared all or any portion of the accumulated and unpaid dividends payable on the Mandatory Convertible Preferred Stock, the applicable conversion rate will be adjusted so that holders receive an additional number of shares of common stock having a market value generally equal to the amount of such accumulated and unpaid dividends, subject to the limitations described under Description of the Mandatory Convertible Preferred StockMandatory Conversion. As a result of such limitations, the market value of such additional number of shares of common stock may be less than the amount of such accumulated and unpaid dividends. To the extent that the amount of such accumulated and unpaid dividends exceeds the product of such number of additional shares and 97% of the Average Price (as defined under Description of Mandatory Convertible Preferred StockMethod of Payment of Dividends), we will, if we are legally permitted to do so and to the extent permitted under the terms of the documents governing our indebtedness, declare and pay such excess amount in cash pro rata to the holders of the Mandatory Convertible Preferred Stock; however, to the extent we are not permitted to do so under applicable law or in compliance with our indebtedness, you will not receive such excess amount in cash or any other consideration in respect thereof.
If upon an early conversion at the option of a holder (other than during a Fundamental Change Conversion Period), we have not declared and paid all or any portion of the accumulated and unpaid dividends payable on outstanding shares of the Mandatory Convertible Preferred Stock for all full dividend periods ending on or before the dividend payment date prior to the related Early Conversion Date, the applicable conversion rate will be adjusted so that converting holders receive an additional number of shares of our common stock having a market value generally equal to the amount of such accumulated and unpaid dividends, subject to the limitations described under Description of Mandatory Convertible Preferred StockEarly Conversion at the Option of the Holder. As a result of such limitations, the market value of such additional number of shares of common stock may be less than the amount of such accumulated and unpaid dividends. To the extent that the amount of such accumulated and unpaid dividends exceeds the product of such number of additional shares and the Early Conversion Average Price, we will not have any obligation to pay the shortfall in cash or to deliver shares of our common stock in respect of such shortfall.
If upon an early conversion during the Fundamental Change Conversion Period we have not declared all or any portion of the accumulated and unpaid dividends payable on the Mandatory Convertible Preferred Stock for specified periods, we will pay the amount of such accumulated and unpaid dividends in cash, shares of our common stock (or units of exchange property) or any combination thereof, in our sole discretion, subject to the limitations described under Description of Mandatory Convertible Preferred StockConversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount. If these limitations to the delivery of shares in payment of accumulated and unpaid dividends are reached, we will pay the shortfall in cash if we are legally permitted to do so and to the extent permitted under the terms of the
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documents governing our indebtedness; however, to the extent we are not permitted to do so under applicable law or in compliance with our indebtedness, you will not receive such excess amount in cash or any other consideration in respect thereof.
You may be subject to tax upon an adjustment to the conversion rate of the Mandatory Convertible Preferred Stock or upon a distribution paid in shares of common stock even though you do not receive a corresponding cash distribution.
The conversion rate of the Mandatory Convertible Preferred Stock is subject to adjustment in certain circumstances. Refer to Description of Mandatory Convertible Preferred StockAnti-dilution Adjustments. If, as a result of an adjustment (or failure to make an adjustment), your proportionate interest in our assets or earnings and profits is increased, you may be deemed to have received for U.S. federal income tax purposes a taxable distribution without the receipt of any cash or property. In addition, we may make distributions to holders of the Mandatory Convertible Preferred Stock that are paid in shares of our common stock and, although there is some uncertainty, we believe that any such distribution will be taxable to the same extent as a cash distribution of the same amount. In these circumstances and possibly others, a holder of Mandatory Convertible Preferred Stock may be subject to tax even though it has received no cash with which to pay that tax, thus giving rise to an out-of-pocket expense.
If you are a Non-U.S. Holder (as defined under Material U.S. Federal Income Tax Considerations), any of these deemed dividends generally will be subject to U.S. federal withholding tax (currently at a 30% rate, or such lower rate as may be specified by an applicable treaty), which may be withheld from subsequent payments on the Mandatory Convertible Preferred Stock, any common stock you receive or other amounts held or received on your behalf by the applicable withholding agent.
See Material U.S. Federal Income Tax Considerations for a further discussion of the U.S. federal tax implications for U.S. Holders (as defined therein) and Non-U.S. Holders of the ownership of the Mandatory Convertible Preferred Stock and any common stock received in exchange therefor.
Certain rights of the holders of the Mandatory Convertible Preferred Stock could delay or prevent an otherwise beneficial takeover or takeover attempt of us and, therefore, may affect the ability of holders of Mandatory Convertible Preferred Stock to exercise their rights associated with a potential Fundamental Change.
Certain rights of the holders of the Mandatory Convertible Preferred Stock could make it more difficult or more expensive for a third party to acquire us. For example, if a Fundamental Change were to occur on or prior to , 2024, holders of the Mandatory Convertible Preferred Stock may have the option to convert their Mandatory Convertible Preferred Stock, in whole or in part, at an increased conversion rate and will also be entitled to receive a Fundamental Change Dividend Make-whole Amount equal to the present value of all remaining dividend payments on their Mandatory Convertible Preferred Stock from the Fundamental Change Effective Date to , 2024. See Description of Mandatory Convertible Preferred StockConversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount. These features of the Mandatory Convertible Preferred Stock could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.
An active trading market for the Mandatory Convertible Preferred Stock does not exist and may not develop.
The Mandatory Convertible Preferred Stock is a new issue of securities with no established trading market. The liquidity of the trading market in the Mandatory Convertible Preferred Stock, and the market price quoted for the Mandatory Convertible Preferred Stock, may be adversely affected by changes in the overall market for this type of security and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. We have applied to list the Mandatory Convertible Preferred Stock on the NYSE under the
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symbol BTRY PRA. However, there can be no assurance that the Mandatory Convertible Stock will be listed, and if listed, that it will continue to be listed. Even if the Mandatory Convertible Preferred Stock is approved for listing on the NYSE, such listing does not guarantee that a trading market for the Mandatory Convertible Preferred Stock will develop or, if a trading market for the Mandatory Convertible Preferred Stock does develop, the depth or liquidity of that market. If an active trading market does not develop or is not maintained, the market price and liquidity of the Mandatory Convertible Preferred Stock may be adversely affected. In that case you may not be able to sell your Mandatory Convertible Preferred Stock at a particular time or you may not be able to sell your Mandatory Convertible Preferred Stock at a favorable price. In addition, as shares of the Mandatory Convertible Preferred Stock are converted, the liquidity of the Mandatory Convertible Preferred Stock that remains outstanding may decrease.
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DESCRIPTION OF MANDATORY CONVERTIBLE PREFERRED STOCK
The following description is a summary of certain provisions of our % Series A Mandatory Convertible Preferred Stock, par value $0.01 per share (the Mandatory Convertible Preferred Stock). A copy of the certificate of designations setting forth the terms of the Mandatory Convertible Preferred Stock, which we refer to as the Certificate of Designations, as well as our amended and restated certificate of incorporation, which we refer to as our Charter, is available upon request from us at the address set forth in the section of this prospectus entitled Where You Can Find More Information. This description of the terms of the Mandatory Convertible Preferred Stock is not complete and is subject to, and qualified in its entirety by reference to, the provisions of our Charter and the Certificate of Designations.
For purposes of this description, references to:
| the Company, us, we or our refer to Clarios International Inc. and not any of its subsidiaries; |
| Business Day refer to any day other than a Saturday or Sunday or other day on which commercial banks in New York City are authorized or required by law or executive order to close; and |
| Close of Business refer to 5:00 p.m., New York City time, and Open of Business refer to 9:00 a.m., New York City time. |
General
Under our Charter, our board of directors is authorized to provide, without further stockholder action, for the issuance of up to shares of preferred stock, par value of $0.01 per share, and the designation of each series of preferred stock and, with respect to each such series, to fix the number of shares constituting such series and fix the powers (including voting powers), preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of each series, as described under Description of Capital StockPreferred Stock. As of the date of this prospectus, no shares of preferred stock are outstanding.
At the closing of this offering, we will issue shares of Mandatory Convertible Preferred Stock. In addition, we have granted the underwriters an option to purchase up to additional shares of the Mandatory Convertible Preferred Stock, solely to cover over-allotments, as described under Underwriting.
When issued, the Mandatory Convertible Preferred Stock and our common stock issued upon the conversion of the Mandatory Convertible Preferred Stock will be fully paid and nonassessable. The holders of the Mandatory Convertible Preferred Stock will have no preemptive or preferential rights to purchase or subscribe for any class of our stock, obligations, warrants or other securities.
Ranking
The Mandatory Convertible Preferred Stock, with respect to dividend rights and/or distribution rights upon our liquidation, winding-up or dissolution, as applicable, will rank:
| senior to (i) our common stock and (ii) each other class or series of our capital stock established after the first original issue date of shares of the Mandatory Convertible Preferred Stock (which we refer to as the Initial Issue Date), the terms of which do not expressly provide that such class or series ranks either (x) senior to the Mandatory Convertible Preferred Stock as to dividend rights or distribution rights upon our liquidation, winding-up or dissolution or (y) on parity with the Mandatory Convertible Preferred Stock as to dividend rights and distribution rights upon our liquidation, winding-up or dissolution (which we refer to collectively as Junior Stock); |
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| on parity with any class or series of our capital stock established after the Initial Issue Date the terms of which expressly provide that such class or series will rank on parity with the Mandatory Convertible Preferred Stock as to dividend rights and distribution rights upon our liquidation, winding-up or dissolution (which we refer to collectively as Parity Stock); |
| junior to each class or series of our capital stock established after the Initial Issue Date the terms of which expressly provide that such class or series will rank senior to the Mandatory Convertible Preferred Stock as to dividend rights or distribution rights upon our liquidation, winding-up or dissolution (which we refer to collectively as Senior Stock); and |
| junior to our existing and future indebtedness. |
In addition, with respect to dividend rights and distribution rights upon our liquidation, winding-up or dissolution, the Mandatory Convertible Preferred Stock will be structurally subordinated to existing and future indebtedness and other obligations of each of our subsidiaries. See Risk FactorsRisks Relating to the Mandatory Convertible Preferred Stock and Our Common StockThe Mandatory Convertible Preferred Stock will rank junior to all of our consolidated liabilities.
As of March 31, 2021, we had total outstanding indebtedness of approximately $10.5 billion, and no outstanding shares of preferred stock.
Listing
We have applied to list our common stock and the Mandatory Convertible Preferred Stock on the NYSE under the symbols BTRY and BTRY PRA, respectively. In addition, upon listing, we have agreed to use our commercially reasonable efforts to keep the Mandatory Convertible Preferred Stock listed on the NYSE. However, there can be no assurance that the Mandatory Convertible Preferred Stock will be listed, and if listed, that it will continue to be listed. Listing the Mandatory Convertible Preferred Stock on the NYSE does not guarantee that a trading market will develop or, if a trading market does develop, the depth of that market or the ability of holders to sell their Mandatory Convertible Preferred Stock easily.
Dividends
Subject to the rights of holders of any class or series of any Senior Stock, holders of the Mandatory Convertible Preferred Stock will be entitled to receive, when, as and if declared by our board of directors, or an authorized committee thereof, out of funds legally available for payment, in the case of dividends paid in cash, and shares of common stock legally permitted to be issued, in the case of dividends paid in shares of common stock, cumulative dividends at the rate per annum of % of the Liquidation Preference of $50.00 per share of the Mandatory Convertible Preferred Stock (equivalent to $ per annum per share), payable in cash, by delivery of shares of our common stock or through any combination of cash and shares of our common stock, as determined by us in our sole discretion (subject to the limitations described below). See Method of Payment of Dividends.
If declared, dividends on the Mandatory Convertible Preferred Stock will be payable quarterly on , , and of each year to, and including, , 2024 commencing on, and including, , 2021 (each, a Dividend Payment Date), at such annual rate, and dividends shall accumulate from the most recent date as to which dividends shall have been paid or, if no dividends have been paid, from the Initial Issue Date of the Mandatory Convertible Preferred Stock, whether or not in any dividend period or periods there have been funds legally available or shares of common stock legally permitted for the payment of such dividends.
If declared, dividends will be payable on the relevant Dividend Payment Date to holders of record of the Mandatory Convertible Preferred Stock as they appear on our stock register at the Close of Business on
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the , , and , as the case may be, immediately preceding the relevant Dividend Payment Date (each, a Regular Record Date), whether or not such holders early convert their shares, or such shares are automatically converted, after a Regular Record Date and on or prior to the immediately succeeding Dividend Payment Date. These Regular Record Dates will apply regardless of whether a particular Regular Record Date is a Business Day. If a Dividend Payment Date is not a Business Day, payment will be made on the next succeeding Business Day, without any interest or other payment in lieu of interest accruing with respect to this delay.
A full dividend period is the period from, and including, a Dividend Payment Date to, but excluding, the next Dividend Payment Date, except that the initial dividend period will commence on, and include, the Initial Issue Date of the Mandatory Convertible Preferred Stock and will end on, and exclude, the , 2021 Dividend Payment Date. The amount of dividends payable on each share of the Mandatory Convertible Preferred Stock for each full dividend period (subsequent to the initial dividend period) will be computed by dividing the annual dividend rate by four. Dividends payable on the Mandatory Convertible Preferred Stock for the initial dividend period and any other partial dividend period will be computed based upon the actual number of days elapsed during the period over a 360-day year (consisting of twelve 30-day months). Accordingly, the dividend on the Mandatory Convertible Preferred Stock for the initial dividend period, assuming the Initial Issue Date is , 2021 will be $ per share of Mandatory Convertible Preferred Stock (based on the annual dividend rate of % and a Liquidation Preference of $50.00 per share) and will be payable, when, as and if declared, on , 2021 to the holders of record thereof on , 2021. The dividend on the Mandatory Convertible Preferred Stock for each subsequent full dividend period, when, as and if declared, will be $ per share of Mandatory Convertible Preferred Stock (based on the annual dividend rate of % and a Liquidation Preference of $50.00 per share). Accumulated dividends on shares of the Mandatory Convertible Preferred Stock will not bear interest, nor shall additional dividends by payable thereon, if they are paid subsequent to the applicable Dividend Payment Date.
No dividend will be paid unless and until our board of directors, or an authorized committee of our board of directors, declares a dividend payable with respect to the Mandatory Convertible Preferred Stock. No dividend will be declared or paid upon, or any sum of cash or number of shares of our common stock set apart for the payment of dividends upon, any outstanding shares of Mandatory Convertible Preferred Stock with respect to any dividend period unless all dividends for all preceding dividend periods have been declared and paid upon, or a sufficient sum of cash or number of shares of our common stock has been set apart for the payment of such dividends upon, all outstanding shares of Mandatory Convertible Preferred Stock. Except as described above, (i) dividends on shares of Mandatory Convertible Preferred Stock converted to common stock will cease to accumulate, and all other rights of holders of the Mandatory Convertible Preferred Stock will terminate, from and after the Mandatory Conversion Date, the Fundamental Change Conversion Date or the Early Conversion Date (each, as defined below), as applicable, and (ii) the holder of such Mandatory Convertible Preferred Stock will be deemed to be the holder of the shares of common stock deliverable in respect of such conversion on such date.
Our ability to declare and pay cash dividends and to make other distributions with respect to our capital stock, including the Mandatory Convertible Preferred Stock, may be limited by the terms of our and our subsidiaries future indebtedness. Any credit facilities, indentures or other financing agreements we enter into in the future may contain covenants that restrict out ability to pay cash dividends on our capital stock, including the Mandatory Convertible Preferred Stock. In addition, our ability to declare and pay dividends and make other distributions on, or redeem or repurchase, the Mandatory Convertible Preferred Stock may be limited by applicable Delaware law. See Risk FactorsRisks Relating to the Mandatory Convertible Preferred StockWe may be unable to, or may not choose to, pay dividends on the Mandatory Convertible Preferred Stock.
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Method of Payment of Dividends
Subject to the limitations described below, we may pay any declared dividend (or any portion of any declared dividend) on the shares of Mandatory Convertible Preferred Stock (whether or not for a current dividend period or any prior dividend period) determined in our sole discretion:
| in cash; |
| by delivery of shares of our common stock; or |
| through any combination of cash and shares of our common stock. |
We will make each payment of a declared dividend on the shares of Mandatory Convertible Preferred Stock in cash, except to the extent we elect to make all or any portion of such payment in shares of our common stock. We will give the holders of the Mandatory Convertible Preferred Stock notice of any such election, and the portion of such payment that will be made in cash and the portion that will be made in shares of our common stock no later than 10 Scheduled Trading Days (as defined under Mandatory ConversionDefinitions) prior to the Dividend Payment Date for such dividend; provided that if we do not provide timely notice of this election, we will be deemed to have elected to pay the relevant dividend in cash.
All cash payments to which a holder of the Mandatory Convertible Preferred Stock is entitled in connection with a declared dividend on the shares of Mandatory Convertible Preferred Stock will be computed to the nearest cent. If we elect to make any such payment of a declared dividend, or any portion thereof, in shares of our common stock, such shares shall be valued for such purpose, in the case of any dividend payment or portion thereof, at 97% of the Average VWAP (as defined under Mandatory ConversionDefinitions) per share of our common stock over the five consecutive Trading Day (as defined under Mandatory ConversionDefinitions) period beginning on, and including, the sixth Scheduled Trading Day prior to the applicable Dividend Payment Date (such average, the Average Price). If the five Trading Day period to determine the Average Price ends on or after the relevant Dividend Payment Date (whether because a Scheduled Trading Day is not a Trading Day due to the occurrence of a Market Disruption Event (as defined under Mandatory ConversionDefinitions) or otherwise), then the Dividend Payment Date will be postponed until the second Business Day after the final Trading Day of such five Trading Day period; provided that no interest or other amounts will accrue or accumulate as a result of such postponement.
No fractional shares of our common stock will be delivered to the holders of the Mandatory Convertible Preferred Stock in payment or partial payment of dividends. We will instead pay a cash adjustment (computed to the nearest cent) to each holder that would otherwise be entitled to a fraction of a share of our common stock based on the Average Price with respect to such dividend.
To the extent a shelf registration statement is required in our reasonable judgment in connection with the issuance of or for resales of shares of our common stock issued as payment of a dividend on the shares of Mandatory Convertible Preferred Stock, including dividends paid in connection with a conversion, we will, to the extent a registration statement covering such shares is not currently filed and effective, use our commercially reasonable efforts to file and maintain the effectiveness of such a shelf registration statement until the earlier of such time as all such shares of common stock have been resold thereunder and such time as all such shares are freely tradable without registration by holders thereof that are not (and were not at any time during the preceding three months), affiliates of ours for purposes of the Securities Act and the rules and regulations thereunder. To the extent applicable, we will also use our commercially reasonable efforts to have the shares of our common stock approved for listing on the NYSE (or if our common stock is not listed on the NYSE, on the principal other U.S. national or regional securities exchange on which our common stock is then listed), and qualified or registered under applicable state securities laws, if required; provided that we will not be required to qualify as a foreign corporation or to take any action that would subject us to general service of process in any such jurisdiction where we are not presently qualified or where we are not presently subject to taxation as a foreign corporation and such qualification or action would subject us to such taxation.
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Notwithstanding the foregoing, in no event will the number of shares of our common stock to be delivered in connection with any declared dividend, including any declared dividend payable in connection with a conversion, exceed a number equal to:
| the declared dividend divided by |
| $ , which amount represents approximately 35% of the Initial Price (as defined under Mandatory ConversionDefinitions), subject to adjustment in a manner inversely proportional to any anti-dilution adjustment to each Fixed Conversion Rate as set forth below in Anti-dilution Adjustments (such dollar amount, as adjusted, the Floor Price). |
To the extent that the amount of any declared dividend exceeds the product of (x) the number of shares of our common stock delivered in connection with such declared dividend and (y) 97% of the Average Price, we will, if we are legally able to do so, and to the extent permitted under the terms of the documents governing our indebtedness, notwithstanding any notice by us to the contrary, pay such excess amount in cash (computed to the nearest cent). Any such payment in cash may not be permitted by our then existing debt instruments. To the extent that we are not able to pay such excess amount in cash under applicable law and in compliance with our indebtedness, we will not have any obligation to pay such amount in cash or deliver additional shares of our common stock in respect of such amount.
Dividend Stopper
So long as any share of Mandatory Convertible Preferred Stock remains outstanding, no dividend or distribution shall be declared or paid on our common stock or any other class or series of Junior Stock, and no common stock or any other class or series of Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by us or any of our subsidiaries unless, in each case, all accumulated and unpaid dividends for all preceding dividend periods have been declared and paid in full in cash, shares of our common stock or a combination thereof upon, or a sufficient sum of cash or number of shares of our common stock has been set apart for the payment of such dividends upon, all outstanding shares of Mandatory Convertible Preferred Stock.
The foregoing limitation shall not apply to:
| any dividend or distribution payable in shares of common stock or other Junior Stock; |
| purchases, redemptions or other acquisitions of common stock, other Junior Stock or Parity Stock in connection with the administration of any benefit or other incentive plan, including any employment contract, in the ordinary course of business (including purchases to offset the Share Dilution Amount pursuant to a publicly announced repurchase plan, or acquisitions of shares of common stock surrendered, deemed surrendered or withheld in connection with the exercise of stock options or the vesting of restricted stock or restricted stock units); provided that the number of shares purchased to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount; |
| purchases of common stock pursuant to a contractually binding agreement to buy such securities that existed prior to the date of this prospectus; |
| any dividends or distributions of rights or common stock or other Junior Stock in connection with a stockholders rights plan or any redemption or repurchase of rights pursuant to any stockholders rights plan; |
| the exchange or conversion of Junior Stock for or into other Junior Stock or of Parity Stock for or into other Parity Stock (with the same or lesser aggregate liquidation preference) or Junior Stock and, in each case, the payment of cash solely in lieu of fractional shares; and |
| the deemed purchase or acquisition of fractional interests in shares of our common stock, other Junior Stock or Parity Stock pursuant to the conversion or exchange provisions of such shares or the security being converted or exchanged. |
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The phrase Share Dilution Amount means the increase in the number of diluted shares of our common stock outstanding (determined in accordance with U.S. GAAP, and as measured from the Initial Issue Date) resulting from the grant, vesting or exercise of equity-based compensation to directors, employees and agents and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.
When dividends on shares of the Mandatory Convertible Preferred Stock (i) have not been declared and paid in full on any Dividend Payment Date, or (ii) have been declared but a sum of cash or number of shares of our common stock sufficient for payment thereof has not been set aside for the benefit of the holders thereof on the applicable Regular Record Date, no dividends may be declared or paid on any shares of Parity Stock unless dividends are declared on the shares of Mandatory Convertible Preferred Stock such that the respective amounts of such dividends declared on the shares of Mandatory Convertible Preferred Stock and such shares of Parity Stock shall be allocated pro rata among the holders of the shares of Mandatory Convertible Preferred Stock and the holders of any shares of Parity Stock then outstanding. For purposes of calculating the pro rata allocation of partial dividend payments, the Company shall allocate those payments so that the respective amounts of those payments for the declared dividend bear the same ratio to each other as all accumulated dividends and all declared and unpaid dividends per share on the shares of Mandatory Convertible Preferred Stock and such shares of Parity Stock bear to each other (subject to their having been declared by our board of directors, or an authorized committee thereof, out of legally available funds); provided that any unpaid dividends on the Mandatory Convertible Preferred Stock will continue to accumulate, except as described herein. For purposes of this calculation, with respect to non-cumulative Parity Stock, we will use the full amount of dividends that would be payable for the most recent dividend period if dividends were declared in full on such non-cumulative Parity Stock.
Subject to the foregoing, and not otherwise, such dividends as may be determined by our board of directors, or an authorized committee thereof, may be declared and paid (payable in cash or other property or securities) on any securities, including our common stock and other Junior Stock, from time to time out of any funds legally available for such payment, and holders of the Mandatory Convertible Preferred Stock shall not be entitled to participate in any such dividends.
Redemption
The Mandatory Convertible Preferred Stock will not be redeemable. However, at our option, we may purchase or exchange the Mandatory Convertible Preferred Stock from time to time in the open market, by tender or exchange offer or otherwise, without the consent of, or notice to, holders.
Liquidation Preference
In the event of our voluntary or involuntary liquidation, winding-up or dissolution, each holder of the Mandatory Convertible Preferred Stock will be entitled to receive a Liquidation Preference in the amount of $50.00 per share of the Mandatory Convertible Preferred Stock, or the Liquidation Preference, plus an amount (the Liquidation Dividend Amount) equal to accumulated and unpaid dividends on the shares, whether or not declared, to, but excluding, the date fixed for liquidation, winding-up or dissolution to be paid out of our assets legally available for distribution to our stockholders, after satisfaction of debt and other liabilities owed to our creditors and holders of shares of any Senior Stock and before any payment or distribution is made to holders of Junior Stock (including our common stock). If, upon our voluntary or involuntary liquidation, winding-up or dissolution, the amounts payable with respect to (1) the Liquidation Preference plus the Liquidation Dividend Amount on the shares of Mandatory Convertible Preferred Stock and (2) the liquidation preference of, and the amount of accumulated and unpaid dividends (to, but excluding, the date fixed for liquidation, winding-up or dissolution) on, all Parity Stock are not paid in full, the holders of the Mandatory Convertible Preferred Stock and all holders of any such Parity Stock will share equally and ratably in any distribution of our assets in proportion to their respective liquidation preferences and amounts equal to accumulated and unpaid dividends to which they are entitled. After payment to any holder of Mandatory
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Convertible Preferred Stock of the full amount of the Liquidation Preference and the Liquidation Dividend Amount for such holders shares of Mandatory Convertible Preferred Stock, such holder of the Mandatory Convertible Preferred Stock will have no right or claim to any of our remaining assets.
Neither the sale, lease nor exchange of all or substantially all of our assets or business (other than in connection with our liquidation, winding-up or dissolution), nor our merger or consolidation into or with any other person, will be deemed to be our voluntary or involuntary liquidation, winding-up or dissolution.
The Certificate of Designations will not contain any provision requiring funds to be set aside to protect the Liquidation Preference of the Mandatory Convertible Preferred Stock even though it is substantially in excess of the par value thereof.
Voting Rights
The holders of the Mandatory Convertible Preferred Stock will not have voting rights other than those described below, except as specifically required by Delaware corporate law or by our Charter from time to time.
Whenever dividends on any shares of the Mandatory Convertible Preferred Stock have not been declared and paid for the equivalent of six or more dividend periods, whether or not for consecutive dividend periods (a Nonpayment), the authorized number of directors on our board of directors will, at the next annual meeting of stockholders or at a special meeting of stockholders, if any, as provided below, automatically be increased by two and the holders of such shares of the Mandatory Convertible Preferred Stock, voting together as a single class with holders of any and all other series of Voting Preferred Stock (as defined below) then outstanding, will be entitled, at our next annual meeting of stockholders or at a special meeting of stockholders as provided below, to vote for the election of a total of two additional members of our board of directors, or the Preferred Stock Directors; provided that the election of any such Preferred Stock Directors will not cause us to violate the corporate governance requirements of the NYSE (or any other exchange or automated quotation system on which our securities may be listed or quoted) that requires listed or quoted companies to have a majority of independent directors; and provided further that our board of directors shall, at no time, include more than two Preferred Stock Directors.
In the event of a Nonpayment, the holders of record of at least 25% of the shares of the Mandatory Convertible Preferred Stock and any other series of Voting Preferred Stock may request that a special meeting of stockholders be called to elect such Preferred Stock Directors (provided, however, that if our next annual or a special meeting of stockholders is scheduled to be held within 90 days of the receipt of such request, the election of such Preferred Stock Directors will be included in the agenda for, and will be held at, such scheduled annual or special meeting of stockholders). The Preferred Stock Directors will stand for reelection annually, at each subsequent annual meeting of the stockholders, so long as the holders of the Mandatory Convertible Preferred Stock continue to have such voting rights.
At any meeting at which the holders of the Mandatory Convertible Preferred Stock are entitled to elect Preferred Stock Directors, the holders of record of a majority of the then outstanding shares of the Mandatory Convertible Preferred Stock and all other series of Voting Preferred Stock, present in person or represented by proxy, will constitute a quorum and the vote of the holders of a majority of such shares of the Mandatory Convertible Preferred Stock and other Voting Preferred Stock so present or represented by proxy at any such meeting at which there shall be a quorum shall be sufficient to elect the Preferred Stock Directors.
As used in this prospectus, Voting Preferred Stock means any class or series of our preferred stock other than the Mandatory Convertible Preferred Stock ranking equally with the Mandatory Convertible Preferred Stock as to dividends and to the distribution of assets upon liquidation, dissolution or winding up and upon which like voting rights for the election of directors have been conferred and are exercisable.
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Whether a plurality, majority or other portion in voting power of the Mandatory Convertible Preferred Stock and any other Voting Preferred Stock have been voted in favor of any matter shall be determined by reference to the respective liquidation preference amounts of the Mandatory Convertible Preferred Stock and such other Voting Preferred Stock voted.
If and when all accumulated and unpaid dividends on the Mandatory Convertible Preferred Stock have been paid in full, or declared and a sum or number of shares of our common stock sufficient for such payment shall have been set aside for the benefit of the holders thereof on the applicable Regular Record Date (a Nonpayment Remedy), the holders of the Mandatory Convertible Preferred Stock shall immediately and, without any further action by us, be divested of the foregoing voting rights, subject to the revesting of such rights in the event of each subsequent Nonpayment. If such voting rights for the holders of the Mandatory Convertible Preferred Stock and all other holders of Voting Preferred Stock have terminated, each Preferred Stock Director then in office shall automatically be disqualified as a director and shall no longer be a director and the term of office of each Preferred Stock Director so elected will terminate at such time and the authorized number of directors on our board of directors shall automatically decrease by two.
Any Preferred Stock Director may be removed at any time, with or without cause, by the holders of record of a majority in voting power of the outstanding shares of the Mandatory Convertible Preferred Stock and any other series of Voting Preferred Stock then outstanding (voting together as a single class) when they have the voting rights described above. In the event that a Nonpayment shall have occurred and there shall not have been a Nonpayment Remedy, any vacancy in the office of a Preferred Stock Director (other than prior to the initial election of Preferred Stock Directors after a Nonpayment) may be filled by the written consent of the Preferred Stock Director remaining in office, except in the event that such vacancy is created as a result of such Preferred Stock Director being removed or if no Preferred Stock Director remains in office, such vacancy may be filled by a vote of the holders of record of a majority in voting power of the outstanding shares of the Mandatory Convertible Preferred Stock and any other series of Voting Preferred Stock then outstanding (voting together as a single class) when they have the voting rights described above; provided that the election of any such Preferred Stock Directors to fill such vacancy will not cause us to violate the corporate governance requirements of the NYSE (or any other exchange or automated quotation system on which our securities may be listed or quoted) that requires listed or quoted companies to have a majority of independent directors. The Preferred Stock Directors will each be entitled to one vote per director on any matter that comes before our board of directors for a vote.
So long as any shares of the Mandatory Convertible Preferred Stock remain outstanding, we will not, without the affirmative vote or consent of the holders of record of at least two-thirds in voting power of the outstanding shares of the Mandatory Convertible Preferred Stock and all other series of Voting Preferred Stock at the time outstanding and entitled to vote thereon, voting together as a single class, given in person or by proxy, either in writing without a meeting or by vote at an annual or special meeting of such stockholders:
| amend or alter the provisions of our Charter so as to authorize or create, or increase the authorized amount of, any class or series of Senior Stock; |
| amend, alter or repeal the provisions of our Charter or the Certificate of Designations so as to adversely affect the special rights, preferences, privileges or voting powers of the Mandatory Convertible Preferred Stock; or |
| consummate a binding share exchange or reclassification involving the Mandatory Convertible Preferred Stock or a merger or consolidation of us with another entity, unless in each case: (i) the shares of the Mandatory Convertible Preferred Stock remain outstanding and are not amended in any respect or, in the case of any such merger or consolidation with respect to which we are not the surviving or resulting entity (or the Mandatory Convertible Preferred Stock is otherwise exchanged or reclassified), are converted or reclassified into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent or the right to receive such securities; and (ii) the shares of the |
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Mandatory Convertible Preferred Stock remaining outstanding or such shares of preference securities, as the case may be, have such rights, preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the Mandatory Convertible Preferred Stock immediately prior to the consummation of such transaction, taken as a whole; |
provided, however, that in the event that a transaction would trigger voting rights under both the second and third bullet point above, the third bullet point will govern; provided, further, however, that:
| any increase in the amount of our authorized but unissued shares of preferred stock; |
| any increase in the authorized or issued shares of Mandatory Convertible Preferred Stock; and |
| the creation and issuance, or an increase in the authorized or issued amount, of any other series of Parity Stock or Junior Stock, |
will be deemed not to adversely affect the special rights, preferences, privileges or voting powers of the Mandatory Convertible Preferred Stock and shall not require the affirmative vote or consent of holders of the Mandatory Convertible Preferred Stock.
Our Charter and Delaware law permit us, without the approval of any of our stockholders (including any holders of the Mandatory Convertible Preferred Stock), to establish and issue a new series of preferred stock ranking equal with or junior to the Mandatory Convertible Preferred Stock, which may dilute the voting and other interests of holders of the Mandatory Convertible Preferred Stock. See Description of Capital StockPreferred Stock in the prospectus relating to the Concurrent Offering.
If any amendment, alteration, repeal, share exchange, reclassification, merger or consolidation described above would affect the rights, preferences or voting rights of one or more but not all series of Voting Preferred Stock (including the Mandatory Convertible Preferred Stock for this purpose), then only the series of Voting Preferred Stock, the rights, preferences or voting rights of which are adversely affected and entitled to vote, shall vote as a class in lieu of all other series of Voting Preferred Stock.
Notwithstanding anything to the contrary in the third immediately preceding paragraph, without the consent of the holders of the Mandatory Convertible Preferred Stock, we may amend, alter, supplement or repeal any terms of the Certificate of Designations and/or the Mandatory Convertible Preferred Stock to (i) conform the terms of the Certificate of Designations and/or the Mandatory Convertible Preferred Stock to the description thereof set forth under Description of Mandatory Convertible Preferred Stock in this prospectus, as supplemented and/or amended by the related pricing term sheet or (ii) file a certificate of correction with respect to the Certificate of Designations to the extent permitted by Section 103(f) of the Delaware General Corporation Law.
Mandatory Conversion
Each outstanding share of the Mandatory Convertible Preferred Stock, unless previously converted, will automatically convert on the Mandatory Conversion Date (as defined below), into a number of shares of our common stock equal to the conversion rate described below.
The conversion rate, which is the number of shares of our common stock issuable upon conversion of each share of the Mandatory Convertible Preferred Stock on the Mandatory Conversion Date (excluding any shares of our common stock issued in respect of accumulated but unpaid dividends, as described below), will be as follows:
| if the Applicable Market Value of our common stock is greater than the Threshold Appreciation Price, which is approximately $ , then the conversion rate will be shares of our common stock per share of Mandatory Convertible Preferred Stock, or the Minimum Conversion Rate, which is approximately equal to $50.00 divided by the Threshold Appreciation Price; |
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| if the Applicable Market Value of our common stock is less than or equal to the Threshold Appreciation Price but equal to or greater than the Initial Price, which is approximately $ , then the conversion rate will be equal to $50.00 divided by the Applicable Market Value of our common stock, rounded to the nearest ten-thousandth of a share; or |
| if the Applicable Market Value of our common stock is less than the Initial Price, then the conversion rate will be shares of our common stock per share of the Mandatory Convertible Preferred Stock, or the Maximum Conversion Rate. |
We refer to the Minimum Conversion Rate and the Maximum Conversion Rate collectively as the Fixed Conversion Rates. The Threshold Appreciation Price is calculated by dividing $50.00 by the Minimum Conversion Rate, and represents an approximately % appreciation over the Initial Price. The Initial Price is calculated by dividing $50.00 by the Maximum Conversion Rate and initially equals approximately $ , which is the anticipated initial public offering price per share of our common stock in the Concurrent Offering. The Fixed Conversion Rates are subject to adjustment as described in Anti-dilution Adjustments below.
If we declare a dividend on the Mandatory Convertible Preferred Stock for the dividend period ending on, but excluding, , 2024, we will pay such dividend to the holders of record as of the immediately preceding Regular Record Date, as described above under Dividends. If on or prior to , 2024 we have not declared all or any portion of the accumulated and unpaid dividends on the Mandatory Convertible Preferred Stock, the conversion rate will be adjusted so that holders receive an additional number of shares of our common stock equal to:
| the amount of such accumulated and unpaid dividends per share of Mandatory Convertible Preferred Stock that have not been declared, or the Mandatory Conversion Additional Conversion Amount, divided by |
| the greater of (i) the Floor Price and (ii) 97% of the Average Price (calculated using , 2024 as the applicable Dividend Payment Date). |
To the extent that the Mandatory Conversion Additional Conversion Amount exceeds the product of the number of additional shares and 97% of the Average Price, we will, if we are legally able to do, and to the extent permitted under the terms of the documents governing our indebtedness, declare and pay such excess amount in cash (computed to the nearest cent) pro rata to the holders of the Mandatory Convertible Preferred Stock. Any such payment in cash may not be permitted by our then existing debt instruments. To the extent that we are not able to pay such excess amount in cash under applicable law and in compliance with our indebtedness, we will not have any obligation to pay such amount in cash or deliver additional shares of our common stock in respect of such amount.
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Hypothetical Conversion Values Upon Mandatory Conversion
For illustrative purposes only, the following table shows the number of shares of our common stock that a holder of the Mandatory Convertible Preferred Stock would receive upon mandatory conversion of one share of Mandatory Convertible Preferred Stock at various Applicable Market Values for our common stock. The table assumes that there will be no conversion rate adjustments as described below in Anti-dilution Adjustments and that dividends on the Mandatory Convertible Preferred Stock will be declared and paid in cash (and not in additional shares of our common stock). The actual Applicable Market Value of our common stock may differ from those set forth in the table below. Given an Initial Price of approximately $ and a Threshold Appreciation Price of approximately $ , a holder of Mandatory Convertible Preferred Stock would receive on the Mandatory Conversion Date the number of shares of our common stock per share of Mandatory Convertible Preferred Stock set forth below, subject to the provisions described below with respect to any fractional share of our common stock:
Assumed Applicable |
Number of shares of our common stock to be received upon mandatory conversion |
Assumed conversion value (calculated as Applicable Market Value multiplied by the number of shares of our common stock to be received upon mandatory conversion) |
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$ |
$ | |||||||
$ |
$ | |||||||
$ |
$ | |||||||
$ |
$ | |||||||
$ |
$ | |||||||
$ |
$ | |||||||
$ |
$ |
Accordingly, assuming that the market price of our common stock on the Mandatory Conversion Date is the same as the Applicable Market Value of our common stock, the aggregate market value of our common stock you receive upon mandatory conversion of a share of Mandatory Convertible Preferred Stock (excluding any shares of our common stock you receive in respect of accumulated but unpaid dividends) will be:
| greater than the $50.00 liquidation preference of the share of Mandatory Convertible Preferred Stock, if the Applicable Market Value is greater than the Threshold Appreciation Price; |
| equal to the $50.00 liquidation preference of the share of Mandatory Convertible Preferred Stock, if the Applicable Market Value is less than or equal to the Threshold Appreciation Price and greater than or equal to the Initial Price; and |
| less than the $50.00 liquidation preference of the share of Mandatory Convertible Preferred Stock, if the Applicable Market Value is less than the Initial Price. |
Definitions
Applicable Market Value means the Average VWAP per share of our common stock over the Settlement Period.
Mandatory Conversion Date means the second Business Day immediately following the last Trading Day of the Settlement Period. The Mandatory Conversion Date is expected to be , 2024. If the Mandatory Conversion Date occurs after , 2024 (whether because a Scheduled Trading Day during the Settlement Period is not a Trading Day due to the occurrence of a Market Disruption Event or otherwise), no interest or other amounts will accrue or accumulate as a result of such postponement.
Market Disruption Event means:
| a failure by the Relevant Stock Exchange to open for trading during its regular trading session; or |
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| the occurrence or existence, prior to 1:00 p.m., New York City time, on any Scheduled Trading Day for our common stock, for more than a one half-hour period in the aggregate during regular trading hours of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the Relevant Stock Exchange or otherwise) in our common stock. |
Relevant Stock Exchange means the NYSE or, if our common stock is not then listed on the NYSE, the principal other U.S. national or regional securities exchange on which our common stock is then listed or, if our common stock is not then listed on a U.S. national or regional securities exchange, the principal other market on which our common stock is then listed or admitted for trading.
Scheduled Trading Day means any day that is scheduled to be a Trading Day.
Settlement Period means the 20 consecutive Trading Day period commencing on, and including, the 21st Scheduled Trading Day immediately preceding , 2024.
Trading Day means a day on which:
| there is no Market Disruption Event; and |
| trading in our common stock generally occurs on the Relevant Stock Exchange; |
provided, that if our common stock is not listed or admitted for trading, Trading Day means a Business Day.
VWAP per share of our common stock on any Trading Day means the per share volume-weighted average price as displayed on Bloomberg page BTRY<EQUITY> AQR (or its equivalent successor if such page is not available) in respect of the period from the scheduled open of trading until the scheduled close of trading of the primary trading session on such Trading Day (or if such volume-weighted average price is not available, the market value per share of our common stock on such Trading Day as determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained by us for this purpose, which may include any of the underwriters of this offering). The Average VWAP per share over a certain period means the arithmetic average of the VWAP per share for each Trading Day in the relevant period.
Early Conversion at the Option of the Holder
Other than during a Fundamental Change Conversion Period (as defined below under Conversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount), holders of shares of the Mandatory Convertible Preferred Stock will have the option to convert their Mandatory Convertible Preferred Stock, in whole or in part (but in no event less than one share of the Mandatory Convertible Preferred Stock), at any time prior to , 2024 (an Early Conversion), into shares of our common stock at the Minimum Conversion Rate of shares of our common stock per share of the Mandatory Convertible Preferred Stock, subject to adjustment as described under Anti-Dilution Adjustments below.
If, as of the conversion date (as defined below under Conversion ProceduresUpon Early Conversion or Upon a Conversion in Connection with a Fundamental Change) of any Early Conversion (the Early Conversion Date), we have not declared all or any portion of the accumulated and unpaid dividends for all full dividend periods ending on or before a Dividend Payment Date prior to such Early Conversion Date, the conversion rate for such Early Conversion will be adjusted so that holders converting their Mandatory Convertible Preferred Stock at such time receive an additional number of shares of our common stock equal to:
| such amount of accumulated and unpaid dividends per share of Mandatory Convertible Preferred Stock that have not been declared for such prior full dividend periods (the Early Conversion Additional Conversion Amount), divided by |
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| the greater of (i) the Floor Price and (ii) the Average VWAP per share of our common stock over the 20 consecutive Trading Day period (the Early Conversion Settlement Period) commencing on, and including, the 21st Scheduled Trading Day immediately preceding the Early Conversion Date (such Average VWAP, the Early Conversion Average Price). |
To the extent that the Early Conversion Additional Conversion Amount exceeds the product of such number of additional shares and the Early Conversion Average Price, we will not have any obligation to pay the shortfall in cash or deliver shares of our common stock in respect of such shortfall.
Except as described above, upon any Early Conversion of any Mandatory Convertible Preferred Stock, we will make no payment or allowance for unpaid dividends on such shares of the Mandatory Convertible Preferred Stock, unless such Early Conversion Date occurs after the Regular Record Date for a declared dividend and on or prior to the immediately succeeding Dividend Payment Date, in which case such dividend will be paid on such Dividend Payment Date to the holder of record of the converted shares of the Mandatory Convertible Preferred Stock as of such Regular Record Date, as described under Dividends.
Conversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount
General
If a Fundamental Change (as defined below) occurs on or prior to , 2024, holders of the Mandatory Convertible Preferred Stock will have the right (the Fundamental Change Conversion Right) during the Fundamental Change Conversion Period (as defined below) to:
(i) | convert their shares of Mandatory Convertible Preferred Stock, in whole or in part (but in no event less than one share of the Mandatory Convertible Preferred Stock), into a number of shares of our common stock (or Units of Exchange Property as described below) at the conversion rate specified in the table below (the Fundamental Change Conversion Rate); |
(ii) | with respect to such converted shares, receive a Fundamental Change Dividend Make-whole Amount (as defined below) payable in cash or shares of our common stock; and |
(iii) | with respect to such converted shares, receive the Accumulated Dividend Amount (as defined below) payable in cash or shares of our common stock, |
subject in the case of clauses (ii) and (iii) to certain limitations with respect to the number of shares of our common stock that we will be required to deliver, all as described below. Notwithstanding clauses (ii) and (iii) above, if the Fundamental Change Effective Date (as defined below) or the Fundamental Change Conversion Date (as defined below) falls after the Regular Record Date for a declared dividend and prior to the next Dividend Payment Date, such dividend will be paid on such Dividend Payment Date to the holders of record as of such Regular Record Date, as described under Dividends and will not be included in the Accumulated Dividend Amount, and the Fundamental Change Dividend Make-whole Amount will not include the present value of the payment of such dividend.
To exercise this Fundamental Change Conversion Right, holders must submit their shares of Mandatory Convertible Preferred Stock for conversion at any time during the period, which we call the Fundamental Change Conversion Period, beginning on, and including, the Fundamental Change Effective Date and ending at the Close of Business on the date that is 20 calendar days after the Fundamental Change Effective Date (or, if later, the date that is 20 calendar days after the date of notice of such Fundamental Change), but in no event later than , 2024. Holders of the Mandatory Convertible Preferred Stock that submit their shares for conversion during the Fundamental Change Conversion Period shall be deemed to have exercised their Fundamental Change Conversion Right. Holders of the Mandatory Convertible Preferred Stock who do not submit their shares for conversion during the Fundamental Change Conversion Period will not be entitled to
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convert their Mandatory Convertible Preferred Stock at the relevant Fundamental Change Conversion Rate or to receive the relevant Fundamental Change Dividend Make-whole Amount or the relevant Accumulated Dividend Amount. The Fundamental Change Conversion Date refers to the conversion date (as defined below under Conversion ProceduresUpon Early Conversion or Upon a Conversion in Connection with a Fundamental Change) during the Fundamental Change Conversion Period.
We will notify holders of the Fundamental Change Effective Date as soon as reasonably practicable and in any event no later than the second Business Day immediately following the Fundamental Change Effective Date.
A Fundamental Change will be deemed to have occurred, at any time after the Initial Issue Date of the Mandatory Convertible Preferred Stock, if any of the following occurs:
(i) | any person or group (as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable), other than us, any of our wholly-owned subsidiaries, a Permitted Holder or any of our or our wholly-owned subsidiaries employee benefit plans, files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of our then outstanding common stock; |
(ii) | the consummation of (A) any recapitalization, reclassification or change of our common stock (other than changes resulting from a subdivision or combination or change in par value) as a result of which our common stock would be converted into, or exchanged for, stock, other securities, other property or assets (including cash or a combination thereof); (B) any consolidation, merger or other combination of us or binding share exchange pursuant to which our common stock will be converted into, or exchanged for, stock, other securities or other property or assets (including cash or a combination thereof); or (C) any sale, lease or other transfer or disposition in one transaction or a series of transactions of all or substantially all of the consolidated assets of ours and our subsidiaries taken as a whole, to any person other than one or more of our wholly-owned subsidiaries; or |
(iii) | our common stock (or other Exchange Property (as defined below)) ceases to be listed or quoted for trading on any of the NYSE, the NASDAQ Global Select Market or the NASDAQ Global Market (or another United States national securities exchange or any of their respective successors). |
Permitted Holder means (a) Brookfield Business Partners, L.P. and its affiliates (including the funds, partnerships or other co-investment vehicles managed, advised or controlled by Brookfield Business Partners, L.P. or its affiliates), (b) Caisse de dépôt et placement du Québec and its affiliates (including the funds, partnerships or other co-investment vehicles managed, advised or controlled by Caisse de dépôt et placement du Québec or its affiliates) (the entities described in clauses (a) and (b), collectively, the Investors) and (c) any person or entity with whom one or more of the Investors form(s) a group (as such term is used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable); provided that no such entity or person shall constitute a Permitted Holder if all such entities and persons, collectively, have, directly or indirectly, beneficial ownership of more than % of the total voting power of our then outstanding common stock.
However, a transaction or transactions described in clause (i) or clause (ii) above will not constitute a Fundamental Change if at least 90% of the consideration received or to be received by our common stockholders, excluding cash payments for fractional shares or pursuant to statutory appraisal rights, in connection with such transaction or transactions consists of shares of common stock that are listed or quoted on any of the NYSE, the NASDAQ Global Select Market or the NASDAQ Global Market (or any of their respective successors) or will be so listed or quoted when issued or exchanged in connection with such transaction or transactions and as a result of such transaction or transactions such consideration (excluding cash payments for fractional shares or pursuant to statutory appraisal rights) becomes the Exchange Property.
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Fundamental Change Conversion Rate
The Fundamental Change Conversion Rate will be determined by reference to the table below and is based on the effective date of the Fundamental Change (the Fundamental Change Effective Date), and the price (the Fundamental Change Share Price) paid (or deemed paid) per share of our common stock in such Fundamental Change. If all holders of our common stock receive only cash in exchange for their common stock in the Fundamental Change, the Fundamental Change Share Price shall be the cash amount paid per share. Otherwise, the Fundamental Change Share Price shall be the Average VWAP per share of our common stock over the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the applicable Fundamental Change Effective Date.
The Fundamental Change Share Prices set forth in the first row of the table below (i.e., the column headers) will be adjusted as of any date on which the Fixed Conversion Rates of the Mandatory Convertible Preferred Stock are adjusted. The adjusted Fundamental Change Share Prices will equal (i) the Fundamental Change Share Prices applicable immediately prior to such adjustment, multiplied by (ii) a fraction, the numerator of which is the Minimum Conversion Rate immediately prior to the adjustment giving rise to the Fundamental Change Share Price adjustment and the denominator of which is the Minimum Conversion Rate as so adjusted. Each of the Fundamental Change Conversion Rates in the table will be subject to adjustment in the same manner and at the same time as each Fixed Conversion Rate as set forth in Anti-dilution Adjustments.
The following table sets forth the Fundamental Change Conversion Rate per share of the Mandatory Convertible Preferred Stock for each Fundamental Change Share Price and Fundamental Change Effective Date set forth below.
Fundamental Change Share Price | ||||||||||||||||||||||||||||||||||||
Fundamental Change Effective Date | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
, 2021 |
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, 2022 |
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, 2023 |
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, 2024 |
The exact Fundamental Change Share Price and Fundamental Change Effective Date may not be set forth in the table, in which case:
| if the Fundamental Change Share Price is between two Fundamental Change Share Prices in the table or the Fundamental Change Effective Date is between two Fundamental Change Effective Dates in the table, the Fundamental Change Conversion Rate will be determined by a straight-line interpolation between the Fundamental Change Conversion Rates set forth for the higher and lower Fundamental Change Share Prices and the earlier and later Fundamental Change Effective Dates, as applicable, based on a 365 or 366-day year, as applicable; |
| if the Fundamental Change Share Price is in excess of $ per share (subject to adjustment in the same manner as the Fundamental Change Share Prices set forth in the first row of the table above), then the Fundamental Change Conversion Rate will be the Minimum Conversion Rate; and |
| if the Fundamental Change Share Price is less than $ per share (subject to adjustment in the same manner as the Fundamental Change Share Prices set forth in the first row of the table above), then the Fundamental Change Conversion Rate will be the Maximum Conversion Rate. |
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Fundamental Change Dividend Make-whole Amount and Accumulated Dividend Amount
For any shares of the Mandatory Convertible Preferred Stock that are converted during the Fundamental Change Conversion Period, in addition to the common stock issued upon conversion at the Fundamental Change Conversion Rate, we will at our option (subject to satisfaction of the requirements described below):
(a) | pay in cash (computed to the nearest cent), to the extent we are legally permitted to do so, an amount (the Fundamental Change Dividend Make-whole Amount) equal to the present value, computed using a discount rate of % per annum, of all dividend payments on the Mandatory Convertible Preferred Stock (excluding any Accumulated Dividend Amount) for (i) the partial dividend period, if any, from, and including, the Fundamental Change Effective Date to, but excluding, the next Dividend Payment Date and (ii) all the remaining full dividend periods from, and including, the Dividend Payment Date following the Fundamental Change Effective Date to, but excluding, , 2024; |
(b) | increase the number of shares of our common stock (or Units of Exchange Property) to be issued on conversion by a number equal to (x) the Fundamental Change Dividend Make-whole Amount divided by (y) the greater of (i) the Floor Price and (ii) 97% of the Fundamental Change Share Price; or |
(c) | pay the Fundamental Change Dividend Make-whole Amount in a combination of cash and shares of our common stock (or Units of Exchange Property as described below) in accordance with the provisions of clauses (a) and (b) above. |
In addition, to the extent that the Accumulated Dividend Amount exists as of the Fundamental Change Effective Date, holders who convert their Mandatory Convertible Preferred Stock within the Fundamental Change Conversion Period will be entitled to receive such Accumulated Dividend Amount upon conversion. As used herein, the term Accumulated Dividend Amount means, in connection with a Fundamental Change, the aggregate amount of undeclared, accumulated and unpaid dividends, if any, for dividend periods prior to the relevant Fundamental Change Effective Date, including for the partial dividend period, if any, from, and including, the Dividend Payment Date immediately preceding such Fundamental Change Effective Date to, but excluding, such Fundamental Change Effective Date. For the avoidance of doubt, if the Regular Record Date for a dividend period for which we have, as of the Fundamental Change Effective Date, declared a dividend occurs before or during the related Fundamental Change Conversion Period, then we will pay such dividend on the relevant Dividend Payment Date to the holders of record at the Close of Business on such Regular Record Date, as described in Dividends, the Accumulated Dividend Amount will not include the amount of such dividend, and the Fundamental Change Dividend Make-Whole Amount will not include the present value of such dividend.
The Accumulated Dividend Amount will be payable at our election (subject to satisfaction of the requirements described below):
| in cash (computed to the nearest cent), to the extent we are legally permitted to do so and to the extent permitted under the terms of the documents governing our indebtedness; |
| in an additional number of shares of our common stock (or Units of Exchange Property as described below) equal to (x) the Accumulated Dividend Amount divided by (y) the greater of (i) the Floor Price and (ii) 97% of the Fundamental Change Share Price; or |
| through any combination of cash and shares of our common stock (or Units of Exchange Property as described below) in accordance with the provisions of the preceding two bullets. |
We will pay the Fundamental Change Dividend Make-whole Amount and the Accumulated Dividend Amount in cash, except to the extent we elect on or prior to the second Business Day following the Fundamental Change Effective Date to make all or any portion of such payments in shares of our common stock (or Units of Exchange Property as described below).
If we elect to deliver common stock (or Units of Exchange Property as described below) in respect of all or any portion of the Fundamental Change Dividend Make-whole Amount or the Accumulated Dividend Amount,
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to the extent that the Fundamental Change Dividend Make-whole Amount or the Accumulated Dividend Amount or the dollar amount of any portion thereof paid in common stock (or Units of Exchange Property as described below) exceeds the product of (x) the number of additional shares we deliver in respect thereof and (y) 97% of the Fundamental Change Share Price, we will, if we are legally able to do so, and to the extent permitted under the terms of the documents governing our indebtedness, pay such excess amount in cash (computed to the nearest cent). Any such payment in cash may not be permitted by our then existing debt instruments, including any restricted payment covenants. To the extent that we are not able to pay such excess amount in cash under applicable law and in compliance with our indebtedness, we will not have any obligation to pay such amount in cash or deliver additional shares of our common stock in respect of such amount.
No fractional shares of our common stock (or to the extent applicable, Units of Exchange Property) will be delivered to converting holders of the Mandatory Convertible Preferred Stock in respect of the Fundamental Change Dividend Make-whole Amount or the Accumulated Dividend Amount. We will instead pay a cash adjustment (computed to the nearest cent) to each converting holder that would otherwise be entitled to a fraction of a share of our common stock (or to the extent applicable, Units of Exchange Property) based on the Average VWAP per share of our common stock (or to the extent applicable, Units of Exchange Property) over the five consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the conversion date.
However, if we are prohibited from paying or delivering, as the case may be, the Fundamental Change Dividend Make-whole Amount (whether in cash or in shares of our common stock), in whole or in part, due to limitations of applicable Delaware law, then the Fundamental Change Conversion Rate will instead be increased by a number of shares of common stock equal to the cash amount of the aggregate unpaid and undelivered Fundamental Change Dividend Make-whole Amount, divided by the greater of (i) the Floor Price and (ii) 97% of the Fundamental Change Share Price. To the extent that the cash amount of the aggregate unpaid and undelivered Fundamental Change Dividend Make-whole Amount exceeds the product of such number of additional shares and 97% of the Fundamental Change Share Price, we will not have any obligation to pay the shortfall in cash or deliver additional shares of our common stock in respect of such amount.
As soon as reasonably practical and in any event not later than the second Business Day following the Fundamental Change Effective Date, we will notify holders of:
| the Fundamental Change Conversion Rate (if we provide notice to holders prior to the anticipated Fundamental Change Effective Date, specifying how the Fundamental Change Conversion Rate will be determined); |
| the Fundamental Change Dividend Make-whole Amount and whether we will pay such amount in cash, shares of our common stock (or to the extent applicable, Units of Exchange Property) or a combination thereof, specifying the combination, if applicable; and |
| the Accumulated Dividend Amount as of the Fundamental Change Effective Date and whether we will pay such amount in cash, shares of our common stock (or to the extent applicable, Units of Exchange Property) or a combination thereof, specifying the combination, if applicable. |
Our obligation to deliver shares at the Fundamental Change Conversion Rate in connection with a Fundamental Change and pay the Fundamental Change Dividend Make-whole Amount could be considered a penalty, in which case the enforceability thereof would be subject to general principles of reasonableness of economic remedies and therefore may not be enforceable in whole or in part.
Conversion Procedures
Upon Mandatory Conversion
Any outstanding shares of Mandatory Convertible Preferred Stock will automatically convert into shares of common stock on the Mandatory Conversion Date.
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Subject to any applicable rules and procedures of DTC, if more than one share of the Mandatory Convertible Preferred Stock held by the same holder is automatically converted on the Mandatory Conversion Date, the number of full shares of our common stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of our Mandatory Convertible Preferred Stock so converted.
You will not be required to pay any transfer or similar taxes or duties relating to the issuance or delivery of our common stock upon conversion, but you will be required to pay any tax or duty that may be payable relating to any transfer involved in the issuance or delivery of the common stock in a name other than your own.
Subject to the provisions below in clause (3) and clause (5) under the heading Anti-dilution Adjustments, so long as the shares of the Mandatory Convertible Preferred Stock being converted are in global form, the shares of common stock issuable upon conversion will be delivered to the converting holder through the facilities of DTC, in each case together with delivery by the Company to the converting holder of any cash to which the converting holder is entitled on the later of (i) the Mandatory Conversion Date and (ii) the Business Day after you have paid in full all applicable taxes and duties, if any.
The person or persons entitled to receive the shares of our common stock issuable upon mandatory conversion of the Mandatory Convertible Preferred Stock will be treated as the record holder(s) of such shares as of the Close of Business on the Mandatory Conversion Date. Except as provided in Anti-dilution Adjustments, prior to the Close of Business on the Mandatory Conversion Date, the common stock issuable upon conversion of the Mandatory Convertible Preferred Stock on the Mandatory Conversion Date will not be deemed to be outstanding for any purpose and you will have no rights, powers or preferences with respect to such common stock, including voting rights, rights to respond to tender offers and rights to receive any dividends or other distributions on the common stock, by virtue of holding the Mandatory Convertible Preferred Stock.
Upon Early Conversion or Upon a Conversion in Connection with a Fundamental Change
If a holder elects to convert the Mandatory Convertible Preferred Stock prior to , 2024, in the manner described in Early Conversion at the Option of the Holder or Conversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount, you must observe the following conversion procedures:
| if such holder holds a beneficial interest in a global share of Mandatory Convertible Preferred Stock, such holder must deliver to DTC the appropriate instruction form for conversion pursuant to DTCs conversion program; and |
| if such holder holds shares of the Mandatory Convertible Preferred Stock in certificated form, such holder must comply with certain procedures set forth in the Certificate of Designations. |
In either case, if required, you must pay all transfer or similar taxes or duties, if any.
The conversion date will be the date on which you have satisfied the foregoing requirements, to the extent applicable.
Subject to any applicable rules and procedures of DTC, if more than one share of the Mandatory Convertible Preferred Stock is surrendered for conversion at one time by or for the same holder, the number of full shares of our common stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Mandatory Convertible Preferred Stock so surrendered.
You will not be required to pay any transfer or similar taxes or duties relating to the issuance or delivery of our common stock if you exercise your conversion rights, but you will be required to pay any tax or duty that may be payable relating to any transfer involved in the issuance or delivery of the common stock in a name other than your own.
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Subject to the provisions below in clause (3) and clause (5) under the heading Anti-dilution Adjustments, so long as the shares of the Mandatory Convertible Preferred Stock being converted are in global form, the shares of common stock will be issued and delivered to the converting holder through the facilities of DTC, in each case together with delivery by us to the converting holder of any cash to which the converting holder is entitled on the latest of (i) the second Business Day immediately succeeding the conversion date, (ii) if applicable, the second Business Day immediately succeeding the last day of the Early Conversion Settlement Period and (iii) the Business Day after you have paid in full all applicable taxes and duties, if any.
The person or persons entitled to receive the shares of common stock issuable upon conversion of the Mandatory Convertible Preferred Stock will be treated as the record holder(s) of such shares as of the Close of Business on the applicable Early Conversion Date or Fundamental Change Conversion Date. Except as provided in Anti-dilution Adjustments, prior to the Close of Business on the applicable Early Conversion Date or Fundamental Change Conversion Date, the shares of common stock issuable upon conversion of any shares of the Mandatory Convertible Preferred Stock will not be deemed to be outstanding for any purpose and you will have no rights, powers or preferences with respect to such common stock, including voting rights, rights to respond to tender offers for the common stock and rights to receive any dividends or other distributions on the common stock, by virtue of holding the Mandatory Convertible Preferred Stock.
Fractional Shares
No fractional shares of our common stock will be issued to holders of the Mandatory Convertible Preferred Stock upon conversion. In lieu of any fractional shares of our common stock otherwise issuable in respect of the aggregate number of shares of the Mandatory Convertible Preferred Stock of any holder that are converted, that holder will be entitled to receive an amount in cash (computed to the nearest cent) equal to the product of: (i) that same fraction; and (ii) the Average VWAP of our common stock over the five consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the applicable conversion date.
Anti-dilution Adjustments
Each Fixed Conversion Rate will be adjusted as described below, except that we will not make any adjustments to the Fixed Conversion Rates if holders of the Mandatory Convertible Preferred Stock participate (other than in the case of a share split or share combination), at the same time and upon the same terms as holders of our common stock and solely as a result of holding the Mandatory Convertible Preferred Stock, in any of the transactions described below without having to convert their Mandatory Convertible Preferred Stock as if they held a number of shares of common stock equal to (i) the Maximum Conversion Rate as of the record date for such transaction, multiplied by (ii) the number of shares of Mandatory Convertible Preferred Stock held by such holder.
(1) If we exclusively issue shares of our common stock as a dividend or distribution on shares of our common stock, or if we effect a share split or share combination, each Fixed Conversion Rate will be adjusted based on the following formula:
CR1 | = | CR0 | × | OS1 OS0 |
where,
CR0 = such Fixed Conversion Rate in effect immediately prior to the Close of Business on the record date (as defined below) of such dividend or distribution, or immediately prior to the Open of Business on the effective date of such share split or share combination, as applicable;
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CR1 = such Fixed Conversion Rate in effect immediately after the Close of Business on such record date or immediately after the Open of Business on such effective date, as applicable;
OS0 = the number of shares of our common stock outstanding immediately prior to the Close of Business on such record date or immediately prior to the Open of Business on such effective date, as applicable, before giving effect to such dividend, distribution, share split or share combination; and
OS1 = the number of shares of our common stock outstanding immediately after giving effect to such dividend, distribution, share split or share combination.
Any adjustment made under this clause (1) shall become effective immediately after the Close of Business on the record date for such dividend or distribution, or immediately after the Open of Business on the effective date for such share split or share combination, as applicable. If any dividend or distribution of the type described in this clause (1) is declared but not so paid or made, each Fixed Conversion Rate shall be immediately readjusted, effective as of the date our board of directors or a committee thereof determines not to pay such dividend or distribution, to such Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared. For the purposes of this clause (1), the number of shares of our common stock outstanding immediately prior to the Close of Business on the record date and the number of shares of our common stock outstanding immediately after giving effect to such dividend, distribution, share split or share combination shall, in each case, not include shares that we hold in treasury. We will not pay any dividend or make any distribution on shares of our common stock that we hold in treasury.
Effective date as used in this clause (1) means the first date on which the shares of our common stock trade on the Relevant Stock Exchange, regular way, reflecting the relevant share split or share combination, as applicable.
Record date means, with respect to any dividend, distribution or other transaction or event in which the holders of our common stock (or other applicable security) have the right to receive any cash, securities or other property or in which our common stock (or such other security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of holders of our common stock (or such other security) entitled to receive such cash, securities or other property (whether such date is fixed by our board of directors or a duly authorized committee thereof, statute, contract or otherwise).
(2) If we issue to all or substantially all holders of our common stock any rights, options or warrants entitling them, for a period of not more than 60 calendar days after the announcement date of such issuance, to subscribe for or purchase shares of our common stock at a price per share that is less than the Average VWAP per share of our common stock for the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of such issuance, each Fixed Conversion Rate will be increased based on the following formula:
CR1 | = | CR0 | × | OS0 + X OS0 + Y |
where,
CR0 = such Fixed Conversion Rate in effect immediately prior to the Close of Business on the record date for such issuance;
CR1 = such Fixed Conversion Rate in effect immediately after the Close of Business on such record date;
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OS0 = the number of shares of our common stock outstanding immediately prior to the Close of Business on such record date;
X = the total number of shares of our common stock issuable pursuant to such rights, options or warrants; and
Y = the number of shares of our common stock equal to (i) the aggregate price payable to exercise such rights, options or warrants, divided by (ii) the Average VWAP per share of our common stock over the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of the issuance of such rights, options or warrants.
Any increase made under this clause (2) will be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the Close of Business on the record date for such issuance. To the extent that such rights, options or warrants are not exercised prior to their expiration or shares of common stock are not delivered after the exercise of such rights, options or warrants, each Fixed Conversion Rate shall be decreased to such Fixed Conversion Rate that would then be in effect had the increase with respect to the issuance of such rights, options or warrants been made on the basis of delivery of only the number of shares of common stock actually delivered, if any. If such rights, options or warrants are not so issued, each Fixed Conversion Rate shall be immediately readjusted, effective as of the date our board of directors or a committee thereof determines not to pay such dividend or distribution, to such Fixed Conversion Rate that would then be in effect if such record date for such issuance had not occurred.
For the purpose of this clause (2), in determining whether any rights, options or warrants entitle the holders of our common stock to subscribe for or purchase shares of our common stock at less than such Average VWAP per share for the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of such issuance, and in determining the aggregate offering price of such shares of our common stock, there shall be taken into account any consideration received by us for such rights, options or warrants and any amount payable on exercise or conversion thereof, the value of such consideration, if other than cash, to be determined by us in good faith.
(3) If we distribute shares of our capital stock, evidences of our indebtedness, other assets or property of ours or rights, options or warrants to acquire our capital stock or other securities, to all or substantially all holders of our common stock, excluding:
| dividends, distributions or issuances as to which the provisions set forth in clause (1) or (2) shall apply; |
| dividends or distributions paid exclusively in cash as to which the provisions set forth in clause (4) below shall apply; |
| any dividends and distributions upon conversion of, or in exchange for, our common stock in connection with a recapitalization, reclassification, change, consolidation, merger or other combination, share exchange, or sale, lease or other transfer or disposition resulting in the change in the conversion consideration as described below under Recapitalizations, Reclassifications and Changes of Our Common Stock; |
| except as otherwise described below, rights issued pursuant to a shareholder rights plan adopted by us; and |
| spin-offs as to which the provisions set forth below in this clause (3) shall apply; |
then each Fixed Conversion Rate will be increased based on the following formula:
CR1 | = | CR0 | × | SP0 SP0 FMV |
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where,
CR0 = such Fixed Conversion Rate in effect immediately prior to the Close of Business on the record date for such distribution;
CR1 = such Fixed Conversion Rate in effect immediately after the Close of Business on such record date;
SP0 = the Average VWAP per share of our common stock over the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the ex-date (as defined below) for such distribution; and
FMV = the fair market value (as determined by us in good faith) of the shares of capital stock, evidences of indebtedness, assets, property, rights, options or warrants so distributed, expressed as an amount per share of our common stock on the ex-date for such distribution.
Ex-date means the first date on which the shares of our common stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the issuance, dividend or distribution in question, from us or, if applicable, from the seller of our common stock on such exchange or market (in the form of due bills or otherwise) as determined by such exchange or market.
Any increase made under the portion of this clause (3) above will become effective immediately after the Close of Business on the record date for such distribution. If such distribution is not so paid or made, each fixed conversion rate shall be immediately readjusted, effective as of the date our board of directors or a committee thereof determines not to pay such dividend or distribution, to be such fixed conversion rate that would then be in effect if such distribution had not been declared.
Notwithstanding the foregoing, if FMV (as defined above) is equal to or greater than SP0 (as defined above), in lieu of the foregoing increase, each holder shall receive, in respect of each share of Mandatory Convertible Preferred Stock, at the same time and upon the same terms as holders of our common stock, the amount and kind of our capital stock, evidences of our indebtedness, other assets or property of ours or rights, options or warrants to acquire our capital stock or other securities that such holder would have received if such holder owned a number of shares of common stock equal to the Maximum Conversion Rate in effect on the record date for the distribution.
If we issue rights, options or warrants that are only exercisable upon the occurrence of certain triggering events, then:
| we will not adjust the Fixed Conversion Rates pursuant to the foregoing in this clause (3) until the earliest of these triggering events occurs; and |
| we will readjust the Fixed Conversion Rates to the extent any of these rights, options or warrants are not exercised before they expire; provided that the rights, options or warrants trade together with our common stock and will be issued in respect of future issuances of the shares of our common stock. |
With respect to an adjustment pursuant to this clause (3) where there has been a payment of a dividend or other distribution on our common stock of shares of capital stock of any class or series, or similar equity interest, of or relating to a subsidiary or other business unit, that are, or, when issued, will be, listed or admitted for trading on a U.S. national securities exchange, which we refer to as a spin-off, each Fixed Conversion Rate will be increased based on the following formula:
CR1 | = | CR0 | × | FMV0 + MP0 MP0 |
where,
CR0 = such Fixed Conversion Rate in effect immediately prior to the Open of Business on the ex-date for the spin-off;
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CR1 = such Fixed Conversion Rate in effect immediately after the Open of Business on the ex-date for the spin-off;
FMV0 = the Average VWAP per share of the capital stock or similar equity interest distributed to holders of our common stock applicable to one share of our common stock over the 10 consecutive Trading Day period commencing on, and including, the ex-date for the spin-off, or the valuation period; and
MP0 = the Average VWAP per share of our common stock over the valuation period.
The increase to each Fixed Conversion Rate under the preceding paragraph will be calculated as of the Close of Business on the last Trading Day of the valuation period but will be given effect as of immediately after the Open of Business on the ex-date of the spin-off. Because we will make the adjustment to each Fixed Conversion Rate with retroactive effect, we will delay the settlement of any conversion of Mandatory Convertible Preferred Stock where any date for determining the number of shares of our common stock issuable to a holder occurs during the valuation period until the second Business Day after the last date for determining the number of shares of our common stock issuable to a holder with respect to such conversion occurs. If such dividend or distribution is not so paid, each Fixed Conversion Rate shall be decreased, effective as of the date our board of directors or a committee thereof determines not to make or pay such dividend or distribution, to be such Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared.
(4) If any cash dividend or distribution is made to all or substantially all holders of our common stock, each Fixed Conversion Rate will be adjusted based on the following formula:
CR1 | = | CR0 | × | SP0 SP0 C |
where,
CR0 = such Fixed Conversion Rate in effect immediately prior to the Close of Business on the record date for such dividend or distribution;
CR1 = such Fixed Conversion Rate in effect immediately after the Close of Business on the record date for such dividend or distribution;
SP0 = the Average VWAP per share of our common stock over the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the ex-date for such distribution; and
C = the amount in cash per share we distribute to all or substantially all holders of our common stock.
Any increase made under this clause (4) shall become effective immediately after the Close of Business on the record date for such dividend or distribution. If such dividend or distribution is not so paid, each Fixed Conversion Rate shall be decreased, effective as of the date our board of directors or a committee thereof determines not to make or pay such dividend or distribution, to be such Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared.
Notwithstanding the foregoing, if C (as defined above) is equal to or greater than SP0 (as defined above), in lieu of the foregoing increase, each holder shall receive, for each share of Mandatory Convertible Preferred Stock, at the same time and upon the same terms as holders of shares of our common stock, the amount of cash that such holder would have received if such holder owned a number of shares of our common stock equal to the Maximum Conversion Rate on the record date for such cash dividend or distribution.
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(5) If we or any of our subsidiaries make a payment in respect of a tender or exchange offer for our common stock, other than an odd-lot tender offer, to the extent that the cash and value of any other consideration included in the payment per share of common stock exceeds the Average VWAP per share of our common stock over the 10 consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer, or the expiration date, each Fixed Conversion Rate will be increased based on the following formula:
CR1 | = | CR0 | × |
AC + (SP1 × OS1) OS0 × SP1 |
where,
CR0 = such Fixed Conversion Rate in effect immediately prior to the Close of Business on the expiration date;
CR1 = such Fixed Conversion Rate in effect immediately after the Close of Business on the expiration date;
AC = the aggregate value of all cash and any other consideration (as determined by us in good faith) paid or payable for shares purchased in such tender or exchange offer;
OS0 = the number of shares of our common stock outstanding immediately prior to the expiration date (prior to giving effect to the purchase of all shares accepted for purchase or exchange in such tender or exchange offer);
OS1 = the number of shares of our common stock outstanding immediately after the expiration date (after giving effect to the purchase of all shares accepted for purchase or exchange in such tender or exchange offer); and
SP1 = the Average VWAP of our common stock over the 10 consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the expiration date (the averaging period).
The increase to each Fixed Conversion Rate under the preceding paragraph will be calculated at the Close of Business on the last Trading Day of the averaging period but will be given effect as of immediately after the Close of Business on the expiration date. Because we will make the adjustment to each Fixed Conversion Rate with retroactive effect, we will delay the settlement of any conversion of Mandatory Convertible Preferred Stock where any date for determining the number of shares of our common stock issuable to a holder occurs during the averaging period until the second Business Day after the last date for determining the number of shares of our common stock issuable to a holder with respect to such conversion occurs. For the avoidance of doubt, no adjustment under this clause (5) will be made if such adjustment would result in a decrease in any Fixed Conversion Rate.
In the event that we or one of our subsidiaries is obligated to purchase shares of common stock pursuant to any such tender offer or exchange offer, but we or such subsidiary is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then each Fixed Conversion Rate shall again be adjusted to be such Fixed Conversion Rate that would then be in effect if such tender offer or exchange offer had not been made.
We may, to the extent permitted by law and the rules of the NYSE or any other securities exchange on which our common stock or the Mandatory Convertible Preferred Stock is then listed, increase each Fixed Conversion Rate by any amount for a period of at least 20 Business Days if such increase is irrevocable during such 20 Business Days and we determine that such increase would be in our best interest. In addition, we may make such increases in each Fixed Conversion Rate as we deem advisable in order to avoid or diminish any income tax to holders of our common stock resulting from any dividend or distribution of shares of our common stock (or issuance of rights or warrants to acquire shares of our common stock) or from any event treated as such for income tax purposes or for any other reason. We may only make such a discretionary adjustment if we make the same proportionate adjustment to each Fixed Conversion Rate.
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Holders of the Mandatory Convertible Preferred Stock may, in certain circumstances, including a distribution of cash dividends to holders of our shares of common stock, be deemed to have received a distribution subject to U.S. Federal income tax as a dividend as a result of an adjustment or the nonoccurrence of an adjustment to the Fixed Conversion Rates. See Material U.S. Federal Income Tax Considerations.
If we have a rights plan in effect upon conversion of the Mandatory Convertible Preferred Stock into common stock, you will receive, in addition to any shares of common stock received in connection with such conversion, the rights under the rights plan. However, if, prior to any conversion, the rights have separated from the shares of common stock in accordance with the provisions of the applicable rights plan, each Fixed Conversion Rate will be adjusted at the time of separation as if we distributed to all or substantially all holders of our common stock, shares of our capital stock, evidences of indebtedness, assets, property, rights, options or warrants as described in clause (3) above, subject to readjustment in the event of the expiration, termination or redemption of such rights. We do not currently have a stockholder rights plan in effect.
Adjustments to the Fixed Conversion Rates will be calculated to the nearest 1/10,000th of a share of our common stock. No adjustment to any Fixed Conversion Rate will be required unless the adjustment would require an increase or decrease of at least 1% of the Fixed Conversion Rate; provided, however, that if an adjustment is not made because the adjustment does not change the Fixed Conversion Rates by at least 1%, then such adjustment will be carried forward and taken into account in any future adjustment. Notwithstanding the foregoing, on each date for determining the number of shares of our common stock issuable to a holder upon any conversion of the Mandatory Convertible Preferred Stock we will give effect to all adjustments that we have otherwise deferred pursuant to this sentence, and those adjustments will no longer be carried forward and taken into account in any future adjustment.
The Fixed Conversion Rates will not be adjusted:
| upon the issuance of any shares of our common stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on our securities and the investment of additional optional amounts in common stock under any plan; |
| upon the issuance of any shares of our common stock or rights or warrants to purchase those shares pursuant to any present or future benefit or other incentive plan or program of or assumed by us or any of our subsidiaries; |
| upon the issuance of any shares of our common stock pursuant to any option, warrant, right or exercisable, exchangeable or convertible security not described in the preceding bullet and outstanding as of the date the Mandatory Convertible Preferred Stock was first issued; |
| for a change in the par value of our common stock; |
| for stock repurchases that are not tender offers referred to in clause (5) of the adjustments above, including structured or derivative transactions or pursuant to a stock repurchase program approved by our board of directors; |
| for accumulated dividends on the Mandatory Convertible Preferred Stock, except as described above under Mandatory Conversion, Early Conversion at the Option of the Holder and Conversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount; or |
| for any other issuance of shares of our common stock or any securities convertible into or exchangeable for shares of our common stock or the right to purchase shares of our common stock or such convertible or exchangeable securities, except as otherwise stated herein. |
Except as otherwise provided above, we will be responsible for making all calculations called for under the Mandatory Convertible Preferred Stock. These calculations include, but are not limited to, determinations of the Fundamental Change Share Price, the VWAPs, the Average VWAPs and the Fixed Conversion Rates of the Mandatory Convertible Preferred Stock and shall be made in good faith.
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We will be required, within 10 Business Days after the Fixed Conversion Rates are adjusted, to provide or cause to be provided written notice of the adjustment to the holders of the Mandatory Convertible Preferred Stock. We will also be required to deliver a statement setting forth in reasonable detail the method by which the adjustment to each Fixed Conversion Rate was determined and setting forth each adjusted Fixed Conversion Rate.
For the avoidance of doubt, if an adjustment is made to the Fixed Conversion Rates, no separate inversely proportionate adjustment will be made to the Initial Price or the Threshold Appreciation Price because the Initial Price is equal to $50.00 divided by the Maximum Conversion Rate (as adjusted in the manner described herein) and the Threshold Appreciation Price is equal to $50.00 divided by the Minimum Conversion Rate (as adjusted in the manner described herein).
Whenever the terms of the Mandatory Convertible Preferred Stock require us to calculate the VWAP per share of our common stock over a span of multiple days, we will make appropriate adjustments in good faith (including, without limitation, to the Applicable Market Value, the Early Conversion Average Price, the Fundamental Change Share Price and the Average Price (as the case may be)) to account for any adjustments to the Fixed Conversion Rates (as the case may be) that become effective, or any event that would require such an adjustment if the ex-date, effective date, record date or expiration date (as the case may be) of such event occurs, during the relevant period used to calculate such prices or values (as the case may be).
If:
| the record date for a dividend or distribution on shares of our common stock occurs after the end of the 20 consecutive Trading Day period used for calculating the Applicable Market Value and before the Mandatory Conversion Date; and |
| that dividend or distribution would have resulted in an adjustment of the number of shares issuable to the holders of the Mandatory Convertible Preferred Stock had such record date occurred on or before the last Trading Day of such 20-Trading Day period, |
then we will deem the holders of the Mandatory Convertible Preferred Stock to be holders of record of our common stock for purposes of that dividend or distribution. In this case, the holders of the Mandatory Convertible Preferred Stock would receive the dividend or distribution on our common stock together with the number of shares of our common stock issuable upon mandatory conversion of the Mandatory Convertible Preferred Stock.
Recapitalizations, Reclassifications and Changes of Our Common Stock
In the event of:
| any consolidation or merger of us with or into another person (other than a merger or consolidation in which we are the surviving corporation and in which the shares of our common stock outstanding immediately prior to the merger or consolidation are not exchanged for cash, securities or other property of us or another person); |
| any sale, transfer, lease or conveyance to another person of all or substantially all of our property and assets; |
| any reclassification of our common stock into securities, including securities other than our common stock; or |
| any statutory exchange of our securities with another person (other than in connection with a merger or acquisition), |
in each case, as a result of which our common stock would be converted into, or exchanged for, stock, other securities or other property or assets (including cash or any combination thereof) (each, a Reorganization
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Event), each share of the Mandatory Convertible Preferred Stock outstanding immediately prior to such Reorganization Event shall, without the consent of the holders of the Mandatory Convertible Preferred Stock, become convertible into the kind of stock, other securities or other property or assets (including cash or any combination thereof) that such holder would have been entitled to receive if such holder had converted its Mandatory Convertible Preferred Stock into common stock immediately prior to such Reorganization Event (such stock, other securities or other property or assets (including cash or any combination thereof), the Exchange Property, with each Unit of Exchange Property meaning the kind and amount of Exchange Property that a holder of one share of common stock is entitled to receive).
If the transaction causes our common stock to be converted into, or exchanged for, the right to receive more than a single type of consideration (determined based in part upon any form of stockholder election), the Exchange Property into which the Mandatory Convertible Preferred Stock will be convertible will be deemed to be:
| the weighted average of the types and amounts of consideration received by the holders of our common stock that affirmatively make such an election; and |
| if no holders of our common stock affirmatively make such an election, the types and amounts of consideration actually received by the holders of our common stock. |
We will notify holders of the Mandatory Convertible Preferred Stock of the weighted average referred to in the first bullet point in the preceding sentence as soon as practicable after such determination is made.
The number of Units of Exchange Property we will deliver for each share of the Mandatory Convertible Preferred Stock converted following the effective date of such Reorganization Event will be determined as if references to our common stock in the description of the conversion rate applicable upon mandatory conversion, Early Conversion at the option of the holder and conversion at the option of the holder upon a Fundamental Change were to Units of Exchange Property (without interest thereon and without any right to dividends or distributions thereon which have a record date prior to the date such Mandatory Convertible Preferred Stock is actually converted). For the purpose of determining which bullet of the definition of conversion rate in the second paragraph under Mandatory Conversion will apply upon mandatory conversion, and for the purpose of calculating the conversion rate if the second bullet is applicable, the value of a Unit of Exchange Property will be determined in good faith by us, except that if a Unit of Exchange Property includes common stock or American Depositary Receipts (ADRs) that are traded on a U.S. national securities exchange, the value of such common stock or ADRs will be the average over the 20 consecutive Trading Day period used for calculating the Applicable Market Value of the volume-weighted average prices for such common stock or ADRs, as displayed on the applicable Bloomberg screen (as determined in good faith by us); or, if such price is not available, the average market value per share of such common stock or ADRs over such period as determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained by us for this purpose. The provisions of this paragraph will apply to successive Reorganization Events, and if the Exchange Property in respect of any Reorganization Event includes, in whole or in part, securities of another entity, the Mandatory Convertible Preferred Stock shall, without the consent of holders of the Mandatory Convertible Preferred Stock, provide for anti-dilution and other adjustments that shall be as nearly equivalent as practicable, as determined by us acting in a commercially reasonable manner and in good faith, to the adjustments described above under the heading Anti-dilution Adjustments.
We (or any successor to us) will, as soon as reasonably practicable (but in any event within 20 calendar days) after the occurrence of any Reorganization Event provide written notice to the holders of the Mandatory Convertible Preferred Stock of such occurrence and of the kind and amount of cash, securities or other property that constitute the Exchange Property. Failure to deliver such notice will not affect the operation of the provisions described in this section.
It is possible that certain consolidations, mergers, combinations or other transactions could result in tax gains or losses to the holders either as a result of the transaction or the conversion thereafter. Holders are
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encouraged to consult with their own tax advisors regarding the tax consequences of the ownership, disposition and conversion of the Mandatory Convertible Preferred Stock.
Notices
We will send all notices or communications to holders of the Mandatory Convertible Preferred Stock pursuant to the Certificate of Designations in writing by first class mail, postage prepaid, to the holders respective addresses shown on the register for the Mandatory Convertible Preferred Stock. However, in the case of Mandatory Convertible Preferred Stock in the form of global securities, we are permitted to send notices or communications to holders pursuant to DTCs procedures, and notices and communications that we send in this manner will be deemed to have been properly sent to such holders in writing.
Reservation of Shares
We will at all times reserve and keep available out of the authorized and unissued shares of common stock, solely for issuance upon conversion of the Mandatory Convertible Preferred Stock, the maximum number of shares of our common stock as shall be issuable from time to time upon the conversion of all the shares of the Mandatory Convertible Preferred Stock then outstanding.
Transfer Agent, Registrar and Conversion and Dividend Disbursing Agent
Computershare Trust Company, N.A. is the transfer agent and registrar of our common stock and will serve as transfer agent, registrar, conversion and dividend disbursing agent for the Mandatory Convertible Preferred Stock.
Book-Entry, Delivery and Form
The Mandatory Convertible Preferred Stock will be issued in global form. DTC or its nominee will be the sole registered holder of the Mandatory Convertible Preferred Stock. Ownership of beneficial interests in the Mandatory Convertible Preferred Stock in global form will be limited to persons who have accounts with DTC (participants) or persons who hold interests through such participants. Ownership of beneficial interests in the Mandatory Convertible Preferred Stock in global form will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a global certificate representing the shares of the Mandatory Convertible Preferred Stock, DTC or such nominee, as the case may be, will be considered the sole holder of the shares of the Mandatory Convertible Preferred Stock represented by such global certificate for all purposes under the Certificate of Designations establishing the terms of the Mandatory Convertible Preferred Stock. No beneficial owner of an interest in the shares of the Mandatory Convertible Preferred Stock in global form will be able to transfer that interest except in accordance with the applicable procedures of DTC in addition to those provided for under the Certificate of Designations establishing the terms of the Mandatory Convertible Preferred Stock.
Payments of dividends on the global certificate representing the shares of the Mandatory Convertible Preferred Stock will be made to DTC or its nominee, as the case may be, as the registered holder thereof. None of us, the transfer agent, registrar, conversion or dividend disbursing agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a global certificate representing the shares of the Mandatory Convertible Preferred Stock or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of dividends in respect of a global certificate representing the shares of the Mandatory Convertible Preferred Stock, will credit participants
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accounts with payments in amounts proportionate to their respective beneficial ownership interests in the aggregate Liquidation Preference of such global certificate representing the shares of the Mandatory Convertible Preferred Stock as shown on the records of DTC or its nominee, as the case may be. We also expect that payments by participants to owners of beneficial interests in such global certificate representing the shares of the Mandatory Convertible Preferred Stock held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in same-day funds. We understand that DTC is:
| a limited purpose trust company organized under the laws of the State of New York; |
| a banking organization within the meaning of New York Banking Law; |
| a member of the Federal Reserve System; |
| a clearing corporation within the meaning of the Uniform Commercial Code; and |
| a Clearing Agency registered pursuant to the provisions of Section 17A of the Exchange Act. |
DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include:
| securities brokers and dealers; |
| banks and trust companies; and |
| clearing corporations and certain other organizations. |
Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly (indirect participants).
Although DTC is expected to follow the foregoing procedures in order to facilitate transfers of interests in a global security among its participants, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. None of us, the transfer agent, registrar, conversion or dividend disbursing agent will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for the shares of the Mandatory Convertible Preferred Stock in global form or DTC ceases to be registered as a clearing agency under the Exchange Act, and in either case a successor depositary is not appointed by us within 90 days, we will issue certificated shares in exchange for the global securities. Holders of an interest in the Mandatory Convertible Preferred Stock in global form may receive certificated shares, at our option, in accordance with the rules and procedures of DTC in addition to those provided for under the Certificate of Designations. Beneficial interests in Mandatory Convertible Preferred Stock in global form held by any direct or indirect participant may also be exchanged for certificated shares upon request to DTC by such direct participant (for itself or on behalf of an indirect participant), to the transfer agent in accordance with their respective customary procedures.
The information in this section concerning DTC and its book-entry system has been obtained from sources that we believe to be reliable, but we take no responsibility for the accuracy thereof.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material U.S. federal income tax consequences of the ownership, disposition, and conversion of the Mandatory Convertible Preferred Stock and any common stock received in respect thereof. The discussion is limited to beneficial owners who will hold the Mandatory Convertible Preferred Stock or our common stock as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the Code).
This discussion does not describe all of the tax consequences that may be relevant to beneficial owners in light of their particular circumstances, including alternative minimum tax and Medicare contribution tax consequences, or to beneficial owners subject to special rules, such as:
| financial institutions; |
| insurance companies; |
| dealers in securities; |
| persons that will hold more than 5% of our common stock; |
| traders that elect the mark-to-market method of tax accounting for their securities; |
| persons holding Mandatory Convertible Preferred Stock or our common stock as part of a hedge, straddle, integrated, conversion or constructive sale transaction; |
| controlled foreign corporations, passive foreign investment companies, and corporations that accumulate earnings to avoid U.S. federal income tax; |
| U.S. Holders (as defined below) whose functional currency is not the U.S. dollar; |
| partnerships or other entities classified as partnerships for U.S. federal income tax purposes (or investors in such entities); |
| U.S. expatriates; |
| tax-exempt organizations or governmental organizations; |
| persons required for U.S. federal income tax purposes to conform the timing of income accruals with respect to the Mandatory Convertible Preferred Stock or our common stock to their financial statements under Section 451 of the Code; or |
| real estate investment trusts or regulated investment companies. |
If an entity that is classified as a partnership for U.S. federal income tax purposes holds Mandatory Convertible Preferred Stock or our common stock, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and upon the activities of the partnership. Partnerships holding Mandatory Convertible Preferred Stock or our common stock and partners in such partnerships should consult their own tax advisors as to the particular U.S. federal income tax consequences applicable to them.
This summary is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations as of the date hereof, changes to any of which may affect the tax consequences described herein (possibly with retroactive effect).
This summary addresses only U.S. federal income tax consequences. Persons considering the purchase of Mandatory Convertible Preferred Stock are urged to consult their tax advisors with regard to the application of the U.S. federal income or other federal tax laws (including estate and gift tax laws) to their particular situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction and the possible effects of any changes in applicable tax laws.
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Tax Consequences to U.S. Holders
As used herein, the term U.S. Holder means a beneficial owner of Mandatory Convertible Preferred Stock or our common stock that is for U.S. federal income tax purposes:
| an individual who is a citizen or resident of the United States; |
| a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof or the District of Columbia; or |
| an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. |
Taxation of Distributions
Distributions paid on the Mandatory Convertible Preferred Stock or our common stock will be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). If a distribution exceeds our current and accumulated earnings and profits, the excess will be first treated as a tax-free return of the U.S. Holders investment, up to the U.S. Holders adjusted tax basis, in the Mandatory Convertible Preferred Stock or our common stock. Any remaining excess will be treated as capital gain. Subject to applicable limitations and restrictions, dividends paid to non-corporate U.S. Holders will be treated as qualified dividend income (as defined in the Code) taxable at favorable rates applicable to long-term capital gains. Subject to applicable limitations and restrictions, dividends paid to corporate U.S. Holders will be eligible for the dividends-received deduction. U.S. Holders should consult their own tax advisors regarding the application of reduced tax rates and the dividends-received deduction in their particular circumstances.
If we make a distribution on our Mandatory Convertible Preferred Stock in the form of our common stock, although there is some uncertainty, we believe that such distribution will be taxable for U.S. federal income tax purposes in the same manner as distributions described above. The amount of such distribution and a U.S. Holders tax basis in such common stock will equal the fair market value of such common stock on the distribution date, and a U.S. Holders holding period for such common stock will begin on the day following the distribution date. Because such distribution would not give rise to any cash from which any applicable withholding tax could be satisfied, if we (or an applicable withholding agent) pay backup withholding on behalf of a U.S. Holder (because such U.S. Holder failed to establish an exemption from backup withholding), we may, at our option, or an applicable withholding agent may, withhold such taxes from shares of common stock or current or subsequent payments of cash to such U.S. Holder.
Extraordinary Dividends
Dividends that exceed certain thresholds in relation to a U.S. Holders tax basis in the Mandatory Convertible Preferred Stock or our common stock could be characterized as extraordinary dividends under the Code. A corporate U.S. Holder that has held our Mandatory Convertible Preferred Stock or common stock for two years or less before the dividend announcement date and that receives an extraordinary dividend will generally be required to reduce its tax basis in the stock with respect to which such dividend was made by the nontaxed portion of such dividend. If the amount of the reduction exceeds the U.S. Holders tax basis in such stock, the excess is taxable as capital gain realized on the sale or other disposition of the Mandatory Convertible Preferred Stock or common stock and will be treated as described under Sale or Other Disposition of Our Stock below. A non-corporate U.S. Holder that receives an extraordinary dividend will generally be required to treat any loss on the sale of our Mandatory Convertible Preferred Stock or common stock as long-term capital loss to the extent of the extraordinary dividends the U.S. Holder receives that qualify for taxation at the special rates discussed above under Taxation of Distributions.
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Adjustments to Conversion Rate
The conversion rate of our Mandatory Convertible Preferred Stock is subject to adjustment under specified circumstances. In such circumstances, a U.S. Holder that holds our Mandatory Convertible Preferred Stock may be deemed to have received a constructive distribution if the adjustment has the effect of increasing the U.S. Holders proportionate interest in our assets or earnings and profits. In addition, the failure to make certain adjustments on the Mandatory Convertible Preferred Stock may cause a U.S. Holder of our common stock to be deemed to have received a constructive distribution from us, even though the U.S. Holder has not received any cash or property as a result of such adjustments. Such U.S. Holder would be subject to the rules discussed above under Taxation of Distributions. Adjustments to the conversion rate made pursuant to a bona fide reasonable adjustment formula which has the effect of preventing the dilution of the interest of the holders of the Mandatory Convertible Preferred Stock generally will not be deemed to result in a constructive distribution. Certain of the possible adjustments (including, without limitation, adjustments in respect of taxable dividends to our common stockholders) will not qualify as being made pursuant to a bona fide reasonable adjustment formula.
If an adjustment that does not qualify as being pursuant to a bona fide reasonable adjustment formula is made, a U.S. Holder of Mandatory Convertible Preferred Stock will be deemed to have received a constructive distribution from us, even though such U.S. Holder has not received any cash or property as a result of such adjustment. The tax consequences of the receipt of a distribution from us are described above under Taxation of Distributions. Because constructive distributions deemed received by a U.S. Holder would not give rise to any cash from which any applicable withholding could be satisfied, if we (or an applicable withholding agent) pay backup withholding on behalf of a U.S. Holder (because the U.S. Holder failed to establish an exemption from backup withholding), we may, at our option, or an applicable withholding agent may, withhold such taxes from payments of cash or shares of common stock payable to the U.S. Holder.
Sale or Other Disposition of Our Stock
Upon the sale or the other disposition of shares of Mandatory Convertible Preferred Stock (other than pursuant to a conversion) or our common stock, a U.S. Holder generally will recognize taxable gain or loss equal to the difference between the amount realized on the sale or other disposition and the holders adjusted tax basis in such shares. Gain or loss realized on the sale or other disposition generally will be capital gain or loss and will be long-term capital gain or loss if at the time of the sale or other disposition the Mandatory Convertible Preferred Stock or our common stock has been held for more than one year. For non-corporate taxpayers, long-term capital gains are generally eligible for reduced rates of taxation. The deductibility of capital losses may be subject to limitations.
Conversion of Mandatory Convertible Preferred Stock into Common Stock
A U.S. Holder generally will not recognize any income, gain or loss upon the conversion of our Mandatory Convertible Preferred Stock into our common stock, except that any cash or common stock received in respect of accrued and unpaid dividends that have been declared will be taxable as described above under Taxation of Distributions, with any common stock received in respect of such dividends treated as if the U.S. Holder had received cash equal to the fair market value of any such common stock determined as of the date of conversion.
Cash received upon conversion in lieu of a fractional common share generally will be treated as a payment in a taxable exchange for such fractional common share, and gain or loss will be recognized on the receipt of cash in an amount equal to the difference between the amount of cash received and the adjusted tax basis allocable to the fractional common share deemed exchanged. This gain or loss will be long-term capital gain or loss if the U.S. Holder has held the Mandatory Convertible Preferred Stock for more than one year at the time of conversion.
The tax treatment of a U.S. Holders receipt of any cash or common stock paid upon conversion in respect of accrued and unpaid dividends that have not been declared is uncertain. Although not free from doubt, we believe
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the receipt of such cash or common stock should be treated as additional consideration received by the U.S. Holder upon conversion of the Mandatory Convertible Preferred Stock into common stock. Similarly, the receipt of cash or common stock paid in respect of any make-whole dividend should be treated as additional consideration received by the U.S. Holder upon conversion of the Mandatory Convertible Preferred Stock into common stock. Accordingly, the receipt of cash should be taxable to the extent of any gain realized by the U.S. Holder. For this purpose, gain generally would equal the excess, if any, of (i) the sum of the fair market value of our common stock received upon conversion (including any fractional common share for which cash is received) and the cash received (other than amounts of cash or common stock received in respect of accrued and unpaid dividends that have been declared) over (ii) the U.S. Holders tax basis in our Mandatory Convertible Preferred Stock immediately prior to conversion. The character of such gain recognized (which will be the lesser of such gain and such cash) is uncertain. If the receipt of the cash attributable to dividends to be paid in respect of a portion of the then-current dividend period or future dividends is considered to have the effect of a dividend, such gain (to the extent recognized) would be taxable as dividend income, to the extent of our current and accumulated earnings and profits. Alternatively, such gain could be capital gain. To the extent the amount of cash received in respect of accrued but unpaid dividends that have not been declared, or in respect of any make-whole dividend, exceeded the gain realized by a U.S. Holder, the excess amount would not be taxable to such U.S. Holder but would reduce its adjusted tax basis in our common stock. A U.S. Holder will not be permitted to recognize any loss realized upon the conversion of Mandatory Convertible Preferred Stock into common stock.
U.S. Holders should be aware that the tax treatment described above in respect of the payments of cash or common stock made in respect of accrued and unpaid dividends that have not been declared is not certain and may be challenged by the Internal Revenue Service (IRS). It is possible that a U.S. Holder could be treated as receiving a distribution on its Mandatory Convertible Preferred Stock, which will be treated as described above under Taxation of Distributions, to the extent of the lesser of (i) the excess of (A) the fair market value of the ordinary shares received over (B) the issue price of the convertible preferred shares, and (ii) the amount of any accrued and unpaid dividends that have not been declared.
Because payments of common stock that are treated as dividends will not give rise to any cash from which any applicable withholding tax could be satisfied, if we (or an applicable withholding agent) pay backup withholding on behalf of a U.S. Holder (because such U.S. Holder failed to establish an exemption from backup withholding), we may, at our option, or an applicable withholding agent may, withhold such taxes from shares of common stock or current or subsequent payments of cash to such U.S. Holder.
Except as discussed in the last sentence of this paragraph, a U.S. Holders basis in shares of common stock received upon conversion of the Mandatory Convertible Preferred Stock (and any fractional shares of our common stock treated as received and then exchanged for cash) will equal the basis of the converted shares of the Mandatory Convertible Preferred Stock, increased by any gain recognized on the conversion and reduced by any cash received that was treated as additional consideration received in the conversion as discussed above, and the holding period of such shares of common stock will include the holding period of the converted shares of Mandatory Convertible Preferred Stock. A U.S. Holders tax basis in common stock received may be further reduced under the rules described above under Extraordinary Dividends. Common stock received in payment of accrued but unpaid dividends are taxed as a dividend upon receipt, if any, will have a basis equal to their fair market value on the date of conversion, and a new holding period which will commence on the day after the conversion.
In the event a U.S. Holders Mandatory Convertible Preferred Stock is converted pursuant to certain transactions (including our consolidation or merger into another person), the tax treatment of such a conversion will depend upon the facts underlying the particular transaction triggering such a conversion. U.S. Holders should consult their own tax advisors to determine the specific tax treatment of a conversion under such circumstances.
Backup Withholding and Information Reporting
Information returns are required to be filed with the IRS in connection with distributions on our Mandatory Convertible Preferred Stock or our common stock and the proceeds from a sale or other disposition of such stock,
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unless a U.S. Holder is an exempt recipient. A U.S. Holder may also be subject to U.S. backup withholding on these payments if the U.S. Holder fails to provide its taxpayer identification number to the paying agent and comply with certain certification procedures or otherwise establish an exemption from backup withholding. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holders U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS. U.S. Holders should consult their tax advisors concerning the application of information reporting and backup withholding rules.
Tax Consequences to Non-U.S. Holders
The following are the material U.S. federal income and estate tax consequences of the ownership and disposition of our Mandatory Convertible Preferred Stock or our common stock acquired in this offering by a Non-U.S. Holder that does not own, and has not owned, actually or constructively, (i) more than 5% of our Mandatory Convertible Preferred Stock or our common stock or (ii) Mandatory Convertible Preferred Stock having a fair market value greater than the fair market value of 5% of our common stock. You are a Non-U.S. Holder if for U.S. federal income tax purposes you are a beneficial owner of our Mandatory Convertible Preferred Stock or our common stock that is:
| a nonresident alien individual; |
| a foreign corporation; or |
| a foreign estate or trust. |
You are not a Non-U.S. Holder if you are a nonresident alien individual present in the United States for 183 days or more in the taxable year of disposition, or if you are a former citizen or former resident of the United States for U.S. federal income tax purposes. If you are or may become such a person, you should consult your tax advisor regarding the U.S. federal income tax consequences of the ownership and disposition of our Mandatory Convertible Preferred Stock or our common stock.
If you are a partnership for U.S. federal income tax purposes, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and your activities.
Taxation of Distributions
Distributions or other payments that are treated as dividends (see Tax Consequences to U.S. HoldersTaxation of Distributions and Conversion of Mandatory Convertible Preferred Stock into Common Stock), including deemed distributions described above under Tax Consequences to U.S. HoldersAdjustments to Conversion Rate, generally will be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. In order to obtain a reduced rate of withholding, you will be required to provide a properly executed applicable IRS Form W-8 or other documentary evidence certifying your entitlement to benefits under a treaty.
If dividends paid to you are effectively connected with your conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base maintained by you in the United States), you will generally be taxed on the dividends in the same manner as a U.S. person. In this case, you will be exempt from the withholding tax discussed in the preceding paragraph, although you will be required to provide a properly executed IRS Form W-8ECI in order to claim an exemption from withholding. You should consult your tax advisor with respect to other U.S. tax consequences of the ownership and disposition of our Mandatory Convertible Preferred Stock or our common stock, including the possible imposition of a branch profits tax at a rate of 30% (or a lower treaty rate) if you are a corporation.
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Because deemed distributions or distributions made in common stock to a Non-U.S. Holder would not give rise to any cash from which any applicable withholding tax could be satisfied, we (or an applicable withholding agent) will withhold the U.S. federal tax on such dividend from any cash, shares of common stock, or sales proceeds otherwise payable to the Non-U.S. Holder.
Gain on Disposition of Our Mandatory Convertible Preferred Stock or Our Common Stock
Subject to the discussions above under Taxation of Distributions, and below under Information Reporting and Backup Withholding and FATCA, you generally will not be subject to U.S. federal income or withholding tax on gain realized on a sale or other taxable disposition of our Mandatory Convertible Preferred Stock or our common stock unless:
| the gain is effectively connected with your conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained by you in the United States), or |
| we are or have been a United States real property holding corporation, as described below, at any time within the five-year period preceding the disposition or your holding period, whichever period is shorter, and our common stock is not regularly traded on an established securities market prior to the beginning of the calendar year in which the sale or disposition occurs. |
We will be a U.S. real property holding corporation at any time that the fair market value of our U.S. real property interests (as defined in the Code and applicable Treasury regulations), equals or exceeds 50% of the aggregate fair market value of our worldwide real property interests and our other assets used or held for use in a trade or business (all as determined for the U.S. federal income tax purposes). We believe that we are not, and do not anticipate becoming, a United States real property holding corporation.
If you recognize gain on a sale or other disposition of our Mandatory Convertible Preferred Stock or our common stock that is effectively connected with your conduct of a trade or business in the United States (and if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained by you in the United States), you will generally be taxed on such gain in the same manner as a U.S. person. You should consult your tax advisor with respect to other U.S. tax consequences of the ownership and disposition of our Mandatory Convertible Preferred Stock or our common stock, including the possible imposition of a branch profits tax at a rate of 30% (or a lower treaty rate) if you are a corporation.
Conversion of Mandatory Convertible Preferred Stock into Common Stock
A Non-U.S. Holder generally will not recognize any income, gain or loss upon the conversion of Mandatory Convertible Preferred Stock into our common stock, except that (1) cash received upon conversion in lieu of a fractional common share generally will be treated as a payment in a taxable exchange for such fractional common share and will be subject to the treatment described above under Gain on Disposition of Our Mandatory Convertible Preferred Stock and Common Stock, (2) cash or common stock received in respect of accrued and unpaid dividends that have been declared should be treated in the manner described above under Tax Consequences to U.S. HoldersConversion of Mandatory Convertible Preferred Stock into Common Stock, and (3) cash or common stock received in respect of accrued and unpaid dividends or make-whole dividends that have not been declared should be treated in the manner described above under Tax Consequences to U.S. HoldersConversion of Mandatory Convertible Preferred Stock into Common Stock. In the case of payments described in (2), a Non-U.S. Holder should expect a withholding agent to withhold tax from such amounts, as described above under Taxation of Distributions. In the case of accrued and unpaid dividends that have not been declared, the tax treatment of such amounts is uncertain, and therefore a withholding agent may withhold 30% of such amount as described under Taxation of Distributions.
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Backup Withholding and Information Reporting
Information returns are required to be filed with the IRS in connection with payments of dividends on our Mandatory Convertible Preferred Stock and our common stock. Unless a Non-U.S. Holder complies with certification procedures to establish that it is not a U.S. person, information returns may also be filed with the IRS in connection with the proceeds from a sale or other disposition of our Mandatory Convertible Preferred Stock or our common stock. A Non-U.S. Holder may be subject to backup withholding on payments on our Mandatory Convertible Preferred Stock or our common stock or on the proceeds from a sale or other disposition of our common stock unless the Non-U.S. Holder complies with certification procedures to establish that it is not a U.S. person or otherwise establishes an exemption. The provision of a properly executed applicable IRS Form W-8 certifying non-U.S. status will permit you to avoid backup withholding. Amounts withheld under the backup withholding rules are not additional taxes and may be refunded or credited against a Non-U.S. Holders U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
FATCA
Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as FATCA), payments of dividends on and the gross proceeds of dispositions of our Mandatory Convertible Preferred Stock and common stock paid to (i) a foreign financial institution (as specifically defined in the Code) or (ii) a non-financial foreign entity (as specifically defined in the Code) will be subject to a withholding tax (separate and apart from, but without duplication of, the withholding tax described above) at a rate of 30%, unless various U.S. information reporting and due diligence requirements (generally relating to ownership by U.S. persons of interests in or accounts with those entities) have been satisfied or an exemption from these rules applies. Under proposed U.S. Treasury regulations promulgated by the Treasury Department on December 13, 2018, which state that taxpayers may rely on the proposed Treasury regulations until final Treasury regulations are issued, this withholding tax will not apply to the gross proceeds from the sale or disposition of our Mandatory Convertible Preferred Stock or common stock (other than with respect to amounts that are treated as dividends). An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. If a dividend payment is both subject to withholding under FATCA and subject to the withholding tax discussed above under Taxation of Distributions, the withholding under FATCA may be credited against, and therefore reduce, such other withholding tax. Non-U.S. holders should consult their tax advisors regarding the possible implications of this withholding tax on their investment in our Mandatory Convertible Preferred Stock or common stock.
Federal Estate Tax
Individual Non-U.S. Holders and entities the property of which is potentially includible in such an individuals gross estate for U.S. federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained certain interests or powers), should note that, absent an applicable treaty exemption, our Mandatory Convertible Preferred Stock and our common stock will be treated as U.S.-situs property subject to U.S. federal estate tax.
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UNDERWRITING
We are offering the shares of Mandatory Convertible Preferred Stock described in this prospectus through a number of underwriters. BofA Securities, Inc. and J.P. Morgan Securities LLC are acting as representatives of the underwriters. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of Mandatory Convertible Preferred Stock listed next to its name in the following table:
Name |
Number of Shares |
|||
BofA Securities, Inc. |
||||
J.P. Morgan Securities LLC |
||||
Barclays Capital Inc. |
||||
BMO Capital Markets Corp. |
||||
Credit Suisse Securities (USA) LLC |
||||
Deutsche Bank Securities Inc. |
||||
Goldman Sachs & Co. LLC |
||||
Citigroup Global Markets Inc. |
||||
HSBC Securities (USA) Inc. |
||||
RBC Capital Markets, LLC |
||||
Scotia Capital (USA) Inc. |
||||
TD Securities (USA) LLC |
||||
CIBC World Markets Corp. |
||||
Guggenheim Securities, LLC |
||||
Credit Agricole Securities (USA) Inc. |
||||
ING Financial Markets LLC |
||||
National Bank of Canada Financial Inc. |
||||
Natixis Securities Americas LLC |
||||
Santander Investment Securities Inc. |
||||
Siebert Williams Shank & Co., LLC |
||||
|
|
|||
Total |
||||
|
|
The underwriters are committed to purchase all the shares of Mandatory Convertible Preferred Stock offered by us if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of the non-defaulting underwriters may also be increased or the offering may be terminated.
The underwriters propose to offer the shares of Mandatory Convertible Preferred Stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. After the initial offering of the shares to the public, if all of the shares of Mandatory Convertible Preferred Stock are not sold at the initial public offering price, the underwriters may change the offering price and the other selling terms. Sales of any shares made outside of the United States may be made by affiliates of the underwriters. The offering of the shares by the underwriters is subject to receipt and acceptance of the shares and subject to the underwriters right to reject any order in whole or in part.
The underwriters have an option to buy up to additional shares of Mandatory Convertible Preferred Stock from us to cover over-allotments. The underwriters have 30 days from the date of this prospectus to exercise this option to purchase additional shares. If any shares are purchased with this option to purchase additional shares, the underwriters will purchase shares in approximately the same proportion as shown in the
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table above. If any additional shares of Mandatory Convertible Preferred Stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the initial shares are being offered.
The underwriting fee is equal to the public offering price per share of Mandatory Convertible Preferred Stock less the amount paid by the underwriters to us per share of Mandatory Convertible Preferred Stock. The underwriting fee is $ per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters option to purchase additional shares.
Without option to purchase additional shares exercise |
With full option to purchase additional shares exercise |
|||||||
Per Share |
$ | $ | ||||||
Total |
$ | $ |
We have agreed to reimburse the underwriters for their FINRA counsel fee. In accordance with FINRA Rule 5110, this reimbursed fee is deemed underwriting compensation for this offering.
We estimate that the total expenses of the Concurrent Offering and this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $ .
A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.
We have agreed that, subject to certain exceptions, we will not, without the prior written consent of BofA Securities, Inc. and J.P. Morgan Securities LLC for a period of 180 days after the date of this prospectus, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, or publicly file with, the SEC a registration statement under the Exchange Act relating to, any shares of our common stock or securities convertible into or exercisable or exchangeable for any shares of our common stock, or publicly disclose the intention to undertake any of the foregoing, or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any shares of common stock or any such other securities.
Our directors and executive officers and holders of substantially all of our common stock (the lock-up parties) have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of them, with limited exceptions, for a period of 180 days after the date of this prospectus, may not (and may not cause any of their direct or indirect affiliates to), without the prior written consent of BofA Securities, Inc. and J.P. Morgan Securities LLC, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock (including, without limitation, common stock or such other securities which may be deemed to be beneficially owned by such lock-up parties in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant (collectively with the common stock, the lock-up securities)); (ii) enter into any hedging, swap or other agreement, transaction or arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the lock-up securities, whether any such transaction described in
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clause (i) or (ii) above is to be settled by delivery of lock-up securities, in cash or otherwise; (iii) make any demand for, or exercise any right with respect to, the registration of any shares of our common stock or any security convertible into or exercisable for our common stock, except as those demands or exercises do not involve any public disclosure or filing; or (iv) publicly disclose the intention to undertake any of the foregoing. Such persons or entities have further acknowledged that these undertakings preclude them from engaging in any hedging or other transactions or arrangements (including, without limitation, any short sale or the purchase or sale of, or entry into, any put or call option, or combination thereof, forward, swap or any other derivative transaction or instrument, however described or defined) designed or intended, or which could reasonably be expected to lead to or result in, a sale or disposition or transfer (by any person or entity, whether or not a signatory to such agreement) of any economic consequences of ownership, in whole or in part, directly or indirectly, of any lock-up securities, whether any such transaction or arrangement (or instrument provided for thereunder) would be settled by delivery of lock-up securities, in cash or otherwise.
BofA Securities, Inc. and J.P. Morgan Securities LLC, in their sole discretion, may release the securities subject to any of the lock-up agreements with the underwriters described above, in whole or in part at any time.
Record holders of our securities are typically the parties to the lock-up agreements with the underwriters and the market standoff agreements with us referred to above, while holders of beneficial interests in our shares who are not also record holders in respect of such shares are not typically subject to any such agreements or other similar restrictions. Accordingly, we believe that certain holders of beneficial interests who are not record holders and are not bound by market standoff or lock-up agreements could enter into transactions with respect to those beneficial interests that negatively impact our stock price. In addition, any stockholder who is neither subject to a market standoff agreement with us nor a lock-up agreement with the underwriters may be able to sell, short sell, transfer, hedge, pledge, lend or otherwise dispose of or attempt to sell short sell, transfer, hedge, pledge, lend or otherwise dispose of, their equity interests at any time after the closing of this offering.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
We have applied to list the Mandatory Convertible Preferred Stock and our common stock on the NYSE under the symbols BTRY PRA and BTRY, respectively.
In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of the Mandatory Convertible Preferred Stock in the open market for the purpose of preventing or retarding a decline in the market price of the Mandatory Convertible Preferred Stock while this offering is in progress. These stabilizing transactions may include making short sales of Mandatory Convertible Preferred Stock, which involves the sale by the underwriters of a greater number of shares of Mandatory Convertible Preferred Stock than they are required to purchase in this offering, and purchasing shares of Mandatory Convertible Preferred Stock on the open market to cover positions created by short sales. Short sales may be covered shorts, which are short positions in an amount not greater than the underwriters option to purchase additional shares referred to above, or may be naked shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their option to purchase additional shares, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Mandatory Convertible Preferred Stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.
The underwriters have advised us that, pursuant to Regulation M of the Securities Act of 1933, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the Mandatory Convertible
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Preferred Stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase the Mandatory Convertible Preferred Stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.
These activities may have the effect of raising or maintaining the market price of the Mandatory Convertible Preferred Stock or preventing or retarding a decline in the market price of the Mandatory Convertible Preferred Stock, and, as a result, the price of the Mandatory Convertible Preferred Stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the NYSE, in the over-the-counter market or otherwise. Prior to this offering and the Concurrent Offering, there has been no public market for the Mandatory Convertible Preferred Stock or our common stock, respectively. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:
| the information set forth in this prospectus and otherwise available to the representatives; |
| our prospects and the history and prospects for the industry in which we compete; |
| an assessment of our management; |
| our prospects for future earnings; |
| the general condition of the securities markets at the time of this offering; |
| the recent market prices of, and demand for, publicly traded securities of generally comparable companies; and |
| other factors deemed relevant by the underwriters and us. |
Neither we nor the underwriters can assure investors that an active trading market will develop for the Mandatory Convertible Preferred Stock or our common shares, respectively, or that the shares will trade in the public market at or above the initial public offering price.
Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.
In the ordinary course of their various business activities, the underwriters and their affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively traded securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the issuer. The underwriters and their affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is
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required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
In connection with the offering, are not acting for anyone other than the issuer and will not be responsible to anyone other than the issuer for providing the protections afforded to their clients nor for providing advice in relation to the offering.
Notice to Prospective Investors in United Kingdom
In relation to the United Kingdom (UK), no shares have been offered or will be offered pursuant to the offering to the public in the UK prior to the publication of a prospectus in relation to the shares which has been approved by the Financial Conduct Authority in the UK in accordance with the UK Prospectus Regulation and the FSMA, except that offers of shares may be made to the public in the UK at any time under the following exemptions under the UK Prospectus Regulation and the FSMA:
a. | to any legal entity which is a qualified investor as defined under the UK Prospectus Regulation; |
b. | to fewer than 150 natural or legal persons (other than qualified investors as defined under the UK Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or |
c. | at any time in other circumstances falling within section 86 of the FSMA, |
provided that no such offer of shares shall require the Company or any underwriter to publish a prospectus pursuant to Section 85 of the FSMA or Article 3 of the UK Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the UK Prospectus Regulation.
Each person in the UK who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with the Company and the underwriters that it is a qualified investor within the meaning of the UK Prospectus Regulation.
In the case of any shares being offered to a financial intermediary as that term is used in Article 5(1) of the UK Prospectus Regulation, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer to the public other than their offer or resale in the UK to qualified investors, in circumstances in which the prior consent of the underwriters has been obtained to each such proposed offer or resale.
The Company, the underwriters and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.
For the purposes of this provision, the expression an offer to the public in relation to any shares in the UK means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase or subscribe for any shares, the expression UK Prospectus Regulation means Regulation (EU) 2017/1129 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018, and the expression FSMA means the Financial Services and Markets Act 2000.
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In connection with the offering, are not acting for anyone other than the issuer and will not be responsible to anyone other than the issuer for providing the protections afforded to their clients nor for providing advice in relation to the offering.
This document is for distribution only to persons who (i) have professional experience in matters relating to investments and who qualify as investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the Financial Promotion Order), (ii) are persons falling within Article 49(2)(a) to (d) (high net worth companies, unincorporated associations etc.) of the Financial Promotion Order, (iii) are outside the UK, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) in connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as relevant persons). This document is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons.
Notice to Prospective Investors in Switzerland
This prospectus is not intended to constitute an offer or solicitation to purchase or invest in the shares. The shares may not be publicly offered, directly or indirectly, in Switzerland within the meaning of the Swiss Financial Services Act (FinSA) and no application has or will be made to admit the shares to trading on any trading venue (exchange or multilateral trading facility) in Switzerland. Neither this prospectus nor any other offering or marketing material relating to the shares constitutes a prospectus pursuant to the FinSA, and neither this prospectus nor any other offering or marketing material relating to the shares may be publicly distributed or otherwise made publicly available in Switzerland.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Markets Rules 2012 of the Dubai Financial Services Authority (DFSA). This prospectus is intended for distribution only to persons of a type specified in the Markets Rules 2012 of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
In relation to its use in the DIFC, this prospectus is strictly private and confidential and is being distributed to a limited number of investors and must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose. The interests in the securities may not be offered or sold directly or indirectly to the public in the DIFC.
Notice to Prospective Investors in Australia
This prospectus:
| does not constitute a disclosure document or a prospectus under Chapter 6D.2 of the Corporations Act 2001 (Cth) (the Corporations Act); |
| has not been, and will not be, lodged with the Australian Securities and Investments Commission (ASIC), as a disclosure document for the purposes of the Corporations Act and does not purport to include the information required of a disclosure document for the purposes of the Corporations Act; and |
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| may only be provided in Australia to select investors who are able to demonstrate that they fall within one or more of the categories of investors, available under section 708 of the Corporations Act (Exempt Investors). |
The shares may not be directly or indirectly offered for subscription or purchased or sold, and no invitations to subscribe for or buy the shares may be issued, and no draft or definitive offering memorandum, advertisement or other offering material relating to any shares may be distributed in Australia, except where disclosure to investors is not required under Chapter 6D of the Corporations Act or is otherwise in compliance with all applicable Australian laws and regulations. By submitting an application for the shares, you represent and warrant to us that you are an Exempt Investor.
As any offer of shares under this document will be made without disclosure in Australia under Chapter 6D.2 of the Corporations Act, the offer of those securities for resale in Australia within 12 months may, under section 707 of the Corporations Act, require disclosure to investors under Chapter 6D.2 if none of the exemptions in section 708 applies to that resale. By applying for the shares you undertake to us that you will not, for a period of 12 months from the date of sale of the shares, offer, transfer, assign or otherwise alienate those shares to investors in Australia except in circumstances where disclosure to investors is not required under Chapter 6D.2 of the Corporations Act or where a compliant disclosure document is prepared and lodged with ASIC.
Notice to Prospective Investors in Hong Kong
The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the SFO) of Hong Kong and any rules made thereunder; or (b) in other circumstances which do not result in the document being a prospectus as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of Hong Kong) (the CO) or which do not constitute an offer to the public within the meaning of the CO. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the SFO and any rules made thereunder.
Notice to Prospective Investors in Japan
The shares have not been and will not be registered pursuant to Article 4, Paragraph 1 of the Financial Instruments and Exchange Law of Japan. Accordingly, none of the shares nor any interest therein may be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to or for the benefit of a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and any other applicable laws, regulations and ministerial guidelines of Japan in effect at the relevant time.
Notice to Prospective Investors in Singapore
Each underwriter has acknowledged that this prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each underwriter has represented and agreed that it has not offered or sold any shares or caused the shares to be made the subject of an invitation for subscription or purchase and will not offer or sell any shares or cause the shares to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this prospectus or
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any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares, whether directly or indirectly, to any person in Singapore other than:
(a) | to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289) of Singapore, as modified or amended from time to time (the SFA)) pursuant to Section 274 of the SFA; |
(b) | to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA; or |
(c) | otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. |
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a) | a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
(b) | a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
(i) | to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
(ii) | where no consideration is or will be given for the transfer; |
(iii) | where the transfer is by operation of law; |
(iv) | as specified in Section 276(7) of the SFA; or |
(v) | as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018. |
Notice to Prospective Investors in Peoples Republic of China
This prospectus may not be circulated or distributed in the PRC and the Mandatory Convertible Preferred Stock may not be offered or sold, and will not be offered or sold to any person for re-offering or resale directly or indirectly to any resident of the PRC or for the benefit of, legal or natural persons of the PRC except pursuant to applicable laws and regulations of the PRC. Neither this prospectus nor any advertisement or other offering material may be distributed or published in the PRC, except under circumstances that will result in compliance with applicable laws and regulations.
Notice to Prospective Investors in Republic of Korea
The shares of the Mandatory Convertible Preferred Stock have not been registered under the Financial Investment Services and Capital Markets Act of Korea. Accordingly, due to restrictions under and the requirements of the securities laws of the Republic of Korea, the shares of the Mandatory Convertible Preferred Stock are not being offered or sold and may not be offered or sold, and the registration statement of which this prospectus forms a part may not be circulated or distributed, directly or indirectly, in such jurisdiction. Persons located in or who are resident of such jurisdiction will not be permitted to acquire, directly or indirectly, any shares of the Mandatory Convertible Preferred Stock in this offering, except as permitted by law applicable to such person and full compliance with such law.
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Notice to Prospective Investors in Saudi Arabia
This prospectus has been prepared on the basis that prospective investors in the Fund are Sophisticated investors as defined by Article 74(b) of Investment Funds Regulations issued by the Capital Markets Authoritys board and therefore distribution of the prospectus will be carried out through a distributor who will provide investors with the same documentation that the foreign fund made available to investors in other jurisdictions, and ensure that any information provided by the distributor to the investors is complete, accurate and not misleading.
This document may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Investment Fund Regulations issued by the Capital Market Authority. The Capital Market Authority does not make any representation as to the accuracy or completeness of this document and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this document. Prospective purchasers of the shares offered hereby should conduct their own due diligence on the accuracy of the information relating to the securities. If you do not understand the contents of this document, you should consult an authorized financial adviser.
Notice to Prospective Investors in Qatar
The shares described in this prospectus have not been, and will not be, offered, sold or delivered at any time, directly or indirectly, in the State of Qatar in a manner that would constitute a public offering or an attempt to do business as a bank, an investment company or otherwise in the State of Qatar. The sale and marketing of the Units in this prospectus are made to qualified investors only. This prospectus has not been, and will not be, filed with, reviewed by or approved by the Qatar Central Bank, the Qatar Financial Markets Authority or any other relevant Qatari authority or any other regulator in the State of Qatar and may not be publicly distributed. This prospectus and the information contained therein are intended for original recipient only, may not be shared with any third-party in Qatar and should not be provided to any other person. This prospectus not for general circulation in the State of Qatar and should not be reproduced or used for any other purpose and any distribution or reproduction of this document by the recipient to third parties in Qatar is not permitted and shall be at the liability of such recipient. The prospectus is not, and will not be, registered with Qatar Central Bank or with the Qatar Financial Centre Regulatory Authority.
Notice to Prospective Investors in Kuwait
This prospectus is not for general circulation to the public in Kuwait. The shares have not been licensed for offering in Kuwait by the Kuwait Capital Markets Authority or any other relevant Kuwaiti government agency. The offering of the shares in Kuwait on the basis a private placement or public offering is, therefore, restricted in accordance with Law No. 7 of 2010 and the bylaws thereto (as amended). No private or public offering of the shares is being made in Kuwait, and no agreement relating to the sale of the shares will be concluded in Kuwait. No marketing or solicitation or inducement activities are being used to offer or market shares in Kuwait.
Notice to Prospective Investors in Canada
The shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation,
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provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
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Shares
% Series A Mandatory Convertible Preferred Stock
Clarios International Inc.
PRELIMINARY PROSPECTUS
, 2021
BofA Securities
J.P. Morgan
Through and including , 2021 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade our Mandatory Convertible Preferred Stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
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Shares
Common Stock
Clarios International Inc.
PRELIMINARY PROSPECTUS
, 2021
BofA Securities
J.P. Morgan
Barclays
BMO Capital Markets
Credit Suisse
Deutsche Bank Securities
Goldman Sachs & Co. LLC
Citigroup
HSBC
RBC Capital Markets
Scotiabank TD Securities
CIBC Capital Markets
Guggenheim Securities
Credit Agricole CIB
ING
National Bank of Canada Financial Inc.
Natixis
Santander
Siebert Williams Shank
Through and including , 2021 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Amount to Be Paid |
||||
SEC registration fee |
$ | * | ||
FINRA filing fee |
* | |||
Listing fee |
* | |||
Transfer agents fees |
* | |||
Printing and engraving expenses |
* | |||
Legal fees and expenses |
* | |||
Accounting fees and expenses |
* | |||
Blue Sky fees and expenses |
* | |||
Miscellaneous |
* | |||
|
|
|||
Total |
$ | * | ||
|
|
* | To be completed by amendment. |
Each of the amounts set forth above, other than the SEC registration fee and the FINRA filing fee, is an estimate.
Item 14. Indemnification of Directors and Officers
Section 145 of the DGCL provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee or agent to the registrant. The DGCL provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. The registrants amended and restated bylaws provide for indemnification by the registrant of its directors, officers and employees to the fullest extent permitted by the DGCL. The registrant has entered into indemnification agreements with each of its current directors and executive officers to provide these directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in the registrants amended and restated certificate of incorporation and amended and restated bylaws and to provide additional procedural protections. There is no pending litigation or proceeding involving a director or executive officer of the registrant for which indemnification is sought.
Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the directors duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions, or (iv) for any transaction from which the director derived an improper personal benefit. The registrants Certificate of Incorporation provides for such limitation of liability.
The registrant maintains standard policies of insurance under which coverage is provided (a) to its directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act, and (b) to the registrant with respect to payments which may be made by the registrant to such officers and directors pursuant to the above indemnification provision or otherwise as a matter of law.
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The proposed form of underwriting agreement filed as Exhibit 1 to this registration statement provides for indemnification of directors and officers of the registrant by the underwriters against certain liabilities.
Item 15. Recent Sales of Unregistered Securities
The following sets forth information regarding all securities sold or issued by the predecessors to the registrant in the three years preceding the date of this registration statement. In each of the transactions described below, the recipients of the securities represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the securities issued in these transactions.
On November 13, 2018, Johnson Controls International plc (JCI) entered into a Stock and Asset Purchase Agreement (Purchase Agreement) with BCP Acquisitions LLC, which subsequently assigned its rights under the Purchase Agreement to an affiliate (such entities, the Purchaser). Pursuant to the Purchase Agreement, JCI agreed to sell, and the Purchaser agreed to acquire, the power solutions business of JCI, or Clarios Global LP. On April 30, 2020, pursuant to the terms of the Purchase Agreement, Clarios Global LP issued equity interests valued at approximately $13.2 billion. The sale of Clarios Global LPs equity interests was deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving any public offering.
On April 1, 2019, Clarios Global LP and Clarios US Finance Company, Inc., each wholly owned subsidiaries of the Company, issued $1,000.0 million aggregate principal amount of 6.250% Senior Secured Notes due 2026 (the 2026 USD Secured Notes), 700.0 million aggregate principal amount of 4.375% Senior Secured Notes due 2026 (the Euro Secured Notes and, together with the 2026 USD Secured Notes, the 2026 Secured Notes) and $1,950.0 million aggregate principal amount of 8.500% Senior Notes due 2027 (the Unsecured Notes). The 2026 Secured Notes and the Unsecured Notes were sold to persons reasonably believed to be qualified institutional buyers in the United States in reliance upon Section 4(a)(2) of the Securities Act and to investors outside the United States in compliance with Regulation S under the Securities Act. The 2026 Secured Notes and the Unsecured Notes were offered to investors at 100.0% of the principal amount thereof. For more information, see Description of Material Indebtedness in the prospectus filed as part of this registration statement.
On May 20, 2020, Clarios Global LP and Clarios US Finance Company, Inc., each wholly owned subsidiaries of the Company, issued $500.0 million aggregate principal amount of 6.750% Senior Secured Notes due 2025 (the 2025 Secured Notes). The 2025 Secured Notes were sold to persons reasonably believed to be qualified institutional buyers in the United States in reliance upon Section 4(a)(2) of the Securities Act and to investors outside the United States in compliance with Regulation S under the Securities Act. The 2025 Secured Notes were offered to investors at 100.0% of the principal amount thereof. For more information, see Description of Material Indebtedness in the prospectus filed as part of this registration statement.
Item 16. Exhibits and Financial Statement Schedules
(a) | The following exhibits are filed as part of this Registration Statement: |
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II-3
II-4
** | Previously filed. |
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(b) | The financial statement schedule of the registrant consists of the following: |
Schedule II Valuation and Qualifying Accountants
Successor | Predecessor | |||||||||||||||
Year Ended September 30, 2020 |
Five Months Ended September 30, 2019 |
Seven Months Ended April 30, 2019 |
Year Ended September 30, 2018 |
|||||||||||||
(in millions) | ||||||||||||||||
Accounts ReceivableAllowance for Doubtful Accounts |
||||||||||||||||
Balance at beginning of period |
$ | 12 | $ | 12 | $ | 8 | $ | 8 | ||||||||
Provision charged to costs and expenses |
14 | 6 | 6 | 5 | ||||||||||||
Reserve adjustments |
(8 | ) | (4 | ) | (2 | ) | (3 | ) | ||||||||
Accounts charged off |
(6 | ) | (1 | ) | (1 | ) | (2 | ) | ||||||||
Currency translation |
1 | (1 | ) | 1 | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 13 | $ | 12 | $ | 12 | $ | 8 | ||||||||
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|
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|
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Deferred Tax AssetsValuation Allowance |
||||||||||||||||
Balance at beginning of period (1) |
$ | 145 | $ | 126 | $ | 101 | $ | 74 | ||||||||
Provision charged to costs and expenses |
86 | 25 | 178 | 47 | ||||||||||||
Allowance provision benefits |
(17 | ) | (3 | ) | (3 | ) | (20 | ) | ||||||||
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|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 214 | $ | 148 | $ | 276 | $ | 101 | ||||||||
|
|
|
|
|
|
|
|
(1) | The beginning balances for the year ended September 30, 2020 and the five months ended September 30, 2019 reflect adjustments to record deferred tax assets at their respective fair values as of the Acquisition Date. Refer to Note 2, Acquisitions, of the notes to financial statements for further information. |
All other schedules have been omitted because they are not applicable or because the information required is included in the notes to the consolidated financial statements.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(a) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions referenced in Item 14 of this registration statement, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of
II-6
whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-7
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the state of Wisconsin, on the 2nd day of July, 2021.
CLARIOS INTERNATIONAL INC. | ||||
By: | /s/ Mark Wallace | |||
Name: | Mark Wallace | |||
Title: | President and Chief Executive Officer and Director |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Mark Wallace, the Companys Chief Executive Officer, and Christopher J. Eperjesy, the Companys Chief Financial Officer, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement and any and all additional registration statements pursuant to Rule 462(b) of the Securities Act of 1933, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agents full power and authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date | ||
/s/ Mark Wallace Mark Wallace |
President and Chief Executive Officer and Director (principal executive officer) |
July 2, 2021 | ||
/s/ Christopher J. Eperjesy Christopher J. Eperjesy |
Chief Financial Officer (principal financial officer) |
July 2, 2021 | ||
/s/ Becky Kryger Becky Kryger |
Vice President and Global Controller (principal accounting officer) | July 2, 2021 | ||
/s/ Diarmuid OConnell Diarmuid OConnell |
Director | July 2, 2021 | ||
/s/ John Barkhouse John Barkhouse |
Director | July 2, 2021 | ||
/s/ Ron Bloom Ron Bloom |
Director | July 2, 2021 | ||
/s/ Catherine Clegg Catherine Clegg |
Director | July 2, 2021 | ||
/s/ Stephen Girsky Stephen Girsky |
Director | July 2, 2021 |
II-8
Signature |
Title |
Date | ||
/s/ Michael Norona Michael Norona |
Director | July 2, 2021 | ||
/s/ Justin Shaw Justin Shaw |
Director | July 2, 2021 | ||
/s/ Maryrose Sylvester Maryrose Sylvester |
Director | July 2, 2021 | ||
/s/ Bertrand Villon Bertrand Villon |
Director | July 2, 2021 | ||
/s/ Mark Weinberg Mark Weinberg |
Director | July 2, 2021 |
II-9
Exhibit 1.1
CLARIOS INTERNATIONAL INC.
[●] Shares of Common Stock
Underwriting Agreement
[●], 2021
BofA Securities, Inc.
J.P. Morgan Securities LLC
As Representatives of the
several Underwriters listed
in Schedule 1 hereto
c/o BofA Securities, Inc.
One Bryant Park
New York, NY 10036
c/o J.P. Morgan Securities LLC
383 Madison Avenue
New York, New York 10179
Ladies and Gentlemen:
Clarios International Inc., a Delaware corporation (the Company), proposes to issue and sell to the several underwriters listed in Schedule 1 hereto (the Underwriters), for whom you are acting as representatives (the Representatives), an aggregate of [●] shares of common stock, par value $0.01 per share (Common Stock), of the Company (the Underwritten Shares) and, at the option of the Underwriters, up to an additional [●] shares (the Option Shares) of Common Stock of the Company. The Underwritten Shares and the Option Shares are herein referred to as the Shares. The shares of Common Stock of the Company to be outstanding after giving effect to the sale of the Shares are referred to herein as the Stock.
In addition, concurrently with the offering and sale of the Shares, the Company intends to issue and sell up to [●] shares of its [●]% Series A Mandatory Convertible Preferred Stock, par value $0.01 per share with an initial liquidation preference of $50.00 per share (the Mandatory Convertible Preferred Stock) pursuant to a registration statement prepared and filed with the Securities and Exchange Commission (the Commission). In connection with the offer and sale of the Mandatory Convertible Preferred Stock (referred to herein as the Concurrent Offering), the Company has entered into an underwriting agreement, dated as of [●], 2021 between the Company and the several underwriters party thereto. The Underwriters are not committing to, and
will not purchase, any shares of Mandatory Convertible Preferred Stock pursuant to this Agreement. The offering of the Stock is not contingent upon the completion of the Mandatory Convertible Preferred Stock Offering.
The Company hereby confirms its agreement with the several Underwriters concerning the purchase and sale of the Shares, as follows:
1. Registration Statement. The Company has prepared and filed with the Commission under the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the Securities Act), a registration statement (File No. 333- ), including a prospectus, relating to the Shares. Such registration statement, as amended at the time it became effective, including the information, if any, deemed pursuant to Rule 430A, 430B or 430C under the Securities Act to be part of the registration statement at the time of its effectiveness (Rule 430 Information), is referred to herein as the Registration Statement; and as used herein, the term Preliminary Prospectus means each prospectus included in such registration statement (and any amendments thereto) before effectiveness, any prospectus filed with the Commission pursuant to Rule 424(a) under the Securities Act and the prospectus included in the Registration Statement at the time of its effectiveness that omits Rule 430 Information, and the term Prospectus means the prospectus in the form first used (or made available upon request of purchasers pursuant to Rule 173 under the Securities Act) in connection with confirmation of sales of the Shares. If the Company has filed an abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the Rule 462 Registration Statement), then any reference herein to the term Registration Statement shall be deemed to include such Rule 462 Registration Statement. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Registration Statement and the Prospectus.
At or prior to the Applicable Time (as defined below), the Company had prepared the following information (collectively, the Pricing Disclosure Package): a Preliminary Prospectus dated [●], 2021 and each free-writing prospectus (as defined pursuant to Rule 405 under the Securities Act) listed on Annex A hereto.
Applicable Time means [●] [A/P].M., New York City time, on [●], 2021.
2. Purchase of the Shares.
(a) The Company agrees to issue and sell the Underwritten Shares to the several Underwriters as provided in this underwriting agreement (this Agreement), and each Underwriter, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, agrees, severally and not jointly, to purchase at a price per share of $[●] (the Purchase Price) from the Company the respective number of Underwritten Shares set forth opposite such Underwriters name in Schedule 1 hereto.
In addition, the Company agrees to issue and sell the Option Shares to the several Underwriters as provided in this Agreement, and the Underwriters, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, shall have the option to purchase, severally and not jointly, from the Company the Option Shares at
the Purchase Price less an amount per share equal to any dividends or distributions declared by the Company and payable on the Underwritten Shares but not payable on the Option Shares.
If any Option Shares are to be purchased, the number of Option Shares to be purchased by each Underwriter shall be the number of Option Shares which bears the same ratio to the aggregate number of Option Shares being purchased as the number of Underwritten Shares set forth opposite the name of such Underwriter in Schedule 1 hereto (or such number increased as set forth in Section 10 hereof) bears to the aggregate number of Underwritten Shares being purchased from the Company by the several Underwriters, subject, however, to such adjustments to eliminate any fractional Shares as the Representatives in their sole discretion shall make.
The Underwriters may exercise the option to purchase Option Shares at any time in whole, or from time to time in part, on or before the thirtieth day following the date of the Prospectus, by written notice from the Representatives to the Company. Such notice shall set forth the aggregate number of Option Shares as to which the option is being exercised and the date and time when the Option Shares are to be delivered and paid for, which may be the same date and time as the Closing Date (as hereinafter defined) but shall not be earlier than the Closing Date nor later than the tenth full business day (as hereinafter defined) after the date of such notice (unless such time and date are postponed in accordance with the provisions of Section 10 hereof). Any such notice shall be given at least two business days prior to the date and time of delivery specified therein.
(b) The Company understands that the Underwriters intend to make a public offering of the Shares, and initially to offer the Shares on the terms set forth in the Pricing Disclosure Package. The Company acknowledges and agrees that the Underwriters may offer and sell Shares to or through any affiliate of an Underwriter.
(c) Payment for the Shares shall be made by wire transfer in immediately available funds to the account specified by the Company to the Representatives in the case of the Underwritten Shares via teleconference at 10:00 A.M. New York City time on [●], 2021, or at such other time or place on the same or such other date, not later than the fifth business day thereafter, as the Representatives and the Company may agree upon in writing or, in the case of the Option Shares, on the date and at the time and place specified by the Representatives in the written notice of the Underwriters election to purchase such Option Shares. The time and date of such payment for the Underwritten Shares is referred to herein as the Closing Date , and the time and date for such payment for the Option Shares, if other than the Closing Date, is herein referred to as the Additional Closing Date.
Payment for the Shares to be purchased on the Closing Date or the Additional Closing Date, as the case may be, shall be made against delivery to the Representatives for the respective accounts of the several Underwriters of the Shares to be purchased on such date registered in such names and in such denominations as the Representatives shall request in writing not later than two full business days prior to the Closing Date or the Additional Closing Date, as the case may be with any transfer taxes payable in connection with the sale of such Shares duly paid by the Company. Delivery of the Shares shall be made through the facilities of The Depository Trust Company (DTC) unless the Representatives shall otherwise instruct. To the extent applicable, the certificates for the Shares will be made available for inspection and packaging by the Representatives
at the office of DTC or its designated custodian not later than 1:00 P.M., New York City time, on the business day prior to the Closing Date or the Additional Closing Date, as the case may be.
(d) The Company acknowledges and agrees that the Representatives and the other Underwriters are acting solely in the capacity of an arms length contractual counterparty to the Company with respect to the offering of Shares contemplated hereby (including in connection with determining the terms of the offering) and not as a financial advisor or a fiduciary to, or an agent of, the Company or any other person. Additionally, neither the Representatives nor any other Underwriter is advising the Company or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction. The Company shall consult with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated hereby, and neither the Representatives nor the other Underwriters shall have any responsibility or liability to the Company with respect thereto. Any review by the Representatives and the other Underwriters of the Company, the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Underwriters and shall not be on behalf of the Company.
3. Representations and Warranties of the Company. The Company represents and warrants to each Underwriter that:
(a) Preliminary Prospectus. No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus included in the Pricing Disclosure Package, at the time of filing thereof, complied in all material respects with the Securities Act, and no Preliminary Prospectus, at the time of filing thereof, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in any Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.
(b) Pricing Disclosure Package. The Pricing Disclosure Package as of the Applicable Time did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in such Pricing Disclosure Package, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof. No statement of material fact
included in the Prospectus has been omitted from the Pricing Disclosure Package and no statement of material fact included in the Pricing Disclosure Package that is required to be included in the Prospectus has been omitted therefrom.
(c) Issuer Free Writing Prospectus. Other than the Registration Statement, the Preliminary Prospectus and the Prospectus, the Company (including its agents and representatives, other than the Underwriters in their capacity as such) has not prepared, made, used, authorized, approved or referred to and will not prepare, make, use, authorize, approve or refer to any written communication (as defined in Rule 405 under the Securities Act) that constitutes an offer to sell or solicitation of an offer to buy the Shares (each such communication by the Company or its agents and representatives (other than a communication referred to in clause (i) below) an Issuer Free Writing Prospectus) other than (i) any document not constituting a prospectus pursuant to Section 2(a)(10)(a) of the Securities Act or Rule 134 under the Securities Act or (ii) the documents listed on Annex A hereto, each electronic road show and any other written communications approved in writing in advance by the Representatives. Each such Issuer Free Writing Prospectus complies in all material respects with the Securities Act, has been or will be (within the time period specified in Rule 433) filed in accordance with the Securities Act (to the extent required thereby) and does not conflict with the information contained in the Registration Statement or the Pricing Disclosure Package, and, when taken together with the Preliminary Prospectus accompanying, or delivered prior to delivery of, such Issuer Free Writing Prospectus, did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in each such Issuer Free Writing Prospectus or Preliminary Prospectus in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in such Issuer Free Writing Prospectus or Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.
(d) Testing-the-Waters Materials. Testing-the-Waters Communication means any oral or written communication with potential investors undertaken in reliance on either Section 5(d) of, or Rule 163B under, the Securities Act. The Company (i) has not alone engaged in any Testing-the-Waters Communications other than Testing-the-Waters Communications with the consent of the Representatives (x) with entities that are qualified institutional buyers (QIBs) within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act (IAIs) and otherwise in compliance with the requirements of Section 5(d) of the Securities Act or (y) with entities that the Company reasonably believed to be QIBs or IAIs and otherwise in compliance with the requirements of Rule 163B under the Securities Act and (ii) has not authorized anyone other than the Representatives to engage in Testing-the-Waters
Communications. The Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications by virtue of a writing substantially in the form of Exhibit A hereto. The Company has not distributed or approved for distribution any Written Testing-the-Waters Communications other than those listed on Annex B hereto. Written Testing-the-Waters Communication means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act. Any individual Written Testing-the-Waters Communication does not conflict with the information contained in the Registration Statement or the Pricing Disclosure Package, complied in all material respects with the Securities Act, and when taken together with the Pricing Disclosure Package as of the Applicable Time, did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(e) Registration Statement and Prospectus. The Registration Statement has been declared effective by the Commission. No order suspending the effectiveness of the Registration Statement has been issued by the Commission, and no proceeding for that purpose or pursuant to Section 8A of the Securities Act against the Company or related to the offering of the Shares has been initiated or, to the Companys knowledge, threatened by the Commission; as of the applicable effective date of the Registration Statement and any post-effective amendment thereto, the Registration Statement and any such post-effective amendment complied and will comply in all material respects with the Securities Act, and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and as of the date of the Prospectus and any amendment or supplement thereto and as of the Closing Date and as of the Additional Closing Date, as the case may be, the Prospectus will comply in all material respects with the Securities Act and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement and the Prospectus and any amendment or supplement thereto, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.
(f) Financial Statements. The financial statements of the Company and its consolidated subsidiaries, together with the related notes, included in the Registration Statement, the Pricing Disclosure Package and the Prospectus comply in all material respects with the applicable requirements of the Securities Act and present fairly in all material respects the financial position of the Company and its consolidated subsidiaries as of the dates indicated and the results of their operations and the changes in their cash flows for the periods specified. Such financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) in the United States
applied on a consistent basis throughout the periods covered thereby, except as may be expressly stated in the related notes thereto. Any supporting schedules included in the Registration Statement present fairly in all material respects the information required to be stated therein. The other financial information in the Registration Statement, the Pricing Disclosure Package and the Prospectus has been derived from the accounting records of the Company and its consolidated subsidiaries and presents fairly in all material respects the information shown thereby; all disclosures included in the Registration Statement, the Pricing Disclosure Package and the Prospectus regarding non-GAAP financial measures (as such term is defined by the rules and regulations of Commission) comply in all material respects with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Securities Act, to the extent applicable; and the pro forma financial information and the related notes thereto included in the Registration Statement, the Pricing Disclosure Package and the Prospectus have been prepared in accordance with the applicable requirements of the Securities Act and the assumptions underlying such pro forma financial information provide a reasonable basis for presenting the transactions as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(g) No Material Adverse Change in Business. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, since the end of the period covered by the latest audited financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (i) there has been no change in the condition (financial or otherwise), or in the earnings, results of operations, business, management or properties, nor any development or event involving a prospective change, of the Company and its subsidiaries, taken as a whole, that is material and adverse, (ii) the Company and its respective subsidiaries, taken as a whole, have not incurred any material liability or obligation, indirect, direct or contingent, not in the ordinary course of business nor entered into any material transaction or agreement not in the ordinary course of business, (iii) there has been no dividend or distribution of any kind (other than the issuance of shares of Common Stock upon exercise of stock options and warrants described as outstanding in, and the grant of options and awards under existing equity incentive plans described in, the Registration Statement, the Pricing Disclosure Package and the Prospectus) declared, paid or made by the Company of any class of its capital stock, (iv) there has been no material adverse change in the capital stock, short-term indebtedness, long-term indebtedness, net current assets or net assets of the Company and its respective subsidiaries and (v) neither the Company nor any of its subsidiaries has sustained any loss or interference with its business that is material to the Company and its subsidiaries taken as a whole and that is either from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or governmental or regulatory authority, except in each case as otherwise disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(h) Organization and Good Standing. The Company and each of its significant subsidiaries have been duly formed, organized or incorporated and is validly existing and in good standing under the laws of their respective jurisdictions of
formation, organization or incorporation, as applicable, each with the limited partnership, limited liability company or corporate power and authority, as applicable to own, lease and operate its properties and conduct its business as described in the Registration Statement, Pricing Disclosure Package and Prospectus; and the Company and each of its significant subsidiaries is duly qualified to do business as a foreign corporation and are in good standing in all other jurisdictions in which their ownership or lease of property or the conduct of their respective business requires such qualification, except where the failure to be so qualified or in good standing (to the extent the concept of good standing is applicable in such jurisdiction) would not reasonably be expected to, individually or in the aggregate, have a material adverse effect on the condition (financial or otherwise), or in the earnings, results of operations, business, management, properties or prospects of the Company and its significant subsidiaries taken as a whole or on the performance by the Company of its obligations under this Agreement (a Material Adverse Effect). There are no significant subsidiaries, direct or indirect, of the Company that are not listed in Exhibit 21.1 of the Registration Statement.
(i) Capitalization. The Company has an authorized capitalization as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading Capitalization; all the outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and are not subject to any pre-emptive or similar rights that have not been duly waived or satisfied; except as described in or expressly contemplated by the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no outstanding rights (including, without limitation, pre-emptive rights that have not been duly waived or satisfied), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company or any of its significant subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company or any such subsidiary, any such convertible or exchangeable securities or any such rights, warrants or options; the capital stock of the Company conforms in all material respects to the description thereof contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and all the outstanding shares of capital stock or other equity interests of each subsidiary owned, directly or indirectly, by the Company have been duly and validly authorized and issued, are fully paid and non-assessable (except, in the case of any foreign subsidiary, for directors qualifying shares and except as otherwise described in the Registration Statement, the Pricing Disclosure Package and the Prospectus,) and, except as described in the Registration Statement, are owned directly or indirectly by the Company, free and clear of any lien, charge, encumbrance, security interest, restriction on voting or transfer or any other similar claim of any third party, as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(j) Stock Options. Neither the Company nor any of its subsidiaries has any stock options as such term is defined under Section 422 of the Code.
(k) Due Authorization. The Company has full right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder; and all
action required to be taken for the due and proper authorization, execution and delivery by it of this Agreement and the consummation by it of the transactions contemplated hereby has been duly and validly taken.
(l) Underwriting Agreement. This Agreement has been duly authorized, executed and delivered by the Company.
(m) The Shares. The Shares to be issued and sold by the Company hereunder have been duly authorized by the Company and, when issued and delivered and paid for as provided herein, will be duly and validly issued, will be fully paid and nonassessable and will conform to the descriptions thereof in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and the issuance of the Shares is not subject to any preemptive or similar rights that have not been duly waived or satisfied.
(n) [Reserved.]
(o) [Reserved.]
(p) No Violation or Default. Neither the Company nor any of its significant subsidiaries is (i) in violation of its charter or by-laws or similar organizational documents; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its significant subsidiaries is a party or by which the Company or any of its significant subsidiaries is bound or to which any property or asset of the Company or any of its significant subsidiaries is subject; or (iii) in violation of any law or statute applicable to the Company or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority have jurisdiction over the Company or any of its significant subsidiaries, except, in the case of clauses (ii) and (iii) above, for any such default or violation that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(q) No Conflicts. The execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares and the consummation of the transactions contemplated by this Agreement or the Pricing Disclosure Package and the Prospectus will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, result in the termination, modification or acceleration of, or result in the creation or imposition of any lien, charge or encumbrance upon any property, right or asset of the Company or any of its significant subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its significant subsidiaries is a party or by which the Company or any of its significant subsidiaries is bound or to which any property, right or asset of the Company or any of its significant subsidiaries is subject, (ii) result in any violation of the provisions of the charter or by-laws or similar organizational documents of the Company or any of its significant subsidiaries or (iii) result in the violation of any law or statute applicable to the Company or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority having
jurisdiction over the Company, except, in the case of clauses (i) and (iii) above, for any such conflict, breach, violation, default, lien, charge or encumbrance that would not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect.
(r) No Consents Required. No consent, approval, authorization, order, registration or qualification of or with any court or arbitrator or governmental or regulatory authority is required for the execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares and the consummation of the transactions contemplated by this Agreement, except for the registration of the Shares under the Securities Act and such consents, approvals, authorizations, orders and registrations or qualifications as may be required by FINRA and under applicable state securities laws in connection with the purchase and distribution of the Shares by the Underwriters.
(s) Legal Proceedings. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no legal, governmental or regulatory investigations, actions, demands, claims, suits, arbitrations, inquiries or proceedings (Actions) pending to which the Company or any of its significant subsidiaries is or may reasonably be expected to become a party or to which any property of the Company or any of its subsidiaries is or may reasonably be expected to be the subject that, individually or in the aggregate, if determined adversely to the Company or any of its significant subsidiaries, could reasonably be expected to have a Material Adverse Effect; to the knowledge of the Company, no such Actions are threatened or, contemplated by any governmental or regulatory authority or threatened by others; and (i) there are no current or pending Actions that are required under the Securities Act to be described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so described in the Registration Statement, the Pricing Disclosure Package and the Prospectus and (ii) there are no statutes, regulations or contracts or other documents that are required under the Securities Act to be filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(t) Independent Accountants. PricewaterhouseCoopers LLP and Deloitte & Touche LLP, who have each expressed their opinion with respect to the financial statements of the Company and its consolidated subsidiaries, are each an independent registered public accounting firm with respect to the Company and its subsidiaries within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act.
(u) Title to Real and Personal Property. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus and except as would not individually or in the aggregate constitute a Material Adverse Effect, the Company and its subsidiaries have good and marketable title to all real properties and good title to all other properties and assets owned by them, in each case free from liens, encumbrances and defects; and except as disclosed in the Registration Statement, the
Pricing Disclosure Package and the Prospectus and except as would not constitute individually or in the aggregate a Material Adverse Effect, the Company and its respective subsidiaries hold any leased real or personal property under valid and enforceable leases with no terms or provisions that would interfere with the use made thereof by them.
(v) Possession of Intellectual Property. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the Company and its respective subsidiaries possess or can acquire on commercially reasonable terms sufficient rights to use all trademarks, service marks, trade names, domain names, patents, copyrights, licenses, approvals, know-how (including trade secrets and other unpatented and/or patentable proprietary or confidential information system or procedures) and other similar intellectual property or proprietary rights (including all registrations and applications for registration of, and all good will associated with, the foregoing) (collectively, Intellectual Property Rights) necessary to conduct their businesses as presently conducted and as proposed to be conducted as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus. Except as would not individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the conduct of the business of the Company and its subsidiaries has not conflicted with, infringed, misappropriated or otherwise violated any Intellectual Property Rights of any third party in any material respect. The Company and its subsidiaries have not received any notice of infringement, misappropriation or other violation of, or conflict with, any Intellectual Property Rights of any third party, or any notice challenging the ownership, validity, enforceability, or scope of any Intellectual Property Rights owned by the Company or any of its respective subsidiaries, in each case, if the subject of an unfavorable decision, would reasonably be expected to have a Material Adverse Effect.
(w) No Undisclosed Relationships. Except as disclosed in the Registration Statement, there have not been, nor are there any currently proposed, transactions or series of similar transactions to which we will have been or will be a party that we are required to disclose by the Securities Act, other than compensation arrangements, which are described where required in the Registration Statement.
(x) Investment Company Act. The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be required to register as an investment company or an entity controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (collectively, the Investment Company Act).
(y) Taxes. Except for any failures that would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, the Company and its subsidiaries have (i) timely filed all U.S. and non-U.S. federal, provincial, state and local tax returns required to be filed by it or have requested extensions thereof and (ii) timely paid all U.S. and non-U.S. federal, provincial, state and local taxes imposed on it, including any interest, penalties, and other additions to tax (whether or not shown on a
tax return), including in its capacity as a withholding agent, except for any such taxes, interest, penalties and other additions currently being contested in good faith. The Company has made adequate charges, accruals and reserves in accordance with GAAP in the applicable financial statements referred to in Section 2(w) hereof in respect of all U.S. and non-U.S. federal, provincial, state, and local taxes for all periods as to which the tax liability of the Company or any of its respective subsidiaries has not been finally determined. There is no tax deficiency, assessment or other claim against the Company or any of its respective subsidiaries that would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
(z) Licenses and Permits. The Company and its subsidiaries possess, and are in compliance with the terms of, such valid and current certificates, authorizations, franchise, licenses and permits (Licenses) issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to own, lease and operate its properties and to conduct its respective businesses, except as would not reasonably be expected to have a Material Adverse Effect; and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of, or non-compliance with, any such certificate, authorization or permit which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to have a Material Adverse Effect.
(aa) No Labor Disputes. No labor disturbance by or dispute with the Company or any of its subsidiaries exists or, to the knowledge of the Company, is contemplated or threatened, except as would not have a Material Adverse Effect. Neither the Company nor any of its subsidiaries has received any written notice of cancellation or termination of to any collective bargaining agreement to which it is a party.
(bb) Certain Environmental Matters. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect: (i) the Company and its respective subsidiaries have been and are in compliance with, and are not subject to any known liabilities under, Environmental Laws (as defined below); (ii) the Company and its respective subsidiaries have obtained and maintained all permits, licenses, certificates and other governmental authorizations or approvals, and have made all filings and provided all financial assurances and notices, required for the business, properties and facilities of the Company and its respective subsidiaries under Environmental Laws, and are in compliance with the terms and conditions thereof; (iii) none of the Company or its respective subsidiaries has received any written communication, whether from a governmental authority, citizens group, employee or otherwise, that alleges that the Company or its respective subsidiaries is in violation of any Environmental Law; (iv) except as disclosed in the Registration Statement, there is no pending or threatened claim, action or cause of action or investigation with respect to which the Company or its respective subsidiaries have received written notice, in each case based on or pursuant to any Environmental Law, pending or, to the Companys knowledge threatened against the Company or its respective subsidiaries or against any person or entity whose liability under or pursuant to any Environmental Law the Company or its respective subsidiaries has retained or assumed either contractually or by operation of law; (v) none of the Company
or its respective subsidiaries is conducting or paying for, in whole or in part, any investigation, remediation, response or other corrective action related to any Environmental Law at any site or facility, nor is any of them subject or a party to any written communication, order, judgment, decree, contract or agreement which imposes or threatens to impose any obligation or liability under any Environmental Law; and (vi) no lien, charge, encumbrance or restriction has been recorded under any Environmental Law with respect to any facility or real property owned, operated or leased by the Company or its respective subsidiaries. In addition, the Company and its respective subsidiaries are not aware of any facts or issues regarding compliance with Environmental Laws, or liabilities or other costs or obligations under Environmental Laws or concerning Materials of Environmental Concern, that could reasonably be expected to have a material effect on the capital expenditures, earnings or competitive position of the Companies or its respective subsidiaries. For purposes of this Agreement, Environment means ambient air, indoor air, surface water, groundwater, drinking water, soil, surface and subsurface strata, sediments, and natural resources such as wetlands, flora and fauna. Environmental Laws means the common law and all supranational (e.g., the European Union), federal, provincial, state, local and foreign laws or regulations, ordinances, codes, orders, decrees, judgments and injunctions issued, promulgated or entered thereunder that are applicable to and binding upon the Company or its respective subsidiaries, relating to pollution or protection of the Environment or human health and safety (as it relates to exposure to Materials of Environmental Concern (as defined below)), including without limitation, those relating to (i) the Release or threatened Release of or exposure to Materials of Environmental Concern; (ii) the manufacture, processing, distribution, use, generation, treatment, storage, transport, disposal, handling or recycling of Materials of Environmental Concern; and (iii) the listing, notification, registration, testing or reporting with respect to any chemical substance under the U.S. Toxic Substances Control Act, the E.U. Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) regulation, or similar Requirement of Law implemented by any Government Agency. Materials of Environmental Concern means any hazardous or toxic substance, material, pollutant, contaminant, chemical, waste, compound, or constituent, in any form, including without limitation, petroleum and petroleum products, subject to regulation or which can give rise to liability under any Environmental Law. Release means any release, spill, emission, discharge, deposit, disposal, leaking, pumping, pouring, dumping, emptying, injection, escaping or leaching into the Environment, or into, from or through any building, structure or facility.
(cc) ERISA Compliance. Except as would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect, each United States-based employee pension benefit plan (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended (ERISA, which term, as used herein, includes the regulations and published interpretations thereunder)) sponsored or maintained by the Issuers, the Guarantors, their respective subsidiaries or their ERISA Affiliates (as defined below) (a Pension Plan) is in compliance in all material respects with ERISA. None of the Issuers, the Guarantors, their respective subsidiaries or any ERISA Affiliate has, within the past six years, maintained, sponsored or contributed to, or been required to contribute to, any plan subject to Title IV of ERISA or Section 412 of the Internal Revenue Code of 1986, as amended (the Code, which term, as used herein, includes the regulations and
published interpretations thereunder), including any multiemployer plan, within the meaning of ERISA Sections 3(37) or 4001(a)(3). ERISA Affiliate means any trade or business (whether or not incorporated) that, together with the Issuers or any Guarantor, is treated as a single employer within the meaning of Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. Except as would not reasonably be expected to have a Material Adverse Effect, (A) none of Issuers, the Guarantors, any of their respective subsidiaries or any of their ERISA Affiliates has incurred or reasonably expects to incur any liability under Section 4975(a) or 4980B of the Code, (B) each Pension Plan sponsored or maintained by the Issuers, the Guarantors, their respective subsidiaries or any of their ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is the subject of a favorable determination or opinion letter from the Internal Revenue Service, and nothing has occurred, whether by action or failure to act, which would reasonably be expected to cause the loss of such qualification, and (C) the execution of this Agreement and the issuance and sale of the Notes hereunder will not involve or give rise to a non-exempt prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code.
(dd) Disclosure Controls. The Company and its subsidiaries maintain an effective system of disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) that complies with the requirements of the Exchange Act and has been designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commissions rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Companys management as appropriate to allow timely decisions regarding required disclosure.
(ee) Accounting Controls. The Company and its subsidiaries maintain systems of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that comply with the requirements of the Exchange Act and have been designed by, or under the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company and its subsidiaries maintain internal accounting controls designed to provide reasonable assurance that (i) transactions are executed in accordance with managements general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with managements general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as described in the Pricing Disclosure Package, since the end of the Companys most recent audited fiscal year, there has been (i) no material weakness in the Companys internal control over financial reporting (whether or not remediated) and (ii) no change in the Companys internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting (it being understood that this subsection shall not require the Company to comply with Section 404 of the Sarbanes-Oxley Act (as defined
in Section 3(rr)) as of an earlier date than it would otherwise be required to so comply under applicable law).
(ff) Insurance. The Company and its subsidiaries have insurance covering their respective properties, operations, personnel and businesses, including business interruption insurance, which insurance is in amounts as is customary and reasonable in the industry and insures against such losses and risks as are adequate to protect the Company and its subsidiaries and their respective businesses; and neither the Company nor any of its subsidiaries has (i) received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance or (ii) any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage at reasonable cost from similar insurers as may be necessary to continue its business.
(gg) Cybersecurity; Data Protection. (x) There has been no security breach or attack or other compromise of or relating to any of the Companys and its respective subsidiaries information technology and computer systems, networks, hardware, software, data (including the data of their respective tenants, employees, vendors and any third party data maintained by or on behalf of them), equipment or technology (IT Systems and Data), (y) the Company and its respective subsidiaries have not been notified of, and have no knowledge of any event or condition that would reasonably be expected to result in, any security breach, attach or compromise to their IT Systems and Data and (z) the Company and its respective subsidiaries have complied, and are presently in compliance, in all material respects, with all applicable laws, statutes or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority and all applicable industry guidelines, standards, internal policies and contractual obligations relating to the privacy and security of IT Systems and Data and to the protection of such IT Systems and Data from unauthorized use, access, misappropriation or modification, except in each case of clauses (x), (y) and (z) that would not reasonably be expected to have a Material Adverse Effect. The Company and its respective subsidiaries have implemented and maintain commercially reasonable controls, policies, procedures, and safeguards designed to maintain and protect their material confidential information and the integrity, continuous operation, redundancy and security of all IT Systems and Data.
(hh) No Unlawful Payments. Neither the Company nor any of its subsidiaries nor any director, officer or employee of the Company or any of its subsidiaries nor, to the knowledge of the Company, any agent, affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken an act in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment or benefit to any foreign or domestic government official or employee, including of any government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office to influence official action or secure an improper
advantage, or any person in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offence under the Bribery Act 2010 of the United Kingdom or any other applicable anti-bribery or anti-corruption law; or (iv) made, offered, agreed, requested or taken an act in furtherance of any unlawful bribe or other unlawful benefit, including, without limitation, any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit. The Company and its subsidiaries have instituted, maintain and enforce, and will continue to maintain and enforce policies and procedures designed to promote and ensure compliance with all applicable anti-bribery and anti-corruption laws.
(ii) Compliance with Anti-Money Laundering Laws. The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements, including those of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), and the applicable anti- money laundering statutes of jurisdictions where the Company or any of its subsidiaries conducts business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines issued, administered or enforced by any governmental agency (collectively, the Anti-Money Laundering Laws) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened.
(jj) Economic Sanctions. (i) Neither the Company nor any of its subsidiaries, or to the Companys knowledge, any controlled affiliate, employee, agent or representative of the Company or any of its subsidiaries, is an individual or entity (Person) that is, or is owned or controlled by one or more Persons that are: (A) the subject of any sanctions administered or enforced by the U.S. Department of the Treasurys Office of Foreign Assets control (OFAC), the United Nations Security Council (UNSC), the European Union (EU), Her Majestys Treasury (UK HMT) or other relevant sanctions authority (collectively, Sanctions) or (B) located, organized or resident in a country or territory that is the subject of Sanctions, including, without limitation, Crimea, Cuba, Iran, North Korea and Syria (each, a Sanctioned Country); (ii) the Company will not, directly or indirectly, use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person (A) to fund or facilitate any activities of or business with any person that, at the time of such funding or facilitation, is the subject or target of Sanctions; (B) to fund or facilitate any activities of or business in any Sanctioned Country; or (C) in any other manner that will result in a violation by any Person (including any person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions; and (iii) for the past five years, the Company
and its subsidiaries have not knowingly engaged in and are not now knowingly engaged in any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country.
(kk) [Reserved.]
(ll) No Brokers Fees. Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person (other than this Agreement) that would give rise to a valid claim against any of them or any Underwriter for a brokerage commission, finders fee or like payment in connection with the offering and sale of the Shares.
(mm) No Registration Rights. Except for those related to the Registration Rights Agreement as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no person has the right to require the Company or any of its subsidiaries to register any securities for sale under the Securities Act by reason of the filing of the Registration Statement with the Commission or the issuance and sale of the Shares.
(nn) No Stabilization. Neither the Company nor to the Companys knowledge, any of its subsidiaries or affiliates has taken, directly or indirectly, without giving effect to activities by the Underwriters any action designed to or that could reasonably be expected to cause or result in any unlawful stabilization or manipulation of the price of the Shares.
(oo) Regulations T, U, X. Neither the Company, any of its respective subsidiaries or any agent thereof acting on its or their behalf has taken, and none of them will take, any action that might cause this Agreement or the issuance, sale and delivery of the Shares nor the application of the proceeds thereof by the Company as described in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus to violate Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board of Governors.
(pp) Forward-Looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) included in any of the Registration Statement, the Pricing Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.
(qq) Statistical and Market Data. Nothing has come to the attention of the Company that has caused the Company to believe that statistical and market-related data included in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects.
(rr) Sarbanes-Oxley Act. There is and has been no failure on the part of the Company or any of the Companys directors or officers, in their capacities as such, to
comply with any provision of the Sarbanes-Oxley Act of 2002, as amended and the rules and regulations promulgated in connection therewith (the Sarbanes-Oxley Act), including Section 402 related to loans.
(ss) Status under the Securities Act. At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or any offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the Securities Act) of the Shares and at the date hereof, the Company was not and is not an ineligible issuer, as defined in Rule 405 under the Securities Act.
4. Further Agreements of the Company. The Company covenants and agrees with each Underwriter that:
(a) Required Filings. The Company will file the final Prospectus with the Commission within the time periods specified by Rule 424(b) and Rule 430A, 430B or 430C under the Securities Act, will file any Issuer Free Writing Prospectus to the extent required by Rule 433 under the Securities Act; and the Company will furnish copies of the Prospectus and each Issuer Free Writing Prospectus (to the extent not previously delivered) to the Underwriters in New York City prior to 10:00 A.M., New York City time, on the business day next succeeding the date of this Agreement in such quantities as the Representatives may reasonably request.
(b) Delivery of Copies. The Company will deliver, without charge, (i) to the Representatives, three signed copies of the Registration Statement as originally filed and each amendment thereto, in each case including all exhibits and consents filed therewith; and (ii) to each Underwriter (A) a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) and (B) during the Prospectus Delivery Period (as defined below), as many copies of the Prospectus (including all amendments and supplements thereto and each Issuer Free Writing Prospectus) as the Representatives may reasonably request. As used herein, the term Prospectus Delivery Period means such period of time after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters a prospectus relating to the Shares is required by law to be delivered (or required to be delivered but for Rule 172 under the Securities Act) in connection with sales of the Shares by any Underwriter or dealer.
(c) Amendments or Supplements, Issuer Free Writing Prospectuses. Before making, preparing, using, authorizing, approving, referring to or filing any Issuer Free Writing Prospectus, and before filing any amendment or supplement to the Registration Statement, the Pricing Disclosure Package or the Prospectus, the Company will furnish to the Representatives and counsel for the Underwriters a copy of the proposed Issuer Free Writing Prospectus, amendment or supplement for review and will not make, prepare, use, authorize, approve, refer to or file any such Issuer Free Writing Prospectus or file any such proposed amendment or supplement to which the Representatives reasonably object in a timely manner.
(d) Notice to the Representatives. The Company will advise the Representatives promptly, and confirm such advice in writing (which may be electronic mail), (i) when the Registration Statement has become effective; (ii) when any amendment to the Registration Statement has been filed or becomes effective; (iii) when any supplement to the Pricing Disclosure Package, the Prospectus, or any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication or any amendment to the Prospectus has been filed or distributed; (iv) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or the receipt of any comments from the Commission relating to the Registration Statement or any other request by the Commission for any additional information including, but not limited to, any request for information concerning any Testing-the-Waters Communication; (v) of the issuance by the Commission or any other governmental or regulatory authority of any order suspending the effectiveness of the Registration Statement or preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package, or the Prospectus or any Written Testing-the-Waters Communication or the initiation or threatening of any proceeding for that purpose or pursuant to Section 8A of the Securities Act; (vi) of the occurrence of any event or development within the Prospectus Delivery Period as a result of which the Prospectus, any of the Pricing Disclosure Package, or any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication as then amended or supplemented would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus, the Pricing Disclosure Package, or any such Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication is delivered to a purchaser, not misleading; and (vii) of the receipt by the Company of any notice with respect to any suspension of the qualification of the Shares for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and the Company will use its reasonable best efforts to prevent the issuance of any such order suspending the effectiveness of the Registration Statement, preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package or the Prospectus or any Written Testing-the-Waters Communication or suspending any such qualification of the Shares and, if any such order is issued, will use its reasonable best efforts to obtain as soon as possible the withdrawal thereof.
(e) Ongoing Compliance. (1) If during the Prospectus Delivery Period (i) any event or development shall occur or condition shall exist as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Prospectus to comply with law, the Company will promptly notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission and furnish to the Underwriters and to such dealers as the Representatives may designate such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus will comply with law and (2) if at any time prior to the Closing Date (i) any event or development shall occur or condition shall exist as a result of which the Pricing Disclosure Package as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Pricing Disclosure Package to comply with law, the Company will promptly notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission (to the extent required) and furnish to the Underwriters and to such dealers as the Representatives may designate such amendments or supplements to the Pricing Disclosure Package as may be necessary so that the statements in the Pricing Disclosure Package as so amended or supplemented will not, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, be misleading or so that the Pricing Disclosure Package will comply with law.
(f) Blue Sky Compliance. The Company will qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives shall reasonably request and will continue such qualifications in effect so long as required for distribution of the Shares; provided that the Company shall not be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.
(g) Earning Statement. The Company will make generally available to its security holders and the Representatives as soon as practicable an earning statement that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the effective date (as defined in Rule 158) of the Registration Statement, provided, that the Company will be deemed to have furnished such earnings statement to its security holders and the Representatives to the extent they are filed on the Commissions Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
(h) Clear Market. For a period of 180 days after the date of the Prospectus, the Company will not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, or submit to, or file with, the Commission a registration statement under the Securities Act relating to, any shares of Stock or any securities convertible into or exercisable or exchangeable for Stock, or publicly disclose the intention to undertake any of the foregoing, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Stock or any such other securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Stock or such other securities, in cash or otherwise, without the prior written consent of the
Representatives, other than the Shares to be sold hereunder, the Mandatory Convertible Preferred Stock to be sold in the Concurrent Offering, any Common Stock issued as payment of a dividend on the shares of Mandatory Convertible Preferred Stock and the Stock issuable upon conversion of the Mandatory Convertible Preferred Stock.
The restrictions described above do not apply to (i) the issuance of shares of Stock or securities convertible into or exercisable for shares of Stock pursuant to the conversion or exchange of convertible or exchangeable securities or the exercise of warrants or options (including net exercise) or the settlement of RSUs (including net settlement), in each case outstanding on the date of this Agreement and described in the Prospectus; (ii) grants of stock options, stock awards, restricted stock, RSUs, or other equity awards and the issuance of shares of Stock or securities convertible into or exercisable or exchangeable for shares of Stock (whether upon the exercise of stock options or otherwise) to the Companys employees, officers, directors, advisors, or consultants pursuant to the terms of an equity compensation plan in effect as of the Closing Date and described in the Prospectus, provided that such recipients enter into a lock-up agreement with the Underwriters; (iii) the filing of any registration statement on Form S-8 relating to securities granted or to be granted pursuant to any plan in effect on the date of this Agreement and described in the Prospectus or any assumed benefit plan pursuant to an acquisition or similar strategic transaction; (iv) as a bona fide gift to a charitable organization provided that any such transfer shall not involve a disposition for value or (v) the issuance by the Company of shares of Stock or other securities convertible into, exchangeable for or that request the right to receive shares of Stock in connection with (x) the acquisition by the Company or any of its subsidiaries of the securities, business, technology, property, personnel or other assets of another person or entity or pursuant to an employee benefit plan assumed by the Company in connection with such acquisition, and the issuance of any securities provided pursuant to any such agreement, or (y) the issuance by the Company of shares of Stock or securities convertible into, exchangeable for or that represent the right to receive shares of Stock in connection with the Companys joint ventures, commercial relationships and other strategic relationships, provided, that the aggregate number of shares of Stock that the Company may sell or issue or agree to sell or issue pursuant to clause (v) shall not exceed 5% of the total number of shares of common stock of the company outstanding immediately following the issuance of the shares of Stock contemplated by this Agreement, provided that such transferee agrees to enter into lock-up restrictions substantially similar in scope and duration as the lock-up letter described in Section 6(l) hereof.
If the Representatives, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up letter described in Section 6(l) hereof for an officer or director of the Company and provide the Company with notice of the impending release or waiver substantially in the form of Exhibit B hereto at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver substantially in the form of Exhibit C hereto through a major news service at least two business days before the effective date of the release or waiver.
(i) Use of Proceeds. The Company will apply the net proceeds from the sale of the Shares as described in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading Use of proceeds.
(j) No Stabilization. Neither the Company nor its subsidiaries or affiliates will take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any unlawful stabilization or manipulation of the price of the Stock.
(k) Exchange Listing. The Company will use its reasonable best efforts to list for quotation the Shares on the New York Stock Exchange (the NYSE).
(l) Reports. For a period of one year from the date of this Agreement, so long as the Shares are outstanding, the Company will furnish to the Representatives, as soon as they are available, copies of all reports or other communications (financial or other) furnished to holders of the Shares, and copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange or automatic quotation system; provided the Company will be deemed to have furnished such reports and financial statements to the Representatives to the extent they are filed on the Commissions EDGAR system.
(m) Record Retention. The Company will, pursuant to reasonable procedures developed in good faith, retain copies of each Issuer Free Writing Prospectus that is not filed with the Commission in accordance with Rule 433 under the Securities Act.
(n) Filings. The Company will file with the Commission such reports as may be required by Rule 463 under the Securities Act.
5. Certain Agreements of the Underwriters. Each Underwriter hereby represents and agrees that:
(a) It has not used, authorized use of, referred to or participated in the planning for use of, and will not use, authorize use of, refer to or participate in the planning for use of, any free writing prospectus, as defined in Rule 405 under the Securities Act (which term includes use of any written information furnished to the Commission by the Company and not incorporated by reference into the Registration Statement and any press release issued by the Company) other than (i) a free writing prospectus that contains no issuer information (as defined in Rule 433(h)(2) under the Securities Act) that was not included in the Preliminary Prospectus or a previously filed Issuer Free Writing Prospectus, (ii) any Issuer Free Writing Prospectus listed on Annex A or prepared pursuant to Section 3(c) or Section 4(c) above (including any electronic road show), or (iii) any free writing prospectus prepared by such underwriter and approved by the Company in advance in writing (each such free writing prospectus referred to in clauses (i) or (iii), an Underwriter Free Writing Prospectus).
(b) It has not and will not, without the prior written consent of the Company, use any free writing prospectus that contains the final terms of the Shares unless such
terms have previously been included in a free writing prospectus filed with the Commission.
(c) It is not subject to any pending proceeding under Section 8A of the Securities Act with respect to the offering (and will promptly notify the Company if any such proceeding against it is initiated during the Prospectus Delivery Period).
6. Conditions of Underwriters Obligations. The obligation of each Underwriter to purchase the Underwritten Shares on the Closing Date or the Option Shares on the Additional Closing Date, as the case may be, as provided herein is subject to the performance by the Company of its covenants and other obligations hereunder and to the following additional conditions:
(a) Registration Compliance; No Stop Order. No order suspending the effectiveness of the Registration Statement shall be in effect, and no proceeding for such purpose or pursuant to Section 8A under the Securities Act shall be pending before or threatened by the Commission; the Prospectus and each Issuer Free Writing Prospectus shall have been timely filed with the Commission under the Securities Act (in the case of an Issuer Free Writing Prospectus, to the extent required by Rule 433 under the Securities Act) and in accordance with Section 4(a) hereof; and all requests by the Commission for additional information shall have been complied with to the reasonable satisfaction of the Representatives.
(b) Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct on the date hereof and on and as of the Closing Date or the Additional Closing Date, as the case may be; and the statements of the Company and its officers made in any certificates delivered pursuant to this Agreement shall be true and correct on and as of the Closing Date or the Additional Closing Date, as the case may be.
(c) No Downgrade. Subsequent to the earlier of (A) the Applicable Time and (B) the execution and delivery of this Agreement, (i) no downgrading shall have occurred in the rating accorded any debt securities, convertible securities or preferred stock issued, or guaranteed by, the Company or any of its subsidiaries by any nationally recognized statistical rating organization, as such term is defined under Section 3(a)(62) under the Exchange Act and (ii) no such organization shall have publicly announced that it has under surveillance or review, or has changed its outlook with respect to, its rating of any such debt securities or preferred stock issued or guaranteed by the Company or any of its subsidiaries (other than an announcement with positive implications of a possible upgrading).
(d) No Material Adverse Change. No event or condition of a type described in Section 3(g) hereof shall have occurred or shall exist, which event or condition is not described in the Pricing Disclosure Package (excluding any amendment or supplement thereto) and the Prospectus (excluding any amendment or supplement thereto) and the effect of which in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing
Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus.
(e) Officers Certificate. The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, a certificate of the chief financial officer, chief accounting officer of the Company or other officer with relevant knowledge and one additional senior executive officer of the Company who is satisfactory to the Representatives (i) confirming that such officers have carefully reviewed the Registration Statement, the Pricing Disclosure Package and the Prospectus and, to the knowledge of such officers, the representations set forth in Sections 3(b) and 3(d) hereof are true and correct, (ii) confirming that the other representations and warranties of the Company in this Agreement are true and correct and that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date or the Additional Closing Date, as the case may be, and (iii) to the effect set forth in paragraphs (a), (c) and (d) above.
(f) Comfort Letters. (i) On the date of this Agreement and on the Closing Date or the Additional Closing Date, as the case may be, PricewaterhouseCoopers LLP shall have furnished to the Representatives, at the request of the Company, letters, dated the respective dates of delivery thereof and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives, containing statements and information of the type customarily included in accountants comfort letters to underwriters with respect to the financial statements and certain financial information contained in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus; provided, that the letter delivered on the Closing Date or the Additional Closing Date, as the case may be, shall use a cut-off date no more than two business days prior to such Closing Date or such Additional Closing Date, as the case may be.
(ii) On the date of this Agreement and on the Closing Date or the Additional Closing Date, as the case may be, the Company shall have furnished to the Representatives a certificate, dated the respective dates of delivery thereof and addressed to the Underwriters, of its chief financial officer with respect to certain financial data contained in the Pricing Disclosure Package and the Prospectus, providing management comfort with respect to such information, in form and substance reasonably satisfactory to the Representatives.
(g) Opinion and 10b-5 Statement of Counsel for the Company. Davis Polk & Wardwell LLP, counsel for the Company, shall have furnished to the Representatives, at the request of the Company, their written opinion and 10b-5 statement, dated the Closing Date or the Additional Closing Date, as the case may be, and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives.
(h) Opinion and 10b-5 Statement of Counsel for the Underwriters. The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, an opinion and 10b-5 statement, addressed to the Underwriters, of Cleary Gottlieb Steen & Hamilton LLP, counsel for the Underwriters, with respect to such matters as the Representatives may reasonably request, and such
counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.
(i) No Legal Impediment to Issuance and Sale. No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state or foreign governmental or regulatory authority that would, as of the Closing Date or the Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares; and no injunction or order of any federal, state or foreign court shall have been issued that would, as of the Closing Date or the Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares.
(j) Good Standing. The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, satisfactory evidence of the good standing of the Company and its subsidiaries in their respective jurisdictions of organization and their good standing in such other jurisdictions as the Representatives may reasonably request, in each case in writing or any standard form of telecommunication from the appropriate governmental authorities of such jurisdictions.
(k) Exchange Listing. The Shares to be delivered on the Closing Date or the Additional Closing Date, as the case may be, shall have been approved for listing on the NYSE, subject to official notice of issuance.
(l) Lock-up Agreements. The lock-up agreements, each substantially in the form of Exhibit D hereto, between you and certain shareholders, officers and directors of the Company relating to sales and certain other dispositions of shares of Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date or the Additional Closing Date, as the case may be.
(m) Additional Documents. On or prior to the Closing Date or the Additional Closing Date, as the case may be, the Company shall have furnished to the Representatives such further certificates and documents as the Representatives may reasonably request.
All opinions, letters, certificates and evidence mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriters.
7. Indemnification and Contribution.
(a) Indemnification of the Underwriters. The Company agrees to indemnify and hold harmless each Underwriter, its affiliates, directors and officers and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, reasonably incurred and documented legal fees and other reasonably incurred and documented expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), joint or several, that arise out of, or are based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, not misleading, or (ii) any untrue statement or alleged untrue statement of a material fact contained in the Prospectus (or any amendment or supplement thereto), any Preliminary Prospectus, any Issuer Free Writing Prospectus, any issuer information filed or required to be filed pursuant to Rule 433(d) under the Securities Act, any Written Testing-the-Waters Communication, any road show as defined in Rule 433(h) under the Securities Act (a road show) or any Pricing Disclosure Package (including any Pricing Disclosure Package that has subsequently been amended), or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in paragraph (b) below.
(b) Indemnification of the Company. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity set forth in paragraph (a) above, but only with respect to any losses, claims, damages or liabilities that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to such Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement, the Prospectus (or any amendment or supplement thereto), any Preliminary Prospectus, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, any road show or any Pricing Disclosure Package (including any Pricing Disclosure Package that has subsequently been amended), it being understood and agreed upon that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: (i) the concession and reallowance figures appearing in the third paragraph under the caption Underwriting and (ii) the information contained in the [thirteenth, fourteenth and fifteenth] paragraphs under the caption Underwriting.
(c) Notice and Procedures. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnification may be sought pursuant to the preceding paragraphs of this Section 7, such person (the Indemnified Person) shall promptly notify the person against whom such indemnification may be sought (the Indemnifying Person) in writing; provided that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under the preceding paragraphs of this Section 7 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such
failure; and provided, further, that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under the preceding paragraphs of this Section 7. If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person (who shall not, without the consent of the Indemnified Person, be counsel to the Indemnifying Person) to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section 11 that the Indemnifying Person may designate in such proceeding and shall pay reasonably incurred and documented fees and expenses of such counsel related to such proceeding, as incurred. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such reasonably incurred and documented fees and expenses shall be paid or reimbursed as they are incurred. Any such separate firm for any Underwriter, its affiliates, directors and officers and any control persons of such Underwriter shall be designated in writing by BofA Securities, Inc. and J.P. Morgan Securities LLC and any such separate firm for the Company, its directors, its officers who signed the Registration Statement and any control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for reasonably incurred and documented fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by the Indemnifying Person of such request and (ii) the Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (x) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.
(d) Contribution. If the indemnification provided for in paragraphs (a) or (b) above is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters, on the other, from the offering of the Shares or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company, on the one hand, and the Underwriters, on the other, in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters, on the other, shall be deemed to be in the same respective proportions as the net proceeds (before deducting expenses) received by the Company from the sale of the Shares and the total underwriting discounts and commissions received by the Underwriters in connection therewith, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate offering price of the Shares. The relative fault of the Company, on the one hand, and the Underwriters, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
(e) Limitation on Liability. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to paragraph (d) above were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of paragraphs (d) and (e), in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter with respect to the offering of the Shares exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters obligations to contribute pursuant to paragraphs (d) and (e) are several in proportion to their respective purchase obligations hereunder and not joint.
(f) Non-Exclusive Remedies. The remedies provided for in this Section 7 [paragraphs (a) through (e)] are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity.
8. Effectiveness of Agreement. This Agreement shall become effective as of the date first written above.
9. Termination. This Agreement may be terminated in the absolute discretion of the Representatives, by notice to the Company, if after the execution and delivery of this Agreement and on or prior to the Closing Date or, in the case of the Option Shares, prior to the Additional Closing Date (i) trading generally shall have been suspended or materially limited on or by any of the New York Stock Exchange or The Nasdaq Stock Market; (ii) trading of any securities issued or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market; (iii) a general moratorium on commercial banking activities shall have been declared by federal or New York State authorities; or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis, either within or outside the United States, that, in the judgment of the Representatives, is material and adverse and makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus.
10. Defaulting Underwriter.
(a) If, on the Closing Date or the Additional Closing Date, as the case may be, any Underwriter defaults on its obligation to purchase the Shares that it has agreed to purchase hereunder on such date, the non-defaulting Underwriters may in their discretion arrange for the purchase of such Shares by other persons satisfactory to the Company on the terms contained in this Agreement. If, within 36 hours after any such default by any Underwriter, the non-defaulting Underwriters do not arrange for the purchase of such Shares, then the Company shall be entitled to a further period of 36 hours within which to procure other persons satisfactory to the non-defaulting Underwriters to purchase such Shares on such terms. If other persons become obligated or agree to purchase the Shares of a defaulting Underwriter, either the non-defaulting Underwriters or the Company may postpone the Closing Date or the Additional Closing Date, as the case may be, for up to five full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the Underwriters may be necessary in the Registration Statement and the Prospectus or in any other document or arrangement, and the Company agrees to promptly prepare any amendment or supplement to the Registration Statement and the Prospectus that effects any such changes. As used in this Agreement, the term Underwriter includes, for all purposes of this Agreement unless the context otherwise requires, any person not listed in Schedule 1 hereto that, pursuant to this Section 10, purchases Shares that a defaulting Underwriter agreed but failed to purchase.
(b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters and the Company as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or the Additional Closing Date, as the case may be, does not exceed one-eleventh of the aggregate number of Shares to be purchased on such date, then the Company shall have the right to require each non-defaulting Underwriter to purchase the number of Shares that such Underwriter agreed to purchase hereunder on such date plus such Underwriters pro rata share (based on the number of Shares that such Underwriter agreed to purchase on such date) of the
Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made.
(c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters and the Company as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or the Additional Closing Date, as the case may be, exceeds one-eleventh of the aggregate amount of Shares to be purchased on such date, or if the Company shall not exercise the right described in paragraph (b) above, then this Agreement or, with respect to any Additional Closing Date, the obligation of the Underwriters to purchase Shares on the Additional Closing Date, as the case may be, shall terminate without liability on the part of the non-defaulting Underwriters. Any termination of this Agreement pursuant to this Section 10 shall be without liability on the part of the Company, except that the Company will continue to be liable for the payment of expenses as set forth in Section 11 hereof and except that the provisions of Section 7 hereof shall not terminate and shall remain in effect.
(d) Nothing contained herein shall relieve a defaulting Underwriter of any liability it may have to the Company or any non-defaulting Underwriter for damages caused by its default.
11. Payment of Expenses.
(a) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company will pay or cause to be paid all costs and expenses incident to the performance of its obligations hereunder, including without limitation, (i) the costs incident to the authorization, issuance, sale, preparation and delivery of the Shares and any taxes payable in that connection; (ii) the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statement, the Preliminary Prospectus, any Issuer Free Writing Prospectus, any Pricing Disclosure Package and the Prospectus (including all exhibits, amendments and supplements thereto) and the distribution thereof; (iii) the fees and expenses of the Companys counsel and independent accountants; (iv) the fees and expenses incurred in connection with the registration or qualification and determination of eligibility for investment of the Shares under the laws of such jurisdictions as the Representatives may designate; (v) the cost of preparing stock certificates; (vi) the costs and charges of any transfer agent and any registrar; (vii) all expenses and application fees incurred in connection with any filing with, and clearance of the offering by, FINRA, in an amount not to exceed $30,000; (viii) all expenses incurred by the Company in connection with any road show presentation to potential investors, all travel expenses of the Companys officers and employees and other expenses (except expenses incurred by the Underwriters) in connection with attending or hosting meetings with prospective purchasers of Shares other than costs and expenses of any private aircraft incurred by on behalf of the Company in connection with the road show which shall be shared equally among the Company (50% of such costs) and the Underwriters (50% of such costs, allocated at their discretion), and expenses associated with the electronic road show and (ix) all expenses and application fees related to the listing of the Shares on the NYSE.
(b) If (i) this Agreement is terminated pursuant to Section 9, (ii) the Company for any reason fails to tender the Shares for delivery to the Underwriters or (iii) the Underwriters decline to purchase the Shares for any reason permitted under this Agreement, the Company agrees to
reimburse the Underwriters for all out-of-pocket costs and expenses (including the fees and expenses of their counsel) reasonably incurred by the Underwriters in connection with this Agreement and the offering contemplated hereby, provided, however, that in the event that any such termination is effected after the Closing Date but prior to the Additional Closing Date with respect to the purchase of any Option Shares, the Company shall only reimburse the Underwriters for all reasonable out of pocket costs and expenses (including the reasonably incurred fees and expenses of their counsel) incurred by the Underwriters after the Closing Date in connection with the proposed purchase of any such Option Shares. For the avoidance of doubt, it is understood that the Company shall not pay or reimburse any costs, fees or expenses incurred by any Underwriter that defaults on its obligations to purchase the Shares.
12. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and any controlling persons referred to herein, and the affiliates of each Underwriter referred to in Section 7 hereof. Nothing in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. No purchaser of Shares from any Underwriter shall be deemed to be a successor merely by reason of such purchase.
13. Survival. The respective indemnities, rights of contribution, representations, warranties and agreements of the Company and the Underwriters contained in this Agreement or made by or on behalf of the Company or the Underwriters pursuant to this Agreement or any certificate delivered pursuant hereto shall survive the delivery of and payment for the Shares and shall remain in full force and effect, regardless of any termination of this Agreement or any investigation made by or on behalf of the Company or the Underwriters or the directors, officers, controlling persons or affiliates referred to in Section 7 hereof.
14. Certain Defined Terms. For purposes of this Agreement, (a) except where otherwise expressly provided, the term affiliate has the meaning set forth in Rule 405 under the Securities Act; (b) the term business day means any day other than a day on which banks are permitted or required to be closed in New York City; (c) the term subsidiary has the meaning set forth in Rule 405 under the Securities Act ; and (d) the term significant subsidiary has the meaning set forth in Rule 1-02 of Regulation S-X under the Exchange Act.
15. Execution and Delivery. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, the Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
16. Compliance with USA Patriot Act. In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Underwriters are required to obtain, verify and record information that identifies their respective clients, including the Company, which information may include the name and address of their respective clients, as well as other information that will allow the Underwriters to properly identify their respective clients.
17. Miscellaneous.
(a) Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted and confirmed by any standard form of telecommunication. Notices to the Underwriters shall be given to the Representatives c/o BofA Securities, Inc., One Bryant Park, New York, NY 10036 (fax: (646) 855-3073)); Attention: Syndicate Department, with a copy to: ECM Legal(fax: (212) 230-8730); Attention: ECM Legal, c/o J.P. Morgan Securities LLC, 383 Madison Avenue, New York, New York 10179 (fax: (212) 622-8358); Attention: Equity Syndicate Desk. Notices to the Company shall be given to it at 5757 N Green Bay Round, Glendale, Wisconsin, 53209 (email: claudio.morfe@clarios.com); Attention: General Counsel.
(b) Governing Law. This Agreement and any claim, controversy or dispute arising under or related to this Agreement shall be governed by and construed in accordance with the laws of the State of New York.
(c) Submission to Jurisdiction. The Company hereby submits to the exclusive jurisdiction of the U.S. federal and New York state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. The Company waives any objection which it may now or hereafter have to the laying of venue of any such suit or proceeding in such courts. The Company agrees that final judgment in any such suit, action or proceeding brought in such court shall be conclusive and binding upon the Company and may be enforced in any court to the jurisdiction of which Company is subject by a suit upon such judgment.
(f) Waiver of Jury Trial. Each of the parties hereto hereby waives any right to trial by jury in any suit or proceeding arising out of or relating to this Agreement.
(g) [Recognition of the U.S. Special Resolution Regimes.
(i) In the event that any Underwriter that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such Underwriter of this Agreement, and any interest and obligation in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.
(ii) In the event that any Underwriter that is a Covered Entity or a BHC Act Affiliate of such Underwriter becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against
such Underwriter are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States.
As used in this Section 16(g):
BHC Act Affiliate has the meaning assigned to the term affiliate in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k).
Covered Entity means any of the following:
(i) a covered entity as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b);
(ii) a covered bank as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or
(iii) a covered FSI as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
Default Right has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
U.S. Special Resolution Regime means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.
(h) Counterparts. This Agreement may be signed in counterparts (which may include counterparts delivered by any standard form of telecommunication), each of which shall be an original and all of which together shall constitute one and the same instrument.
(i) Amendments or Waivers. No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto.
(j) Headings. The headings herein are included for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.
If the foregoing is in accordance with your understanding, please indicate your acceptance of this Agreement by signing in the space provided below.
Very truly yours, | ||
CLARIOS INTERNATIONAL INC. | ||
By: |
| |
Name: | ||
Title: |
Accepted: As of the date first written above
BOFA SECURITIES, INC.
For itself and on behalf of the
several Underwriters listed
in Schedule 1 hereto.
By: |
| |
Authorized Signatory |
J.P. MORGAN SECURITIES LLC
For itself and on behalf of the
several Underwriters listed
in Schedule 1 hereto.
By: |
| |
Authorized Signatory |
Schedule 1
Underwriter |
Number of Shares | |||
BofA Securities, Inc. |
||||
J.P. Morgan Securities LLC |
||||
|
|
|||
Total |
||||
|
|
Schedule 2
Significant Subsidiaries
Annex A
Issuer Free Writing Prospectuses Included in the Pricing Disclosure Package
Pricing Term Sheet included as Annex C
Annex B
Written Testing-the-Waters Communications
[To come]
Annex C
Clarios International Inc.
Pricing Term Sheet
[To come]
Exhibit A
Testing the waters authorization
(to be delivered by the issuer to BofA Securities and J.P. Morgan in email or letter form)
In reliance on Rule 163B under the Securities Act of 1933, as amended (the Act), Clarios International Inc. (the Issuer) hereby authorizes BofA Securities, Inc. (BofA Securities) and its affiliates and their respective employees and J.P. Morgan Securities LLC (J.P. Morgan) and its affiliates and their respective employees, to engage on behalf of the Issuer in oral and written communications with potential investors that are reasonably believed to be qualified institutional buyers, as defined in Rule 144A under the Act, or institutions that are accredited investors, within the meaning of Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Act, to determine whether such investors might have an interest in the Issuers contemplated initial public offering (Testing-the-Waters Communications). A Written Testing-the Waters Communication means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Act.
If at any time following the distribution of any Written Testing-the-Waters Communication there occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Issuer will promptly notify BofA Securities, Inc. and J.P. Morgan Securities LLC and will promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
Nothing in this authorization is intended to limit or otherwise affect the ability of BofA Securities and its affiliates and their respective employees and J.P. Morgan and its affiliates and their respective employees, to engage in communications in which they could otherwise lawfully engage in the absence of this authorization, including, without limitation, any written communication containing only one or more of the statements specified under Rule 134(a) under the Act. This authorization shall remain in effect until the Issuer has provided to BofA Securities and J.P. Morgan a written notice revoking this authorization. All notices as described herein shall be sent by email to the attention of Michael Wise at m.wise@bofa.com, Christie Macdonald at christine.l.macdonald@bofa.com, Eugene Sohn at eugene.y.sohn@jpmorgan.com and Jin Izawa at jin.j.izawa@jpmorgan.com.
Exhibit B
[Form of Waiver of Lock-up]
BOFA SECURITIES, INC.
J.P. MORGAN SECURITIES LLC
Clarios International Inc.
Public Offering of Common Stock
, 20__
[Name and Address of
Officer or Director
Requesting Waiver]
Dear Mr./Ms. [Name]:
This letter is being delivered to you in connection with the offering by Clarios International Inc. (the Company) of [●] shares of common stock, $0.01 par value (the Common Stock), of the Company and the lock-up letter dated__________________, 20__ (the Lock-up Letter), executed by you in connection with such offering, and your request for a [waiver] [release] dated__________________, 20__, with respect to ______ shares of Common Stock (the Shares).
BofA Securities, Inc. and J.P. Morgan Securities LLC hereby agree to [waive] [release] the transfer restrictions set forth in the Lock-up Letter, but only with respect to the Shares, effective __________________, 20__; provided, however, that such [waiver] [release] is conditioned on the Company announcing the impending [waiver] [release] by press release through a major news service at least two business days before effectiveness of such [waiver] [release]. This letter will serve as notice to the Company of the impending [waiver] [release].
Except as expressly [waived] [released] hereby, the Lock-up Letter shall remain in full force and effect.
[Signature Page Follows]
Very truly yours, | ||
BofA Securities, Inc. | ||
As Representative of the several Underwriters named in Schedule I to the Underwriting Agreement | ||
By: BofA Securities, Inc. | ||
By: |
| |
Name: | ||
Title: | ||
J.P. Morgan Securities LLC | ||
As Representative of the several Underwriters named in Schedule I to the Underwriting Agreement | ||
By: J.P. Morgan Securities LLC | ||
By: |
| |
Name: | ||
Title: |
cc: Clarios International Inc.
Exhibit C
[Form of Press Release]
Clarios International Inc. ________, 20___
Clarios International Inc. (the Company) announced today that BofA Securities, Inc. and J.P. Morgan Securities LLC, the lead book-running managers in the Companys recent public sale of [●] shares of common stock, is [waiving] [releasing] a lock-up restriction with respect to [●] shares of the Companys common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on ____________________, 2021, and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
Exhibit D
FORM OF LOCK-UP AGREEMENT
, 20__
BOFA SECURITIES, INC.
J.P. MORGAN SECURITIES LLC
As Representatives of
the several Underwriters listed in
Schedule 1 to the Underwriting
Agreement referred to below
c/o BofA Securities, Inc.
One Bryant Park
New York, NY 10036
c/o J.P. Morgan Securities LLC
383 Madison Avenue
New York, NY 10179
Re: CLARIOS INTERNATIONAL INC. Public Offering
Ladies and Gentlemen:
The undersigned understands that you, as Representatives of the several Underwriters, propose to enter into an underwriting agreement (the Underwriting Agreement) with Clarios International Inc., a Delaware corporation (the Company), providing for the public offering (the Public Offering) by the several Underwriters named in Schedule 1 to the Underwriting Agreement (the Underwriters), of shares of the Common Stock, par value $0.01 per share (the Common Stock), of the Company (such shares to be sold in the Public Offering, the Securities). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Underwriting Agreement.
In consideration of the Underwriters agreement to purchase and make the Public Offering of the Securities, and for other good and valuable consideration receipt of which is hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of BofA Securities, Inc. and J.P. Morgan Securities LLC on behalf of the Underwriters, the undersigned will not, and will not cause any direct or indirect affiliate to, during the period beginning on the date of this letter agreement (this Letter Agreement) and ending at the close of business 180 days after the date of the final prospectus relating to the Public Offering (the Prospectus) (such period, the Restricted Period), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of the Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (including without limitation, Common Stock or such other securities which may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities
and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant) (collectively with the Common Stock, Lock-Up Securities), (2) enter into any hedging, swap or other agreement or transaction that transfers, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Lock-Up Securities, in cash or otherwise, (3) make any demand for or exercise any right with respect to the registration of any Lock-Up Securities, or (4) publicly disclose the intention to do any of the foregoing. The undersigned acknowledges and agrees that the foregoing precludes the undersigned from engaging in any hedging or other transactions or arrangements (including, without limitation, any short sale or the purchase or sale of, or entry into, any put or call option, or combination thereof, forward, swap or any other derivative transaction or instrument, however described or defined) designed or intended, or which could reasonably be expected to lead to or result in, a sale or disposition or transfer (whether by the undersigned or any other person) of any economic consequences of ownership, in whole or in part, directly or indirectly, of any Lock-Up Securities, whether any such transaction or arrangement (or instrument provided for thereunder) would be settled by delivery of Lock-Up Securities, in cash or otherwise. The undersigned further confirms that it has furnished BofA Securities, Inc. and J.P. Morgan Securities LLC with the details of any transaction the undersigned, or any of its affiliates, is a party to as of the date hereof, which transaction would have been restricted by this Letter Agreement if it had been entered into by the undersigned during the Restricted Period.
Notwithstanding the foregoing, the undersigned may:
(a) transfer the undersigneds Lock-Up Securities:
(i) as a bona fide gift or gifts, or for bona fide estate planning purposes,
(ii) by will or intestacy,
(iii) to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, or if the undersigned is a trust, to a trustor or beneficiary of the trust or to the estate of a beneficiary of such trust (for purposes of this Letter Agreement, immediate family shall mean any relationship by blood, current or former marriage, domestic partnership or adoption, not more remote than first cousin),
(iv) to a partnership, limited liability company or other entity of which the undersigned and the immediate family of the undersigned are the legal and beneficial owner of all of the outstanding equity securities or similar interests,
(v) to a nominee or custodian of a person or entity to whom a disposition or transfer would be permissible under clauses (i) through (iv) above,
(vi) if the undersigned is a corporation, partnership, limited liability company, trust or other business entity, (A) to another corporation, partnership, limited liability company, trust or other business entity that is an affiliate (as defined in Rule 405 promulgated under the Securities Act of 1933, as amended) of the undersigned, or to any investment fund or other entity controlling, controlled by, managing or managed by or under common control with the undersigned or affiliates of the undersigned, or to any current or former general partner or limited partner or a successor partnership or fund, or any other funds managed by such partnership, or (B) as part of a distribution to members, managers or shareholders or other equityholders of the undersigned, including, in the each case, to the estates of any of the foregoing, provided that such transferee agree to the same restrictions and terms contemplated by this Letter Agreement.
(vii) by operation of law, such as pursuant to a qualified domestic order, divorce settlement, divorce decree or separation agreement,
(viii) to the Company from an employee of the Company upon death, disability or termination of employment, in each case, of such employee,
(ix) as part of a sale of the undersigneds Lock-Up Securities acquired in open market transactions after the closing date for the Public Offering,
(x) to the Company in connection with the vesting, settlement, or exercise of restricted stock units, options, warrants or other rights to purchase shares of Common Stock (including, in each case, by way of net or cashless exercise), including for the payment of exercise price and tax and remittance payments due as a result of the vesting, settlement, or exercise of such restricted stock units, options, warrants or rights, provided that any such shares of Common Stock received upon such exercise, vesting or settlement shall be subject to the terms of this Letter Agreement, and provided further that any such restricted stock units, options, warrants or rights are held by the undersigned pursuant to an agreement or equity awards granted under a stock incentive plan or other equity award plan, each such agreement or plan which is described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or
(xi) pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction that is approved by the Board of Directors of the Company and made to all holders of the Companys capital stock involving a Change of Control (as defined below) of the Company (for purposes hereof, Change of Control shall mean the transfer (whether by tender offer, merger, consolidation or other similar transaction), in one transaction or a series of related transactions, to a person or group of affiliated persons, of shares of capital stock if, after such transfer, such person or group of affiliated persons would hold a majority of the outstanding voting securities of the Company (or the surviving entity)); provided that in the event that such tender offer, merger, consolidation or other similar transaction is not completed, the undersigneds Lock-Up Securities shall remain subject to the provisions of this Letter Agreement;
provided that (A) in the case of any transfer or distribution pursuant to clause (a)(i), (ii), (iii), (iv), (v), (vi) and (vii), such transfer shall not involve a disposition for value and each donee, devisee, transferee or distributee shall execute and deliver to the Representatives a lock-up letter in the form of this Letter Agreement, (B) in the case of any transfer or distribution pursuant to clause (a) [(i), (ii), (iii), (iv), (v), (vi), (ix) and (x)], no filing by any party (donor, donee, devisee, transferor, transferee, distributer or distributee) under the Securities Exchange Act of 1934, as amended (the Exchange Act) reporting a reduction in beneficial ownership of shares of Common Stock shall be required, or other public announcement shall be required or shall be made voluntarily in connection with such transfer or distribution (other than a filing on a Form 5 made after the expiration of the Restricted Period referred to above) and (C) in the case of any transfer or distribution pursuant to clause (a)(vii) it shall be a condition to such transfer that no public filing, report or announcement shall be voluntarily made and if any filing under Section 16(a) of the Exchange Act, or other public filing, report or announcement reporting a reduction in beneficial ownership of shares of Common Stock in connection with such transfer or distribution shall be legally required during the Restricted Period, such filing, report or announcement shall clearly indicate in the footnotes thereto the nature and conditions of such transfer;
(b) exercise outstanding options, settle restricted stock units or other equity awards or exercise warrants pursuant to plans described in the Registration Statement, the Pricing Disclosure Package and the Prospectus; provided that any Lock-up Securities received upon such exercise, vesting or settlement shall be subject to the terms of this Letter Agreement;
(c) convert outstanding preferred stock, warrants to acquire preferred stock or convertible securities into shares of Common Stock or warrants to acquire shares of Common Stock; provided that any such shares of Common Stock or warrants received upon such conversion shall be subject to the terms of this Letter Agreement;
(d) establish trading plans pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Lock-Up Securities; provided that (1) such plans do not provide for the transfer of Lock-Up Securities during the Restricted Period and (2) to the extent a public announcement or filing under the Exchange Act, if any, is required or voluntarily made by or on behalf of the undersigned or the Company regarding the establishment of such plan during the Lock-up Period, such announcement or filing shall include a statement to the effect that no transfer of Common Stock may be made under such plan during the Lock-up Period;
(e) sell the Securities to be sold by the undersigned pursuant to the terms of the Underwriting Agreement.
If the undersigned is not a natural person, the undersigned represents and warrants that no single natural person, entity or group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the Exchange Act)) beneficially owns, directly or indirectly, 50% or more of the common equity interests, or 50% or more of the voting power, in the undersigned.
If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any Company-directed Securities the undersigned may purchase in the Public Offering.
If the undersigned is an officer or director of the Company, (i) BofA Securities, Inc. and J.P. Morgan Securities LLC on behalf of the Underwriters agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Lock-Up Securities, BofA Securities, Inc. and J.P. Morgan Securities LLC on behalf of the Underwriters will notify the Company of the impending release or waiver, and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by BofA Securities, Inc. and J.P. Morgan Securities LLC on behalf of the Underwriters hereunder to any such officer or director shall only be effective two business days after the publication date of such announcement. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration or that is to an immediate family member as defined in FINRA Rule 5130(i)(5) and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.
In furtherance of the foregoing, the Company, and any duly appointed transfer agent for the registration or transfer of the securities described herein, are hereby authorized to decline to make any transfer of securities if such transfer would constitute a violation or breach of this Letter Agreement.
The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Letter Agreement. All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.
The undersigned acknowledges and agrees that the Underwriters have not provided any recommendation or investment advice nor have the Underwriters solicited any action from the undersigned with respect to the Public Offering of the Securities and the undersigned has consulted their own legal, accounting, financial, regulatory and tax advisors to the extent deemed appropriate. The undersigned further acknowledges and agrees that, although the Representatives may be required or choose to provide certain Regulation Best Interest and Form CRS disclosures to you in connection with the Public Offering, the Representatives and the other Underwriters are not making a recommendation to you to enter into this Letter Agreement, participate in the Public Offering, or sell any Shares at the price determined in the Public Offering, and nothing set forth in such disclosures is intended to suggest that the Representatives or any Underwriter is making such a recommendation.
The undersigned understands that, if the Underwriting Agreement does not become effective by [●], 2021, or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Common Stock to be sold thereunder, the undersigned shall be released from all obligations under this Letter Agreement. In addition, this Letter Agreement and all related restrictions and obligations shall otherwise automatically terminate upon the earliest to occur, if any, of (a) prior to the execution of the Underwriting Agreement, the Representatives, on the one hand, or the Company, on the other hand, advising the other in writing that the Representatives jointly have or the Company has determined not to proceed with the Public Offer contemplated by the Underwriting Agreement, and (b) the registration statement is filed with the Securities and Exchange Commission with respect to the Public Offering contemplated by the Underwriting Agreement is withdrawn prior to the execution of the Underwriting Agreement. The undersigned understands that the Underwriters are entering into the Underwriting Agreement and proceeding with the Public Offering in reliance upon this Letter Agreement.
This Letter Agreement and any claim, controversy or dispute arising under or related to this Letter Agreement shall be governed by and construed in accordance with the laws of the State of New York.
Very truly yours, | ||
[NAME OF STOCKHOLDER] | ||
By: |
| |
Name: | ||
Title: |
Exhibit 1.2
CLARIOS INTERNATIONAL INC.
[●]% Series A Mandatory Convertible Preferred Stock
Underwriting Agreement
[●], 2021
BofA Securities, Inc.
J.P. Morgan Securities LLC
As Representatives of the
several Underwriters listed
in Schedule 1 hereto
c/o BofA Securities, Inc.
One Bryant Park
New York, NY 10036
c/o J.P. Morgan Securities LLC
383 Madison Avenue
New York, New York 10179
Ladies and Gentlemen:
Clarios International Inc., a Delaware corporation (the Company), proposes to issue and sell to the several underwriters listed in Schedule 1 hereto (the Underwriters), for whom you are acting as representatives (the Representatives), an aggregate of [●] shares (the Underwritten Shares) of the Companys [●] % Series A Mandatory Convertible Preferred Stock, par value $0.01 per share, with a liquidation preference of $50.00 per share (the Mandatory Convertible Preferred Stock), and, at the option of the Underwriters, up to an additional [●] shares (the Option Shares) of Mandatory Convertible Preferred Stock. The Underwritten Shares and the Option Shares are herein referred to as the Shares.
The Shares will be convertible into a variable number of shares of the Companys common stock, par value $0.01 per share (the Common Stock), as set forth in the Certificate of Designations (as defined below). The shares of Common Stock into which the Shares will be convertible are hereinafter referred to as the Conversion Securities.
The terms of the Shares will be set forth in the Certificate of Designations (the Certificate of Designations) to be filed by the Company with the Secretary of State of Delaware as an amendment to the Companys Amended and Restated Certificate of Incorporation.
In addition, concurrently with the offering and sale of the Shares, the Company intends to issue and sell up to [●] shares of its common stock, par value $0.01 per share (the IPO Common Stock) pursuant to a registration statement prepared and filed with the Securities and Exchange Commission (the Commission). In connection with the offer and sale of the IPO Common Stock (referred to herein as the Concurrent Offering), the Company has entered into an underwriting agreement, dated as of [●], 2021 between the Company and the several underwriters party thereto (the Common Stock Underwriting Agreement). The Underwriters are not committing to, and will not purchase, any shares of IPO Common Stock pursuant to this Agreement. The offering of the Shares is contingent upon the completion of the Concurrent Offering. The shares of Common Stock to be outstanding after giving effect to the sale of the shares of IPO Common Stock to be sold in the Concurrent Offering are referred to herein as the Stock.
The Company hereby confirms its agreement with the several Underwriters concerning the purchase and sale of the Shares, as follows:
1. Registration Statement. The Company has prepared and filed with the Commission under the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the Securities Act), a registration statement (File No. 333-_____), including a prospectus, relating to the Shares and the Conversion Securities. Such registration statement, as amended at the time it became effective, including the information, if any, deemed pursuant to Rule 430A, 430B or 430C under the Securities Act to be part of the registration statement at the time of its effectiveness (Rule 430 Information), is referred to herein as the Registration Statement; and as used herein, the term Preliminary Prospectus means each prospectus included in such registration statement (and any amendments thereto) before effectiveness, any prospectus filed with the Commission pursuant to Rule 424(a) under the Securities Act and the prospectus included in the Registration Statement at the time of its effectiveness that omits Rule 430 Information, and the term Prospectus means the prospectus in the form first used (or made available upon request of purchasers pursuant to Rule 173 under the Securities Act) in connection with confirmation of sales of the Shares. If the Company has filed an abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the Rule 462 Registration Statement), then any reference herein to the term Registration Statement shall be deemed to include such Rule 462 Registration Statement. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Registration Statement and the Prospectus.
At or prior to the Applicable Time (as defined below), the Company had prepared the following information (collectively, the Pricing Disclosure Package): a Preliminary Prospectus dated [●], 2021 and each free-writing prospectus (as defined pursuant to Rule 405 under the Securities Act) listed on Annex A hereto.
Applicable Time means [●] [A/P].M., New York City time, on [●], 2021.
2. Purchase of the Shares.
(a) The Company agrees to issue and sell the Underwritten Shares to the several Underwriters as provided in this underwriting agreement (this Agreement), and each Underwriter, on the basis of the representations, warranties and agreements set forth herein and
subject to the conditions set forth herein, agrees, severally and not jointly, to purchase at a price per share of $[●] (the Purchase Price) from the Company the respective number of Underwritten Shares set forth opposite such Underwriters name in Schedule 1 hereto.
In addition, the Company agrees to issue and sell the Option Shares to the several Underwriters as provided in this Agreement, and the Underwriters, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, shall have the option to purchase, severally and not jointly, from the Company the Option Shares at the Purchase Price less an amount per share equal to any dividends or distributions declared by the Company and payable on the Underwritten Shares but not payable on the Option Shares.
If any Option Shares are to be purchased, the number of Option Shares to be purchased by each Underwriter shall be the number of Option Shares which bears the same ratio to the aggregate number of Option Shares being purchased as the number of Underwritten Shares set forth opposite the name of such Underwriter in Schedule 1 hereto (or such number increased as set forth in Section 10 hereof) bears to the aggregate number of Underwritten Shares being purchased from the Company by the several Underwriters, subject, however, to such adjustments to eliminate any fractional Shares as the Representatives in their sole discretion shall make.
The Underwriters may exercise the option to purchase Option Shares at any time in whole, or from time to time in part, on or before the thirtieth day following the date of the Prospectus, solely for the purpose of covering over-allotments, by written notice from the Representatives to the Company. Such notice shall set forth the aggregate number of Option Shares as to which the option is being exercised and the date and time when the Option Shares are to be delivered and paid for, which may be the same date and time as the Closing Date (as hereinafter defined) but shall not be earlier than the Closing Date nor later than the tenth full business day (as hereinafter defined) after the date of such notice (unless such time and date are postponed in accordance with the provisions of Section 10 hereof). Any such notice shall be given at least two business days prior to the date and time of delivery specified therein.
(b) The Company understands that the Underwriters intend to make a public offering of the Shares, and initially to offer the Shares on the terms set forth in the Pricing Disclosure Package. The Company acknowledges and agrees that the Underwriters may offer and sell Shares to or through any affiliate of an Underwriter.
(c) Payment for the Shares shall be made by wire transfer in immediately available funds to the account specified by the Company to the Representatives in the case of the Underwritten Shares via teleconference at 10:00 A.M. New York City time on [●], 2021, or at such other time or place on the same or such other date, not later than the fifth business day thereafter, as the Representatives and the Company may agree upon in writing or, in the case of the Option Shares, on the date and at the time and place specified by the Representatives in the written notice of the Underwriters election to purchase such Option Shares. The time and date of such payment for the Underwritten Shares is referred to herein as the Closing Date , and the time and date for such payment for the Option Shares, if other than the Closing Date, is herein referred to as the Additional Closing Date.
Payment for the Shares to be purchased on the Closing Date or the Additional Closing Date, as the case may be, shall be made against delivery to the Representatives for the respective accounts of the several Underwriters of the Shares to be purchased on such date registered in such names and in such denominations as the Representatives shall request in writing not later than two full business days prior to the Closing Date or the Additional Closing Date, as the case may be with any transfer taxes payable in connection with the sale of such Shares duly paid by the Company. Delivery of the Shares shall be made through the facilities of The Depository Trust Company (DTC) unless the Representatives shall otherwise instruct. To the extent applicable, the certificates for the Shares will be made available for inspection and packaging by the Representatives at the office of DTC or its designated custodian not later than 1:00 P.M., New York City time, on the business day prior to the Closing Date or the Additional Closing Date, as the case may be.
(d) The Company acknowledges and agrees that the Representatives and the other Underwriters are acting solely in the capacity of an arms length contractual counterparty to the Company with respect to the offering of Shares contemplated hereby (including in connection with determining the terms of the offering) and not as a financial advisor or a fiduciary to, or an agent of, the Company or any other person. Additionally, neither the Representatives nor any other Underwriter is advising the Company or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction. The Company shall consult with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated hereby, and neither the Representatives nor the other Underwriters shall have any responsibility or liability to the Company with respect thereto. Any review by the Representatives and the other Underwriters of the Company, the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Underwriters and shall not be on behalf of the Company.
3. Representations and Warranties of the Company. The Company represents and warrants to each Underwriter that:
(a) Preliminary Prospectus. No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus included in the Pricing Disclosure Package, at the time of filing thereof, complied in all material respects with the Securities Act, and no Preliminary Prospectus, at the time of filing thereof, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in any Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.
(b) Pricing Disclosure Package. The Pricing Disclosure Package as of the Applicable Time did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be will not, contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in such Pricing Disclosure Package, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof. No statement of material fact included in the Prospectus has been omitted from the Pricing Disclosure Package and no statement of material fact included in the Pricing Disclosure Package that is required to be included in the Prospectus has been omitted therefrom.
(c) Issuer Free Writing Prospectus. Other than the Registration Statement, the Preliminary Prospectus and the Prospectus, the Company (including its agents and representatives, other than the Underwriters in their capacity as such) has not prepared, made, used, authorized, approved or referred to and will not prepare, make, use, authorize, approve or refer to any written communication (as defined in Rule 405 under the Securities Act) that constitutes an offer to sell or solicitation of an offer to buy the Shares (each such communication by the Company or its agents and representatives (other than a communication referred to in clause (i) below) an Issuer Free Writing Prospectus) other than (i) any document not constituting a prospectus pursuant to Section 2(a)(10)(a) of the Securities Act or Rule 134 under the Securities Act or (ii) the documents listed on Annex A hereto, each electronic road show and any other written communications approved in writing in advance by the Representatives. Each such Issuer Free Writing Prospectus complies in all material respects with the Securities Act, has been or will be (within the time period specified in Rule 433) filed in accordance with the Securities Act (to the extent required thereby) and does not conflict with the information contained in the Registration Statement or the Pricing Disclosure Package, and, when taken together with the Preliminary Prospectus accompanying, or delivered prior to delivery of, such Issuer Free Writing Prospectus, did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in each such Issuer Free Writing Prospectus or Preliminary Prospectus in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in such Issuer Free Writing Prospectus or Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.
(d) Testing-the-Waters Materials. Testing-the-Waters Communication means any oral or written communication with potential investors undertaken in reliance on either Section 5(d) of, or Rule 163B under, the Securities Act. The Company (i) has not alone engaged in any Testing-the-Waters Communications other than Testing-the-
Waters Communications with the consent of the Representatives (x) with entities that are qualified institutional buyers (QIBs) within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act (IAIs) and otherwise in compliance with the requirements of Section 5(d) of the Securities Act or (y) with entities that the Company reasonably believed to be QIBs or IAIs and otherwise in compliance with the requirements of Rule 163B under the Securities Act and (ii) has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications. The Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications by virtue of a writing substantially in the form of Exhibit A hereto. The Company has not distributed or approved for distribution any Written Testing-the-Waters Communications other than those listed on Annex B hereto. Written Testing-the-Waters Communication means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act. Any individual Written Testing-the-Waters Communication does not conflict with the information contained in the Registration Statement or the Pricing Disclosure Package, complied in all material respects with the Securities Act, and when taken together with the Pricing Disclosure Package as of the Applicable Time, did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(e) Registration Statement and Prospectus. The Registration Statement has been declared effective by the Commission. No order suspending the effectiveness of the Registration Statement has been issued by the Commission, and no proceeding for that purpose or pursuant to Section 8A of the Securities Act against the Company or related to the offering of the Shares has been initiated or, to the Companys knowledge, threatened by the Commission; as of the applicable effective date of the Registration Statement and any post-effective amendment thereto, the Registration Statement and any such post-effective amendment complied and will comply in all material respects with the Securities Act, and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and as of the date of the Prospectus and any amendment or supplement thereto and as of the Closing Date and as of the Additional Closing Date, as the case may be, the Prospectus will comply in all material respects with the Securities Act and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement and the Prospectus and any amendment or supplement thereto, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.
(f) Financial Statements. The financial statements of the Company and its consolidated subsidiaries, together with the related notes, included in the Registration Statement, the Pricing Disclosure Package and the Prospectus comply in all material respects with the applicable requirements of the Securities Act and present fairly in all material respects the financial position of the Company and its consolidated subsidiaries as of the dates indicated and the results of their operations and the changes in their cash flows for the periods specified. Such financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) in the United States applied on a consistent basis throughout the periods covered thereby, except as may be expressly stated in the related notes thereto. Any supporting schedules included in the Registration Statement present fairly in all material respects the information required to be stated therein. The other financial information in the Registration Statement, the Pricing Disclosure Package and the Prospectus has been derived from the accounting records of the Company and its consolidated subsidiaries and presents fairly in all material respects the information shown thereby; all disclosures included in the Registration Statement, the Pricing Disclosure Package and the Prospectus regarding non-GAAP financial measures (as such term is defined by the rules and regulations of Commission) comply in all material respects with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Securities Act, to the extent applicable; and the pro forma financial information and the related notes thereto included in the Registration Statement, the Pricing Disclosure Package and the Prospectus have been prepared in accordance with the applicable requirements of the Securities Act and the assumptions underlying such pro forma financial information provide a reasonable basis for presenting the transactions as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(g) No Material Adverse Change in Business. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, since the end of the period covered by the latest audited financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (i) there has been no change in the condition (financial or otherwise), or in the earnings, results of operations, business, management or properties, nor any development or event involving a prospective change, of the Company and its subsidiaries, taken as a whole, that is material and adverse, (ii) the Company and its respective subsidiaries, taken as a whole, have not incurred any material liability or obligation, indirect, direct or contingent, not in the ordinary course of business nor entered into any material transaction or agreement not in the ordinary course of business, (iii) there has been no dividend or distribution of any kind (other than the issuance of shares of Common Stock upon exercise of stock options and warrants described as outstanding in, and the grant of options and awards under existing equity incentive plans described in, the Registration Statement, the Pricing Disclosure Package and the Prospectus) declared, paid or made by the Company of any class of its capital stock, (iv) there has been no material adverse change in the capital stock, short-term indebtedness, long-term indebtedness, net current assets or net assets of the Company and its respective subsidiaries and (v) neither the Company nor any of its subsidiaries has sustained any loss or interference with its business that is material to the Company and its subsidiaries taken as a whole and that is either from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or governmental or regulatory authority, except in each case as otherwise disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(h) Organization and Good Standing. The Company and each of its significant subsidiaries have been duly formed, organized or incorporated and is validly existing and in good standing under the laws of their respective jurisdictions of formation, organization or incorporation, as applicable, each with the limited partnership, limited liability company or corporate power and authority, as applicable to own, lease and operate its properties and conduct its business as described in the Registration Statement, Pricing Disclosure Package and Prospectus; and the Company and each of its significant subsidiaries is duly qualified to do business as a foreign corporation and are in good standing in all other jurisdictions in which their ownership or lease of property or the conduct of their respective business requires such qualification, except where the failure to be so qualified or in good standing (to the extent the concept of good standing is applicable in such jurisdiction) would not reasonably be expected to, individually or in the aggregate, have a material adverse effect on the condition (financial or otherwise), or in the earnings, results of operations, business, management, properties or prospects of the Company and its significant subsidiaries taken as a whole or on the performance by the Company of its obligations under this Agreement (a Material Adverse Effect). There are no significant subsidiaries, direct or indirect, of the Company that are not listed in Exhibit 21.1 of the Registration Statement.
(i) Capitalization. The Company has an authorized capitalization as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading Capitalization; all the outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and are not subject to any pre-emptive or similar rights that have not been duly waived or satisfied; except as described in or expressly contemplated by the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no outstanding rights (including, without limitation, pre-emptive rights that have not been duly waived or satisfied), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company or any of its significant subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company or any such subsidiary, any such convertible or exchangeable securities or any such rights, warrants or options; the capital stock of the Company conforms in all material respects to the description thereof contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and all the outstanding shares of capital stock or other equity interests of each subsidiary owned, directly or indirectly, by the Company have been duly and validly authorized and issued, are fully paid and non-assessable (except, in the case of any foreign subsidiary, for directors qualifying shares and except as otherwise described in the Registration Statement, the Pricing Disclosure Package and the Prospectus,) and, except as described in the Registration Statement, are owned directly or indirectly by the Company, free and clear of any lien, charge,
encumbrance, security interest, restriction on voting or transfer or any other similar claim of any third party, as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(j) Stock Options. Neither the Company nor any of its subsidiaries has any stock options as such term is defined under Section 422 of the Code.
(k) Due Authorization. The Company has full right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder; and all action required to be taken for the due and proper authorization, execution and delivery by it of this Agreement and the consummation by it of the transactions contemplated hereby has been duly and validly taken.
(l) Underwriting Agreement. This Agreement has been duly authorized, executed and delivered by the Company.
(m) The Shares. The Shares to be issued and sold by the Company hereunder have been duly authorized by the Company and, when issued and delivered and paid for as provided herein, will be duly and validly issued, will be fully paid and nonassessable, will conform to the descriptions thereof in the Registration Statement, the Pricing Disclosure Package and the Prospectus and will have the rights, preferences and priorities set forth in the Companys Amended and Restated Certificate of Incorporation (including the Certificate of Designations); and the issuance of the Shares is not subject to any preemptive or similar rights that have not been duly waived or satisfied.
(n) The Conversion Securities. Upon issuance of the Shares in accordance with this Agreement and the Certificate of Designations, the Shares will be convertible into the Conversion Securities in accordance with the terms of the Shares set forth in the Certificate of Designations; a number of Conversion Securities (the Maximum Number of Conversion Securities) equal to the sum of (x) the product of (A) the initial Maximum Conversion Rate (as defined in the Pricing Disclosure Package) and (B) the maximum number of Shares and (y) the product of (A) the maximum number of shares of Common Stock that would be added to the Maximum Conversion Rate (as defined in the Pricing Disclosure Package) assuming (i) the Company paid no dividends on the Shares prior to the Mandatory Conversion Date (as defined in the Pricing Disclosure Package) and (ii) the Floor Price (as defined in the Pricing Disclosure Package) is greater than 97% of the relevant Average Price (as defined in the Pricing Disclosure Package) and (B) the maximum number of Shares has been and will be duly authorized and reserved for issuance by all necessary corporate action of the Company; all Conversion Securities, when issued upon such conversion or delivery (as the case may be) in accordance with the terms of the Shares set forth in the Certificate of Designations, will be duly and validly issued, will be fully paid and nonassessable, and will conform to the descriptions thereof in the Registration Statement, the Pricing Disclosure Package and the Prospectus and will not be subject to any preemptive or similar rights that have not been duly waived or satisfied.
(o) The Certificate of Designations. The Certificate of Designations, the proposed form of which has been furnished to you, has been duly authorized by the Company and will have been duly executed and delivered by the Company and duly filed with the Secretary of the State of Delaware on or prior to the Closing Date. The holders of the Shares will have the rights set forth in the Certificate of Designations upon filing of the Certificate of Designations with the Secretary of State of Delaware.
(p) No Violation or Default. Neither the Company nor any of its significant subsidiaries is (i) in violation of its charter or by-laws or similar organizational documents; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its significant subsidiaries is a party or by which the Company or any of its significant subsidiaries is bound or to which any property or asset of the Company or any of its significant subsidiaries is subject; or (iii) in violation of any law or statute applicable to the Company or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority have jurisdiction over the Company or any of its significant subsidiaries, except, in the case of clauses (ii) and (iii) above, for any such default or violation that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(q) No Conflicts. The execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares and the consummation of the transactions contemplated by this Agreement, or the Pricing Disclosure Package and the Prospectus (including the issuance of a number of Conversion Securities equal to the Maximum Number of Conversion Securities issuable by the Company in accordance with the terms of the Shares set forth in the Certificate of Designations) will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, result in the termination, modification or acceleration of, or result in the creation or imposition of any lien, charge or encumbrance upon any property, right or asset of the Company or any of its significant subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its significant subsidiaries is a party or by which the Company or any of its significant subsidiaries is bound or to which any property, right or asset of the Company or any of its significant subsidiaries is subject, (ii) result in any violation of the provisions of the charter or by-laws or similar organizational documents of the Company or any of its significant subsidiaries or (iii) result in the violation of any law or statute applicable to the Company or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority having jurisdiction over the Company, except, in the case of clauses (i) and (iii) above, for any such conflict, breach, violation, default, lien, charge or encumbrance that would not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect.
(r) No Consents Required. No consent, approval, authorization, order, registration or qualification of or with any court or arbitrator or governmental or regulatory authority is required for the execution, delivery and performance by the
Company of this Agreement, the issuance and sale of the Shares and the consummation of the transactions contemplated by this Agreement (including the issuance of a number of Conversion Securities equal to the Maximum Number of Conversion Securities issuable by the Company in accordance with the terms of the Shares set forth in the Certificate of Designations), except for the registration of the Shares and the IPO Common Stock under the Securities Act and such consents, approvals, authorizations, orders and registrations or qualifications as may be required by FINRA and under applicable state securities laws in connection with the purchase and distribution of the Shares by the Underwriters.
(s) Legal Proceedings. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no legal, governmental or regulatory investigations, actions, demands, claims, suits, arbitrations, inquiries or proceedings (Actions) pending to which the Company or any of its significant subsidiaries is or may reasonably be expected to become a party or to which any property of the Company or any of its subsidiaries is or may reasonably be expected to be the subject that, individually or in the aggregate, if determined adversely to the Company or any of its significant subsidiaries, could reasonably be expected to have a Material Adverse Effect; to the knowledge of the Company, no such Actions are threatened or, contemplated by any governmental or regulatory authority or threatened by others; and (i) there are no current or pending Actions that are required under the Securities Act to be described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so described in the Registration Statement, the Pricing Disclosure Package and the Prospectus and (ii) there are no statutes, regulations or contracts or other documents that are required under the Securities Act to be filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(t) Independent Accountants. PricewaterhouseCoopers LLP and Deloitte & Touche LLP, who have each expressed their opinion with respect to the financial statements of the Company and its consolidated subsidiaries, are each an independent registered public accounting firm with respect to the Company and its subsidiaries within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act.
(u) Title to Real and Personal Property. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus and except as would not individually or in the aggregate constitute a Material Adverse Effect, the Company and its subsidiaries have good and marketable title to all real properties and good title to all other properties and assets owned by them, in each case free from liens, encumbrances and defects; and except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus and except a (s would not constitute individually or in the aggregate a Material Adverse Effect, the Company and its respective subsidiaries hold any leased real or personal property under valid and
enforceable leases with no terms or provisions that would interfere with the use made thereof by them.
(v) Possession of Intellectual Property. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the Company and its respective subsidiaries possess or can acquire on commercially reasonable terms sufficient rights to use all trademarks, service marks, trade names, domain names, patents, copyrights, licenses, approvals, know-how (including trade secrets and other unpatented and/or patentable proprietary or confidential information system or procedures) and other similar intellectual property or proprietary rights (including all registrations and applications for registration of, and all good will associated with, the foregoing) (collectively, Intellectual Property Rights) necessary to conduct their businesses as presently conducted and as proposed to be conducted as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus. Except as would not individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the conduct of the business of the Company and its subsidiaries has not conflicted with, infringed, misappropriated or otherwise violated any Intellectual Property Rights of any third party in any material respect. The Company and its subsidiaries have not received any notice of infringement, misappropriation or other violation of, or conflict with, any Intellectual Property Rights of any third party, or any notice challenging the ownership, validity, enforceability, or scope of any Intellectual Property Rights owned by the Company or any of its respective subsidiaries, in each case, if the subject of an unfavorable decision, would reasonably be expected to have a Material Adverse Effect.
(w) No Undisclosed Relationships. Except as disclosed in the Registration Statement, there have not been, nor are there any currently proposed, transactions or series of similar transactions to which we will have been or will be a party that we are required to disclose by the Securities Act, other than compensation arrangements, which are described where required in the Registration Statement.
(x) Investment Company Act. The Company is not and, after giving effect to the offering and sale of the Shares, the offering and sale of the IPO Common Stock and the application of the proceeds thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be required to register as an investment company or an entity controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (collectively, the Investment Company Act).
(y) Taxes. Except for any failures that would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, the Company and its subsidiaries have (i) timely filed all U.S. and non-U.S. federal, provincial, state and local tax returns required to be filed by it or have requested extensions thereof and (ii) timely paid all U.S. and non-U.S. federal, provincial, state and local taxes imposed on it, including any interest, penalties, and other additions to tax (whether or not shown on a tax return), including in its capacity as a withholding agent, except for any such taxes, interest, penalties and other additions currently being contested in good faith. The
Company has made adequate charges, accruals and reserves in accordance with GAAP in the applicable financial statements referred to in Section 2(w) hereof in respect of all U.S. and non-U.S. federal, provincial, state, and local taxes for all periods as to which the tax liability of the Company or any of its respective subsidiaries has not been finally determined. There is no tax deficiency, assessment or other claim against the Company or any of its respective subsidiaries that would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
(z) Licenses and Permits. The Company and its subsidiaries possess, and are in compliance with the terms of, such valid and current certificates, authorizations, franchise, licenses and permits (Licenses) issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to own, lease and operate its properties and to conduct its respective businesses, except as would not reasonably be expected to have a Material Adverse Effect; and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of, or non-compliance with, any such certificate, authorization or permit which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to have a Material Adverse Effect.
(aa) No Labor Disputes. No labor disturbance by or dispute with the Company or, to the knowledge of the Company, is contemplated or threatened, any of its subsidiaries exists except as would not have a Material Adverse Effect. Neither the Company nor any of its subsidiaries has received any written notice of cancellation or termination of any collective bargaining agreement to which it is a party.
(bb) Certain Environmental Matters. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect: (i) the Company and its respective subsidiaries have been and are in compliance with, and are not subject to any known liabilities under, Environmental Laws (as defined below); (ii) the Company and its respective subsidiaries have obtained and maintained all permits, licenses, certificates and other governmental authorizations or approvals, and have made all filings and provided all financial assurances and notices, required for the business, properties and facilities of the Company and its respective subsidiaries under Environmental Laws, and are in compliance with the terms and conditions thereof; (iii) none of the Company or its respective subsidiaries has received any written communication, whether from a governmental authority, citizens group, employee or otherwise, that alleges that the Company or its respective subsidiaries is in violation of any Environmental Law; (iv) except as disclosed in the Registration Statement, there is no pending or threatened claim, action or cause of action or investigation with respect to which the Company or its respective subsidiaries have received written notice, in each case based on or pursuant to any Environmental Law, pending or, to the Companys knowledge threatened against the Company or its respective subsidiaries or against any person or entity whose liability under or pursuant to any Environmental Law the Company or its respective subsidiaries has retained or assumed either contractually or by operation of law; (v) none of the Company or its respective subsidiaries is conducting or paying for, in whole or in part, any investigation, remediation, response or other corrective action related to any Environmental
Law at any site or facility, nor is any of them subject or a party to any written communication, order, judgment, decree, contract or agreement which imposes or threatens to impose any obligation or liability under any Environmental Law; and (vi) no lien, charge, encumbrance or restriction has been recorded under any Environmental Law with respect to any facility or real property owned, operated or leased by the Company or its respective subsidiaries. In addition, the Company and its respective subsidiaries are not aware of any facts or issues regarding compliance with Environmental Laws, or liabilities or other costs or obligations under Environmental Laws or concerning Materials of Environmental Concern, that could reasonably be expected to have a material effect on the capital expenditures, earnings or competitive position of the Companies or its respective subsidiaries. For purposes of this Agreement, Environment means ambient air, indoor air, surface water, groundwater, drinking water, soil, surface and subsurface strata, sediments, and natural resources such as wetlands, flora and fauna. Environmental Laws means the common law and all supranational (e.g., the European Union), federal, provincial, state, local and foreign laws or regulations, ordinances, codes, orders, decrees, judgments and injunctions issued, promulgated or entered thereunder that are applicable to and binding upon the Company or its respective subsidiaries, relating to pollution or protection of the Environment or human health and safety (as it relates to exposure to Materials of Environmental Concern (as defined below)), including without limitation, those relating to (i) the Release or threatened Release of or exposure to Materials of Environmental Concern; (ii) the manufacture, processing, distribution, use, generation, treatment, storage, transport, disposal, handling or recycling of Materials of Environmental Concern; and (iii) the listing, notification, registration, testing or reporting with respect to any chemical substance under the U.S. Toxic Substances Control Act, the E.U. Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) regulation, or similar Requirement of Law implemented by any Government Agency. Materials of Environmental Concern means any hazardous or toxic substance, material, pollutant, contaminant, chemical, waste, compound, or constituent, in any form, including without limitation, petroleum and petroleum products, subject to regulation or which can give rise to liability under any Environmental Law. Release means any release, spill, emission, discharge, deposit, disposal, leaking, pumping, pouring, dumping, emptying, injection, escaping or leaching into the Environment, or into, from or through any building, structure or facility.
(cc) ERISA Compliance. Except as would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect, each United States-based employee pension benefit plan (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended (ERISA, which term, as used herein, includes the regulations and published interpretations thereunder)) sponsored or maintained by the Issuers, the Guarantors, their respective subsidiaries or their ERISA Affiliates (as defined below) (a Pension Plan) is in compliance in all material respects with ERISA. None of the Issuers, the Guarantors, their respective subsidiaries or any ERISA Affiliate has, within the past six years, maintained, sponsored or contributed to, or been required to contribute to, any plan subject to Title IV of ERISA or Section 412 of the Internal Revenue Code of 1986, as amended (the Code, which term, as used herein, includes the regulations and published interpretations thereunder), including any multiemployer plan, within the meaning of ERISA Sections 3(37) or 4001(a)(3). ERISA Affiliate means any trade or
business (whether or not incorporated) that, together with the Issuers or any Guarantor, is treated as a single employer within the meaning of Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. Except as would not reasonably be expected to have a Material Adverse Effect, (A) none of Issuers, the Guarantors, any of their respective subsidiaries or any of their ERISA Affiliates has incurred or reasonably expects to incur any liability under Section 4975(a) or 4980B of the Code, (B) each Pension Plan sponsored or maintained by the Issuers, the Guarantors, their respective subsidiaries or any of their ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is the subject of a favorable determination or opinion letter from the Internal Revenue Service, and nothing has occurred, whether by action or failure to act, which would reasonably be expected to cause the loss of such qualification, and (C) the execution of this Agreement and the issuance and sale of the Shares hereunder will not involve or give rise to a non-exempt prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code.
(dd) Disclosure Controls. The Company and its subsidiaries maintain an effective system of disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) that complies with the requirements of the Exchange Act and has been designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commissions rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Companys management as appropriate to allow timely decisions regarding required disclosure.
(ee) Accounting Controls. The Company and its subsidiaries maintain systems of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that comply with the requirements of the Exchange Act and have been designed by, or under the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company and its subsidiaries maintain internal accounting controls designed to provide reasonable assurance that (i) transactions are executed in accordance with managements general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with managements general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as described in the Pricing Disclosure Package, since the end of the Companys most recent audited fiscal year, there has been (i) no material weakness in the Companys internal control over financial reporting (whether or not remediated) and (ii) no change in the Companys internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting (it being understood that this subsection shall not require
the Company to comply with Section 404 of the Sarbanes-Oxley Act (as defined in Section 3(rr)) as of an earlier date than it would otherwise be required to so comply under applicable law).
(ff) Insurance. The Company and its subsidiaries have insurance covering their respective properties, operations, personnel and businesses, including business interruption insurance, which insurance is in amounts as is customary and reasonable in the industry and insures against such losses and risks as are adequate to protect the Company and its subsidiaries and their respective businesses; and neither the Company nor any of its subsidiaries has (i) received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance or (ii) any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage at reasonable cost from similar insurers as may be necessary to continue its business.
(gg) Cybersecurity; Data Protection. (x) There has been no security breach or attack or other compromise of or relating to any of the Companys and its respective subsidiaries information technology and computer systems, networks, hardware, software, data (including the data of their respective tenants, employees, vendors and any third party data maintained by or on behalf of them), equipment or technology (IT Systems and Data) , (y) the Company and its respective subsidiaries have not been notified of, and have no knowledge of any event or condition that would reasonably be expected to result in, any security breach, attach or compromise to their IT Systems and Data and (z) the Company and its respective subsidiaries have complied, and are presently in compliance, in all material respects, with all applicable laws, statutes or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority and all applicable industry guidelines, standards, internal policies and contractual obligations relating to the privacy and security of IT Systems and Data and to the protection of such IT Systems and Data from unauthorized use, access, misappropriation or modification, except in each case of clauses (x), (y) and (z) that would not reasonably be expected to have a Material Adverse Effect. The Company and its respective subsidiaries have implemented and maintain commercially reasonable controls, policies, procedures, and safeguards designed to maintain and protect their material confidential information and the integrity, continuous operation, redundancy and security of all IT Systems and Data.
(hh) No Unlawful Payments. Neither the Company nor any of its subsidiaries nor any director, officer or employee of the Company or any of its subsidiaries nor, to the knowledge of the Company, any agent, affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken an act in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment or benefit to any foreign or domestic government official or employee, including of any government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party
official or candidate for political office to influence official action or secure an improper advantage, or any person in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offence under the Bribery Act 2010 of the United Kingdom or any other applicable anti-bribery or anti-corruption law; or (iv) made, offered, agreed, requested or taken an act in furtherance of any unlawful bribe or other unlawful benefit, including, without limitation, any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit. The Company and its subsidiaries have instituted, maintain and enforce, and will continue to maintain and enforce policies and procedures designed to promote and ensure compliance with all applicable anti-bribery and anti-corruption laws.
(ii) Compliance with Anti-Money Laundering Laws. The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements, including those of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), and the applicable anti- money laundering statutes of jurisdictions where the Company or any of its subsidiaries conducts business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines issued, administered or enforced by any governmental agency (collectively, the Anti-Money Laundering Laws) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened.
(jj) Economic Sanctions. (i) Neither the Company nor any of its subsidiaries, or to the Companys knowledge, any controlled affiliate, employee, agent or representative of the Company or any of its subsidiaries, is an individual or entity (Person) that is, or is owned or controlled by one or more Persons that are: (A) the subject of any sanctions administered or enforced by the U.S. Department of the Treasurys Office of Foreign Assets control (OFAC), the United Nations Security Council (UNSC), the European Union (EU), Her Majestys Treasury (UK HMT) or other relevant sanctions authority (collectively, Sanctions) or (B) located, organized or resident in a country or territory that is the subject of Sanctions, including, without limitation, Crimea, Cuba, Iran, North Korea and Syria (each, a Sanctioned Country); (ii) the Company will not, directly or indirectly, use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person (A) to fund or facilitate any activities of or business with any person that, at the time of such funding or facilitation, is the subject or target of Sanctions; (B) to fund or facilitate any activities of or business in any Sanctioned Country; or (C) in any other manner that will result in a violation by any Person (including any person participating in the transaction, whether as underwriter,
advisor, investor or otherwise) of Sanctions; and (iii) for the past five years, the Company and its subsidiaries have not knowingly engaged in and are not now knowingly engaged in any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country.
(kk) [Reserved.]
(ll) No Brokers Fees. Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person (other than this Agreement) that would give rise to a valid claim against any of them or any Underwriter for a brokerage commission, finders fee or like payment in connection with the offering and sale of the Shares.
(mm) No Registration Rights. Except for those related to the Registration Rights Agreement as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no person has the right to require the Company or any of its subsidiaries to register any securities for sale under the Securities Act by reason of the filing of the Registration Statement with the Commission or the issuance and sale of the Shares.
(nn) No Stabilization. Neither the Company nor to the Companys knowledge, any of its subsidiaries or affiliates has taken, directly or indirectly, without giving effect to activities by the Underwriters any action designed to or that could reasonably be expected to cause or result in any unlawful stabilization or manipulation of the price of the Shares.
(oo) Regulations T, U, X. Neither the Company, any of its respective subsidiaries or any agent thereof acting on its or their behalf has taken, and none of them will take, any action that might cause this Agreement or the issuance, sale and delivery of the Shares nor the application of the proceeds thereof by the Company as described in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus to violate Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board of Governors.
(pp) Forward-Looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) included in any of the Registration Statement, the Pricing Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.
(qq) Statistical and Market Data. Nothing has come to the attention of the Company that has caused the Company to believe that statistical and market-related data included in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects.
(rr) Sarbanes-Oxley Act. There is and has been no failure on the part of the Company or any of the Companys directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act of 2002, as amended and the rules and regulations promulgated in connection therewith (the Sarbanes-Oxley Act), including Section 402 related to loans.
(ss) Status under the Securities Act. At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or any offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the Securities Act) of the Shares and at the date hereof, the Company was not and is not an ineligible issuer, as defined in Rule 405 under the Securities Act.
(tt) Ratings. Except as disclosed in the Registration Statement, Pricing Disclosure Package and the Prospectus, no nationally recognized statistical rating organization as such term is defined in Section 3(a)(62) under the Exchange Act as imposed (or has informed the Company that it is considering imposing) any condition (financial or otherwise) on the Companys retaining any rating assigned to the Company or any securities of the Company or has indicated to the Company that it is considering any of the actions described in Section 6(c) hereof.
4. Further Agreements of the Company. The Company covenants and agrees with each Underwriter that:
(a) Required Filings. The Company will file the final Prospectus with the Commission within the time periods specified by Rule 424(b) and Rule 430A, 430B or 430C under the Securities Act, will file any Issuer Free Writing Prospectus to the extent required by Rule 433 under the Securities Act; and the Company will furnish copies of the Prospectus and each Issuer Free Writing Prospectus (to the extent not previously delivered) to the Underwriters in New York City prior to 10:00 A.M., New York City time, on the business day next succeeding the date of this Agreement in such quantities as the Representatives may reasonably request.
(b) Delivery of Copies. The Company will deliver, without charge, (i) to the Representatives, three signed copies of the Registration Statement as originally filed and each amendment thereto, in each case including all exhibits and consents filed therewith; and (ii) to each Underwriter (A) a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) and (B) during the Prospectus Delivery Period (as defined below), as many copies of the Prospectus (including all amendments and supplements thereto and each Issuer Free Writing Prospectus) as the Representatives may reasonably request. As used herein, the term Prospectus Delivery Period means such period of time after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters a prospectus relating to the Shares is required by law to be delivered (or required to be delivered but for Rule 172 under the Securities Act) in connection with sales of the Shares by any Underwriter or dealer.
(c) Amendments or Supplements, Issuer Free Writing Prospectuses. Before making, preparing, using, authorizing, approving, referring to or filing any Issuer Free Writing Prospectus, and before filing any amendment or supplement to the Registration Statement, the Pricing Disclosure Package or the Prospectus, the Company will furnish to the Representatives and counsel for the Underwriters a copy of the proposed Issuer Free Writing Prospectus, amendment or supplement for review and will not make, prepare, use, authorize, approve, refer to or file any such Issuer Free Writing Prospectus or file any such proposed amendment or supplement to which the Representatives reasonably object in a timely manner.
(d) Notice to the Representatives. The Company will advise the Representatives promptly, and confirm such advice in writing (which may be electronic mail), (i) when the Registration Statement has become effective; (ii) when any amendment to the Registration Statement has been filed or becomes effective; (iii) when any supplement to the Pricing Disclosure Package, the Prospectus, or any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication or any amendment to the Prospectus has been filed or distributed; (iv) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or the receipt of any comments from the Commission relating to the Registration Statement or any other request by the Commission for any additional information including, but not limited to, any request for information concerning any Testing-the-Waters Communication; (v) of the issuance by the Commission or any other governmental or regulatory authority of any order suspending the effectiveness of the Registration Statement or preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package, or the Prospectus or any Written Testing-the-Waters Communication or the initiation or threatening of any proceeding for that purpose or pursuant to Section 8A of the Securities Act; (vi) of the occurrence of any event or development within the Prospectus Delivery Period as a result of which the Prospectus, any of the Pricing Disclosure Package, or any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication as then amended or supplemented would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus, the Pricing Disclosure Package, or any such Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication is delivered to a purchaser, not misleading; and (vii) of the receipt by the Company of any notice with respect to any suspension of the qualification of the Shares for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and the Company will use its reasonable best efforts to prevent the issuance of any such order suspending the effectiveness of the Registration Statement, preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package or the Prospectus or any Written Testing-the-Waters Communication or suspending any such qualification of the Shares and, if any such order is issued, will use its reasonable best efforts to obtain as soon as possible the withdrawal thereof.
(e) Ongoing Compliance. (1) If during the Prospectus Delivery Period (i) any event or development shall occur or condition shall exist as a result of which the
Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Prospectus to comply with law, the Company will promptly notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission and furnish to the Underwriters and to such dealers as the Representatives may designate such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law and (2) if at any time prior to the Closing Date (i) any event or development shall occur or condition shall exist as a result of which the Pricing Disclosure Package as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Pricing Disclosure Package to comply with law, the Company will promptly notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission (to the extent required) and furnish to the Underwriters and to such dealers as the Representatives may designate such amendments or supplements to the Pricing Disclosure Package as may be necessary so that the statements in the Pricing Disclosure Package as so amended or supplemented will not, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, be misleading or so that the Pricing Disclosure Package will comply with law.
(f) Blue Sky Compliance. The Company will qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives shall reasonably request and will continue such qualifications in effect so long as required for distribution of the Shares; provided that the Company shall not be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.
(g) Earning Statement. The Company will make generally available to its security holders and the Representatives as soon as practicable an earning statement that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the effective date (as defined in Rule 158) of the Registration Statement, provided, that the Company will be deemed to have furnished such earnings statement to its security holders and the Representatives to the extent they are filed on the Commissions Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
(h) Clear Market. For a period of 180 days after the date of the Prospectus, the Company will not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, or submit to, or file with, the Commission a registration statement under the Securities Act relating to, any shares of Stock or any securities convertible into or exercisable or exchangeable for Stock, or publicly disclose the intention to undertake any of the foregoing, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Stock or any such other securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Stock or such other securities, in cash or otherwise, without the prior written consent of the Representatives, other than the Shares to be sold hereunder, the Conversion Securities, any Common Stock issued as payment of a dividend on the Shares and the IPO Common Stock.
The restrictions described above do not apply to (i) the issuance of shares of Stock or securities convertible into or exercisable for shares of Stock pursuant to the conversion or exchange of convertible or exchangeable securities or the exercise of warrants or options (including net exercise) or the settlement of RSUs (including net settlement), in each case outstanding on the date of this Agreement and described in the Prospectus; (ii) grants of stock options, stock awards, restricted stock, RSUs, or other equity awards and the issuance of shares of Stock or securities convertible into or exercisable or exchangeable for shares of Stock (whether upon the exercise of stock options or otherwise) to the Companys employees, officers, directors, advisors, or consultants pursuant to the terms of an equity compensation plan in effect as of the Closing Date and described in the Prospectus, provided that such recipients enter into a lock-up agreement with the Underwriters; (iii) the filing of any registration statement on Form S-8 relating to securities granted or to be granted pursuant to any plan in effect on the date of this Agreement and described in the Prospectus or any assumed benefit plan pursuant to an acquisition or similar strategic transaction; (iv) as a bona fide gift to a charitable organization provided that any such transfer shall not involve a disposition for value or (v) the issuance by the Company of shares of Stock or other securities convertible into, exchangeable for or that request the right to receive shares of Stock in connection with (x) the acquisition by the Company or any of its subsidiaries of the securities, business, technology, property, personnel or other assets of another person or entity or pursuant to an employee benefit plan assumed by the Company in connection with such acquisition, and the issuance of any securities provided pursuant to any such agreement, or (y) the issuance by the Company of shares of Stock or securities convertible into, exchangeable for or that represent the right to receive shares of Stock in connection with the Companys joint ventures, commercial relationships and other strategic relationships, provided, that the aggregate number of shares of Stock that the Company may sell or issue or agree to sell or issue pursuant to clause (v) shall not exceed 5% of the total number of shares of common stock of the company outstanding immediately following the issuance of the shares of IPO Common Stock; provided that such transferee agrees to enter into lock-up restrictions substantially similar in scope and duration as the lock-up letter described in Section 6(m) hereof.
If the Representatives, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up letter described in Section 6(m) hereof for an officer or director of the Company and provides the Company with notice of the impending release or waiver substantially in the form of Exhibit B hereto at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver substantially in the form of Exhibit C hereto through a major news service at least two business days before the effective date of the release or waiver.
(i) Use of Proceeds. The Company will apply the net proceeds from the sale of the Shares as described in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading Use of proceeds.
(j) No Stabilization. Neither the Company nor its subsidiaries or affiliates will take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any unlawful stabilization or manipulation of the price of the Stock.
(k) Exchange Listing. The Company will use its reasonable best efforts to list for quotation the Shares and the Maximum Number of Conversion Securities on the New York Stock Exchange (the NYSE).
(l) Reports. For a period of one year from the date of this Agreement, so long as the Shares are outstanding, the Company will furnish to the Representatives, as soon as they are available, copies of all reports or other communications (financial or other) furnished to holders of the Shares, and copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange or automatic quotation system; provided that the Company will be deemed to have furnished such reports and financial statements to the Representatives to the extent they are filed on the Commissions EDGAR system.
(m) Record Retention. The Company will, pursuant to reasonable procedures developed in good faith, retain copies of each Issuer Free Writing Prospectus that is not filed with the Commission in accordance with Rule 433 under the Securities Act.
(n) Filings. The Company will file with the Commission such reports as may be required by Rule 463 under the Securities Act.
(o) Reservation of Conversion Securities. The Company will reserve and keep available at all times, beginning at the Closing Date, free of preemptive or similar rights, a number of Conversion Securities equal to the Maximum Number of Conversion Securities.
(p) No Dilutive Actions. During the period from and including the date hereof through and including the earlier of (a) the purchase by the Underwriters of all of the Option Shares and (b) the expiration of the Underwriters option to purchase Option Shares, the Company will not authorize or cause any act or thing that would result in an
adjustment of the Fixed Conversion Rates (as defined in the General Disclosure Package).
5. Certain Agreements of the Underwriters. Each Underwriter hereby represents and agrees that:
(a) It has not used, authorized use of, referred to or participated in the planning for use of, and will not use, authorize use of, refer to or participate in the planning for use of, any free writing prospectus, as defined in Rule 405 under the Securities Act (which term includes use of any written information furnished to the Commission by the Company and not incorporated by reference into the Registration Statement and any press release issued by the Company) other than (i) a free writing prospectus that contains no issuer information (as defined in Rule 433(h)(2) under the Securities Act) that was not included in the Preliminary Prospectus or a previously filed Issuer Free Writing Prospectus, (ii) any Issuer Free Writing Prospectus listed on Annex A or prepared pursuant to Section 3(c) or Section 4(c) above (including any electronic road show), or (iii) any free writing prospectus prepared by such underwriter and approved by the Company in advance in writing (each such free writing prospectus referred to in clauses (i) or (iii), an Underwriter Free Writing Prospectus).
(b) It has not and will not, without the prior written consent of the Company, use any free writing prospectus that contains the final terms of the Shares unless such terms have previously been included in a free writing prospectus filed with the Commission.
(c) It is not subject to any pending proceeding under Section 8A of the Securities Act with respect to the offering (and will promptly notify the Company if any such proceeding against it is initiated during the Prospectus Delivery Period).
6. Conditions of Underwriters Obligations. The obligation of each Underwriter to purchase the Underwritten Shares on the Closing Date or the Option Shares on the Additional Closing Date, as the case may be, as provided herein is subject to the performance by the Company of its covenants and other obligations hereunder and to the following additional conditions:
(a) Registration Compliance; No Stop Order. No order suspending the effectiveness of the Registration Statement shall be in effect, and no proceeding for such purpose or pursuant to Section 8A under the Securities Act shall be pending before or threatened by the Commission; the Prospectus and each Issuer Free Writing Prospectus shall have been timely filed with the Commission under the Securities Act (in the case of an Issuer Free Writing Prospectus, to the extent required by Rule 433 under the Securities Act) and in accordance with Section 4(a) hereof; and all requests by the Commission for additional information shall have been complied with to the reasonable satisfaction of the Representatives.
(b) Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct on the date hereof and on and as
of the Closing Date or the Additional Closing Date, as the case may be; and the statements of the Company and its officers made in any certificates delivered pursuant to this Agreement shall be true and correct on and as of the Closing Date or the Additional Closing Date, as the case may be.
(c) No Downgrade. Subsequent to the earlier of (A) the Applicable Time and (B) the execution and delivery of this Agreement, (i) no downgrading shall have occurred in the rating accorded any debt securities, convertible securities or preferred stock issued, or guaranteed by, the Company or any of its subsidiaries by any nationally recognized statistical rating organization, as such term is defined under Section 3(a)(62) under the Exchange Act and (ii) no such organization shall have publicly announced that it has under surveillance or review, or has changed its outlook with respect to, its rating of any such debt securities or preferred stock issued or guaranteed by the Company or any of its subsidiaries (other than an announcement with positive implications of a possible upgrading).
(d) No Material Adverse Change. No event or condition of a type described in Section 3 (g) hereof shall have occurred or shall exist, which event or condition is not described in the Pricing Disclosure Package (excluding any amendment or supplement thereto) and the Prospectus (excluding any amendment or supplement thereto) and the effect of which in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus.
(e) Officers Certificate. The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, a certificate of the chief financial officer, chief accounting officer of the Company or other officer with relevant knowledge and one additional senior executive officer of the Company who is satisfactory to the Representatives (i) confirming that such officers have carefully reviewed the Registration Statement, the Pricing Disclosure Package and the Prospectus and, to the knowledge of such officers, the representations set forth in Sections 3(b) and 3(d) hereof are true and correct, (ii) confirming that the other representations and warranties of the Company in this Agreement are true and correct and that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date or the Additional Closing Date, as the case may be, and (iii) to the effect set forth in paragraphs (a), (c) and (d) above.
(f) Comfort Letters. On the date of this Agreement and on the Closing Date or the Additional Closing Date, as the case may be, PricewaterhouseCoopers LLP shall have furnished to the Representatives, at the request of the Company, letters, dated the respective dates of delivery thereof and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives, containing statements and information of the type customarily included in accountants comfort letters to underwriters with respect to the financial statements and certain financial information contained in each of the Registration Statement, the Pricing Disclosure Package and the
Prospectus; provided, that the letter delivered on the Closing Date or the Additional Closing Date, as the case may be, shall use a cut-off date no more than two business days prior to such Closing Date or such Additional Closing Date, as the case may be.
(g) CFO Certificate. On the date of this Agreement and on the Closing Date or the Additional Closing Date, as the case may be, the Company shall have furnished to the Representatives a certificate, dated the respective dates of delivery thereof and addressed to the Underwriters, of its chief financial officer with respect to certain financial data contained in the Pricing Disclosure Package and the Prospectus, providing management comfort with respect to such information, in form and substance reasonably satisfactory to the Representatives.
(h) Opinion and 10b-5 Statement of Counsel for the Company. Davis Polk & Wardwell LLP, counsel for the Company, shall have furnished to the Representatives, at the request of the Company, their written opinion and 10b-5 statement, dated the Closing Date or the Additional Closing Date, as the case may be, and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives.
(i) Opinion and 10b-5 Statement of Counsel for the Underwriters. The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, an opinion and 10b-5 statement, addressed to the Underwriters, of Cleary Gottlieb Steen & Hamilton LLP, counsel for the Underwriters, with respect to such matters as the Representatives may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.
(j) No Legal Impediment to Issuance and Sale. No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state or foreign governmental or regulatory authority that would, as of the Closing Date or the Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares; and no injunction or order of any federal, state or foreign court shall have been issued that would, as of the Closing Date or the Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares.
(k) Good Standing. The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, satisfactory evidence of the good standing of the Company and its subsidiaries in their respective jurisdictions of organization and their good standing in such other jurisdictions as the Representatives may reasonably request, in each case in writing or any standard form of telecommunication from the appropriate governmental authorities of such jurisdictions.
(l) Exchange Listing. The Company shall have filed the requisite listing application with the NYSE for the listing of the Shares to be delivered on the Closing Date or the Additional Closing Date, as the case may be, and the Maximum Number of Conversion Securities.
(m) Lock-up Agreements. The lock-up agreements, each substantially in the form of Exhibit D hereto, between you and certain shareholders, officers and directors of
the Company relating to sales and certain other dispositions of shares of Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date or the Additional Closing Date, as the case may be.
(n) Concurrent Offering Closing. The closing of the Concurrent Offering by the Company on the terms set forth in the Common Stock Underwriting Agreement shall have occurred prior to or simultaneously with the closing of the offering of the Underwritten Securities pursuant to this Agreement.
(o) Certificate of Designations. The Certificate of Designations shall have been filed with the Secretary of State of Delaware and become effective and the Company shall have delivered evidence of such filing and effectiveness to the Representatives.
(p) Additional Documents. On or prior to the Closing Date or the Additional Closing Date, as the case may be, the Company shall have furnished to the Representatives such further certificates and documents as the Representatives may reasonably request.
All opinions, letters, certificates and evidence mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriters.
7. Indemnification and Contribution.
(a) Indemnification of the Underwriters. The Company agrees to indemnify and hold harmless each Underwriter, its affiliates, directors and officers and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, reasonably incurred and documented legal fees and other reasonably incurred and documented expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), joint or several, that arise out of, or are based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, not misleading, or (ii) any untrue statement or alleged untrue statement of a material fact contained in the Prospectus (or any amendment or supplement thereto), any Preliminary Prospectus, any Issuer Free Writing Prospectus, any issuer information filed or required to be filed pursuant to Rule 433(d) under the Securities Act, any Written Testing-the-Waters Communication, any road show as defined in Rule 433(h) under the Securities Act (a road show) or any Pricing Disclosure Package (including any Pricing Disclosure Package that has subsequently been amended), or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Underwriter furnished to the Company in writing by such Underwriter through
the Representatives expressly for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in paragraph (b) below.
(b) Indemnification of the Company. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity set forth in paragraph (a) above, but only with respect to any losses, claims, damages or liabilities that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to such Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement, the Prospectus (or any amendment or supplement thereto), any Preliminary Prospectus, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, any road show or any Pricing Disclosure Package (including any Pricing Disclosure Package that has subsequently been amended), it being understood and agreed upon that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: [(i) the concession and reallowance figures appearing in the third paragraph under the caption Underwriting and (ii) the information contained in the [thirteenth, fourteenth and fifteenth] paragraphs under the caption Underwriting.]
(c) Notice and Procedures. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnification may be sought pursuant to the preceding paragraphs of this Section 7, such person (the Indemnified Person) shall promptly notify the person against whom such indemnification may be sought (the Indemnifying Person) in writing; provided that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under the preceding paragraphs of this Section 7 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under the preceding paragraphs of this Section 7. If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person (who shall not, without the consent of the Indemnified Person, be counsel to the Indemnifying Person) to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section 11 that the Indemnifying Person may designate in such proceeding and shall pay reasonably incurred and documented fees and expenses of such counsel related to such proceeding, as incurred. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such reasonably incurred and documented fees and expenses shall be paid or reimbursed as they are incurred. Any such separate firm for any Underwriter, its affiliates, directors and officers and any control persons of such Underwriter shall be designated in writing by BofA Securities, Inc. and J.P. Morgan Securities LLC and any such separate firm for the Company, its directors, its officers who signed the Registration Statement and any control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for reasonably incurred and documented fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by the Indemnifying Person of such request and (ii) the Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (x) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.
(d) Contribution. If the indemnification provided for in paragraphs (a) or (b) above is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters, on the other, from the offering of the Shares or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company, on the one hand, and the Underwriters, on the other, in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one
hand, and the Underwriters, on the other, shall be deemed to be in the same respective proportions as the net proceeds (before deducting expenses) received by the Company from the sale of the Shares and the total underwriting discounts and commissions received by the Underwriters in connection therewith, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate offering price of the Shares. The relative fault of the Company, on the one hand, and the Underwriters, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
(e) Limitation on Liability. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to paragraph (d) above were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of paragraphs (d) and (e), in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter with respect to the offering of the Shares exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters obligations to contribute pursuant to paragraphs (d) and (e) are several in proportion to their respective purchase obligations hereunder and not joint.
(f) Non-Exclusive Remedies. The remedies provided for in this Section 7 paragraphs (a) through (e) are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity.
8. Effectiveness of Agreement. This Agreement shall become effective as of the date first written above.
9. Termination. This Agreement may be terminated in the absolute discretion of the Representatives, by notice to the Company, if after the execution and delivery of this Agreement and on or prior to the Closing Date or, in the case of the Option Shares, prior to the Additional Closing Date (i) trading generally shall have been suspended or materially limited on or by any of the New York Stock Exchange or The Nasdaq Stock Market; (ii) trading of any securities issued or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market; (iii) a general moratorium on commercial banking activities shall have been declared by federal or New York State authorities; or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis,
either within or outside the United States, that, in the judgment of the Representatives, is material and adverse and makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus.
10. Defaulting Underwriter.
(a) If, on the Closing Date or the Additional Closing Date, as the case may be, any Underwriter defaults on its obligation to purchase the Shares that it has agreed to purchase hereunder on such date, the non-defaulting Underwriters may in their discretion arrange for the purchase of such Shares by other persons satisfactory to the Company on the terms contained in this Agreement. If, within 36 hours after any such default by any Underwriter, the non-defaulting Underwriters do not arrange for the purchase of such Shares, then the Company shall be entitled to a further period of 36 hours within which to procure other persons satisfactory to the non-defaulting Underwriters to purchase such Shares on such terms. If other persons become obligated or agree to purchase the Shares of a defaulting Underwriter, either the non-defaulting Underwriters or the Company may postpone the Closing Date or the Additional Closing Date, as the case may be, for up to five full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the Underwriters may be necessary in the Registration Statement and the Prospectus or in any other document or arrangement, and the Company agrees to promptly prepare any amendment or supplement to the Registration Statement and the Prospectus that effects any such changes. As used in this Agreement, the term Underwriter includes, for all purposes of this Agreement unless the context otherwise requires, any person not listed in Schedule 1 hereto that, pursuant to this Section 10, purchases Shares that a defaulting Underwriter agreed but failed to purchase.
(b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters and the Company as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or the Additional Closing Date, as the case may be, does not exceed one-eleventh of the aggregate number of Shares to be purchased on such date, then the Company shall have the right to require each non-defaulting Underwriter to purchase the number of Shares that such Underwriter agreed to purchase hereunder on such date plus such Underwriters pro rata share (based on the number of Shares that such Underwriter agreed to purchase on such date) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made.
(c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters and the Company as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or the Additional Closing Date, as the case may be, exceeds one-eleventh of the aggregate amount of Shares to be purchased on such date, or if the Company shall not exercise the right described in paragraph (b) above, then this Agreement or, with respect to any Additional Closing Date, the obligation of the Underwriters to purchase Shares on the Additional Closing Date, as the case may be, shall terminate without liability on the part of the non-
defaulting Underwriters. Any termination of this Agreement pursuant to this Section 10 shall be without liability on the part of the Company, except that the Company will continue to be liable for the payment of expenses as set forth in Section 11 hereof and except that the provisions of Section 7 hereof shall not terminate and shall remain in effect.
(d) Nothing contained herein shall relieve a defaulting Underwriter of any liability it may have to the Company or any non-defaulting Underwriter for damages caused by its default.
11. Payment of Expenses.
(a) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company will pay or cause to be paid all costs and expenses incident to the performance of its obligations hereunder, including without limitation, (i) the costs incident to the authorization, issuance, sale, preparation and delivery of the Shares and the Conversion Securities and any taxes payable in that connection; (ii) the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statement, the Preliminary Prospectus, any Issuer Free Writing Prospectus, any Pricing Disclosure Package and the Prospectus (including all exhibits, amendments and supplements thereto) and the distribution thereof; (iii) the fees and expenses of the Companys counsel and independent accountants; (iv) the fees and expenses incurred in connection with the registration or qualification and determination of eligibility for investment of the Shares and the Conversion Securities under the laws of such jurisdictions as the Representatives may designate; (v) the cost of preparing stock certificates; (vi) the costs and charges of any transfer agent and any registrar; (vii) all expenses and application fees incurred in connection with any filing with, and clearance of the offering by, FINRA, in an amount not to exceed $30,000; (viii) all expenses incurred by the Company in connection with any road show presentation to potential investors, all travel expenses of the Companys officers and employees and other expenses (except expenses incurred by the Underwriters) in connection with attending or hosting meetings with prospective purchasers of Shares other than costs and expenses of any private aircraft incurred by on behalf of the Company in connection with the road show which shall be shared equally among the Company (50% of such costs) and the Underwriters (50% of such costs, allocated at their discretion), and expenses associated with the electronic road show and (ix) all expenses and application fees related to the listing of the Shares and the Conversion Securities on the NYSE.
(b) If (i) this Agreement is terminated pursuant to Section 9, (ii) the Company for any reason fails to tender the Shares for delivery to the Underwriters or (iii) the Underwriters decline to purchase the Shares for any reason permitted under this Agreement, the Company agrees to reimburse the Underwriters for all out-of-pocket costs and expenses (including the fees and expenses of their counsel) reasonably incurred by the Underwriters in connection with this Agreement and the offering contemplated hereby, provided, however, that in the event that any such termination is effected after the Closing Date but prior to the Additional Closing Date with respect to the purchase of any Option Shares, the Company shall only reimburse the Underwriters for all reasonable out of pocket costs and expenses (including the reasonably incurred fees and expenses of their counsel) incurred by the Underwriters after the Closing Date in connection with the proposed purchase of any such Option Shares. For the avoidance of doubt,
it is understood that the Company shall not pay or reimburse any costs, fees or expenses incurred by any Underwriter that defaults on its obligations to purchase the Shares.
12. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and any controlling persons referred to herein, and the affiliates of each Underwriter referred to in Section 7 hereof. Nothing in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. No purchaser of Shares from any Underwriter shall be deemed to be a successor merely by reason of such purchase.
13. Survival. The respective indemnities, rights of contribution, representations, warranties and agreements of the Company and the Underwriters contained in this Agreement or made by or on behalf of the Company or the Underwriters pursuant to this Agreement or any certificate delivered pursuant hereto shall survive the delivery of and payment for the Shares and shall remain in full force and effect, regardless of any termination of this Agreement or any investigation made by or on behalf of the Company or the Underwriters or the directors, officers, controlling persons or affiliates referred to in Section 7 hereof.
14. Certain Defined Terms. For purposes of this Agreement, (a) except where otherwise expressly provided, the term affiliate has the meaning set forth in Rule 405 under the Securities Act; (b) the term business day means any day other than a day on which banks are permitted or required to be closed in New York City; (c) the term subsidiary has the meaning set forth in Rule 405 under the Securities Act ; and (d) the term significant subsidiary has the meaning set forth in Rule 1-02 of Regulation S-X under the Exchange Act.
15. Execution and Delivery. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, the Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
16. Compliance with USA Patriot Act. In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Underwriters are required to obtain, verify and record information that identifies their respective clients, including the Company, which information may include the name and address of their respective clients, as well as other information that will allow the Underwriters to properly identify their respective clients.
17. Miscellaneous.
(a) Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted and confirmed by any standard form of telecommunication. Notices to the Underwriters shall be given to the Representatives
c/o BofA Securities, Inc., One Bryant Park, New York, NY 10036 (fax: (646) 855-3073)); Attention: Syndicate Department, with a copy to: ECM Legal (fax: (212) 230-8730); Attention: ECM Legal, c/o J.P. Morgan Securities LLC, 383 Madison Avenue, New York, New York 10179 (fax: (212) 622-8358); Attention: Equity Syndicate Desk. Notices to the Company shall be given to it at 5757 N Green Bay Round, Glendale, Wisconsin, 53209 (email: claudio.morfe@clarios.com); Attention: General Counsel.
(b) Governing Law. This Agreement and any claim, controversy or dispute arising under or related to this Agreement shall be governed by and construed in accordance with the laws of the State of New York.
(c) Submission to Jurisdiction. The Company hereby submits to the exclusive jurisdiction of the U.S. federal and New York state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. The Company waives any objection which it may now or hereafter have to the laying of venue of any such suit or proceeding in such courts. The Company agrees that final judgment in any such suit, action or proceeding brought in such court shall be conclusive and binding upon the Company and may be enforced in any court to the jurisdiction of which Company is subject by a suit upon such judgment.
(f) Waiver of Jury Trial. Each of the parties hereto hereby waives any right to trial by jury in any suit or proceeding arising out of or relating to this Agreement.
(g) Recognition of the U.S. Special Resolution Regimes.
(i) In the event that any Underwriter that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such Underwriter of this Agreement, and any interest and obligation in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.
(ii) In the event that any Underwriter that is a Covered Entity or a BHC Act Affiliate of such Underwriter becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against such Underwriter are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States.
As used in this Section 16(g):
BHC Act Affiliate has the meaning assigned to the term affiliate in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k).
Covered Entity means any of the following:
(i) a covered entity as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b);
(ii) a covered bank as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or
(iii) a covered FSI as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
Default Right has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
U.S. Special Resolution Regime means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.
(h) Counterparts. This Agreement may be signed in counterparts (which may include counterparts delivered by any standard form of telecommunication), each of which shall be an original and all of which together shall constitute one and the same instrument.
(i) Amendments or Waivers. No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto.
(j) Headings. The headings herein are included for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.
If the foregoing is in accordance with your understanding, please indicate your acceptance of this Agreement by signing in the space provided below.
Very truly yours, | ||
CLARIOS INTERNATIONAL INC. | ||
By: |
| |
Name: | ||
Title: |
Accepted: As of the date first written above
BOFA SECURITIES, INC.
For itself and on behalf of the
several Underwriters listed
in Schedule 1 hereto.
By: |
| |
Authorized Signatory |
J.P. MORGAN SECURITIES LLC
For itself and on behalf of the
several Underwriters listed
in Schedule 1 hereto.
By: |
| |
Authorized Signatory |
Schedule 1
Underwriter |
Number of Shares | |||
BofA Securities, Inc. | ||||
J.P. Morgan Securities LLC | ||||
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Total |
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Schedule 2
Significant Subsidiaries
Annex A
Issuer Free Writing Prospectuses Included in the Pricing Disclosure Package
Pricing Term Sheet included as Annex C
Annex B
Written Testing-the-Waters Communications
[To come]
Annex C
Clarios International Inc.
Pricing Term Sheet
[To come]
Exhibit A
Testing the waters authorization (to be delivered by the issuer to BofA Securities and J.P. Morgan in email or letter form)
In reliance on Rule 163B under the Securities Act of 1933, as amended (the Act), Clarios International Inc. (the Issuer) hereby authorizes BofA Securities, Inc. (BofA Securities) and its affiliates and their respective employees and J.P. Morgan Securities LLC (J.P. Morgan) and its affiliates and their respective employees, to engage on behalf of the Issuer in oral and written communications with potential investors that are reasonably believed to be qualified institutional buyers, as defined in Rule 144A under the Act, or institutions that are accredited investors, within the meaning of Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Act, to determine whether such investors might have an interest in the Issuers contemplated initial public offering (Testing-the-Waters Communications). A Written Testing-the Waters Communication means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Act.
If at any time following the distribution of any Written Testing-the-Waters Communication there occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Issuer will promptly notify BofA Securities, Inc. and J.P. Morgan Securities LLC and will promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
Nothing in this authorization is intended to limit or otherwise affect the ability of BofA Securities and its affiliates and their respective employees and J.P. Morgan and its affiliates and their respective employees, to engage in communications in which they could otherwise lawfully engage in the absence of this authorization, including, without limitation, any written communication containing only one or more of the statements specified under Rule 134(a) under the Act. This authorization shall remain in effect until the Issuer has provided to BofA Securities and J.P. Morgan a written notice revoking this authorization. All notices as described herein shall be sent by email to the attention of Michael Wise at m.wise@bofa.com, Christie Macdonald at christine.l.macdonald@bofa.com, Eugene Sohn at eugene.y.sohn@jpmorgan.com and Jin Izawa at jin.j.izawa@jpmorgan.com.
Exhibit B
[Form of Waiver of Lock-up]
BOFA SECURITIES, INC.
J.P. MORGAN SECURITIES LLC
Clarios International Inc.
Public Offering of Series A Mandatory Convertible Preferred Stock
, 20
[Name and Address of
Officer or Director
Requesting Waiver]
Dear Mr./Ms. [Name]:
This letter is being delivered to you in connection with the offering by Clarios International Inc. (the Company) of Series A Mandatory Convertible Preferred Stock with a liquidation preference of $50.00 (the Mandatory Convertible Preferred Stock), of the Company and the lock-up letter dated , 20 (the Lock-up Letter), executed by you in connection with such offering, and your request for a [waiver] [release] dated , 20 , with respect to shares of common stock, $0.01 par value (the Shares).
BofA Securities, Inc. and J.P. Morgan Securities LLC hereby agree to [waive] [release] the transfer restrictions set forth in the Lock-up Letter, but only with respect to the Shares, effective , 20 ; provided, however, that such [waiver] [release] is conditioned on the Company announcing the impending [waiver] [release] by press release through a major news service at least two business days before effectiveness of such [waiver] [release]. This letter will serve as notice to the Company of the impending [waiver] [release].
Except as expressly [waived] [released] hereby, the Lock-up Letter shall remain in full force and effect.
[Signature Page Follows]
Very truly yours, | ||
BofA Securities, Inc. | ||
As Representative of the several Underwriters named in Schedule I to the Underwriting Agreement | ||
By: BofA Securities, Inc. | ||
By: |
| |
Name: | ||
Title: | ||
J.P. Morgan Securities LLC | ||
As Representative of the several Underwriters | ||
named in Schedule I to the Underwriting Agreement | ||
By: J.P. Morgan Securities LLC | ||
By: |
| |
Name: | ||
Title: |
cc: | Clarios International Inc. |
Exhibit C
[Form of Press Release]
Clarios International Inc.
, 20
Clarios International Inc. (the Company) announced today that BofA Securities, Inc. and J.P. Morgan Securities LLC, the lead book-running managers in the Companys recent public sale of [●] shares of the Companys common stock and [●] shares of the Companys [●] % Series A Mandatory Convertible Preferred Stock, is [waiving] [releasing] a lock-up restriction with respect to [●] shares of the Companys common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on , 2021, and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
Exhibit D
FORM OF LOCK-UP AGREEMENT
, 20
BOFA SECURITIES, INC.
J.P. MORGAN SECURITIES LLC
As Representatives of
the several Underwriters listed in
Schedule 1 to the Underwriting
Agreement referred to below
c/o BofA Securities, Inc.
One Bryant Park
New York, NY 10036
c/o J.P. Morgan Securities LLC
383 Madison Avenue
New York, NY 10179
Re: CLARIOS INTERNATIONAL INC. Public Offering
Ladies and Gentlemen:
The undersigned understands that you, as Representatives of the several Underwriters, propose to enter into an underwriting agreement (the Underwriting Agreement) with Clarios International Inc., a Delaware corporation (the Company), providing for the public offering (the Public Offering) by the several Underwriters named in Schedule 1 to the Underwriting Agreement (the Underwriters), of shares of the Series A Mandatory Convertible Preferred Stock, with a liquidation preference of $50.00 (the Mandatory Convertible Preferred Stock), of the Company (such shares to be sold in the Public Offering, the Securities). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Underwriting Agreement.
In consideration of the Underwriters agreement to purchase and make the Public Offering of the Securities, and for other good and valuable consideration receipt of which is hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of BofA Securities, Inc. and J.P. Morgan Securities LLC on behalf of the Underwriters, the undersigned will not, and will not cause any direct or indirect affiliate to, during the period beginning on the date of this letter agreement (this Letter Agreement) and ending at the close of business 180 days after the date of the final prospectus relating to the Public Offering (the Prospectus) (such period, the Restricted Period), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of the Companys common stock, par value $0.01 per share (the Common Stock) or any securities convertible into or exercisable or exchangeable for Common Stock (including without limitation, Common
Stock or such other securities which may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant) (collectively with the Common Stock, Lock-Up Securities), (2) enter into any hedging, swap or other agreement or transaction that transfers, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Lock-Up Securities, in cash or otherwise, (3) make any demand for or exercise any right with respect to the registration of any Lock-Up Securities, or (4) publicly disclose the intention to do any of the foregoing. The undersigned acknowledges and agrees that the foregoing precludes the undersigned from engaging in any hedging or other transactions or arrangements (including, without limitation, any short sale or the purchase or sale of, or entry into, any put or call option, or combination thereof, forward, swap or any other derivative transaction or instrument, however described or defined) designed or intended, or which could reasonably be expected to lead to or result in, a sale or disposition or transfer (whether by the undersigned or any other person) of any economic consequences of ownership, in whole or in part, directly or indirectly, of any Lock-Up Securities, whether any such transaction or arrangement (or instrument provided for thereunder) would be settled by delivery of Lock-Up Securities, in cash or otherwise. The undersigned further confirms that it has furnished BofA Securities, Inc. and J.P. Morgan Securities LLC with the details of any transaction the undersigned, or any of its affiliates, is a party to as of the date hereof, which transaction would have been restricted by this Letter Agreement if it had been entered into by the undersigned during the Restricted Period.
Notwithstanding the foregoing, the undersigned may:
(a) transfer the undersigneds Lock-Up Securities:
(i) as a bona fide gift or gifts, or for bona fide estate planning purposes,
(ii) by will or intestacy,
(iii) to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, or if the undersigned is a trust, to a trustor or beneficiary of the trust or to the estate of a beneficiary of such trust (for purposes of this Letter Agreement, immediate family shall mean any relationship by blood, current or former marriage, domestic partnership or adoption, not more remote than first cousin),
(iv) to a partnership, limited liability company or other entity of which the undersigned and the immediate family of the undersigned are the legal and beneficial owner of all of the outstanding equity securities or similar interests,
(v) to a nominee or custodian of a person or entity to whom a disposition or transfer would be permissible under clauses (i) through (iv) above,
(vi) if the undersigned is a corporation, partnership, limited liability company, trust or other business entity, (A) to another corporation, partnership, limited liability company, trust or other business entity that is an affiliate (as defined in Rule 405 promulgated under the Securities Act of 1933, as amended) of the undersigned, or to any investment fund or other entity controlling, controlled by, managing or managed by or under common control with the undersigned or affiliates of the undersigned, or to any current or former general partner or limited partner or a successor partnership or fund, or any other funds managed by such partnership, or (B) as part of a distribution to members, managers or shareholders or other equityholders of the undersigned, including, in the each case, to the estates of any of the foregoing; provided that such transferee agree to the same restrictions and terms contemplated by this Letter Agreement.
(vii) by operation of law, such as pursuant to a qualified domestic order, divorce settlement, divorce decree or separation agreement,
(viii) to the Company from an employee of the Company upon death, disability or termination of employment, in each case, of such employee,
(ix) as part of a sale of the undersigneds Lock-Up Securities acquired in open market transactions after the closing date for the Public Offering,
(x) to the Company in connection with the vesting, settlement, or exercise of restricted stock units, options, warrants or other rights to purchase shares of Common Stock (including, in each case, by way of net or cashless exercise), including for the payment of exercise price and tax and remittance payments due as a result of the vesting, settlement, or exercise of such restricted stock units, options, warrants or rights, provided that any such shares of Common Stock received upon such exercise, vesting or settlement shall be subject to the terms of this Letter Agreement, and provided further that any such restricted stock units, options, warrants or rights are held by the undersigned pursuant to an agreement or equity awards granted under a stock incentive plan or other equity award plan, each such agreement or plan which is described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or
(xi) pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction that is approved by the Board of Directors of the Company and made to all holders of the Companys capital stock involving a Change of Control (as defined below) of the Company (for purposes hereof, Change of Control shall mean the transfer (whether by tender offer, merger, consolidation or other similar transaction), in one transaction or a series of related transactions, to a person or group of affiliated persons, of shares of capital stock if, after such transfer, such person or group of affiliated persons would hold a majority of the outstanding voting securities of the Company (or the surviving entity)); provided that in the event that such tender offer, merger, consolidation or other similar transaction is not completed, the undersigneds Lock-Up Securities shall remain subject to the provisions of this Letter Agreement;
provided that (A) in the case of any transfer or distribution pursuant to clause (a)(i), (ii), (iii), (iv), (v), (vi) and (vii), such transfer shall not involve a disposition for value and each donee, devisee, transferee or distributee shall execute and deliver to the Representatives a lock-up letter in the form of this Letter Agreement, (B) in the case of any transfer or distribution pursuant to clause (a) (i), (ii), (iii), (iv), (v), (vi), (ix) and (x), no filing by any party (donor, donee, devisee, transferor, transferee, distributer or distributee) under the Securities Exchange Act of 1934, as amended (the Exchange Act) reporting a reduction in beneficial ownership of shares of Common Stock shall be required, or other public announcement shall be required or shall be made voluntarily in connection with such transfer or distribution (other than a filing on a Form 5 made after the expiration of the Restricted Period referred to above) and (C) in the case of any transfer or distribution pursuant to clause (a)(vii) it shall be a condition to such transfer that no public filing, report or announcement shall be voluntarily made and if any filing under Section 16(a) of the Exchange Act, or other public filing, report or announcement reporting a reduction in beneficial ownership of shares of Common Stock in connection with such transfer or distribution shall be legally required during the Restricted Period, such filing, report or announcement shall clearly indicate in the footnotes thereto the nature and conditions of such transfer;
(b) exercise outstanding options, settle restricted stock units or other equity awards or exercise warrants pursuant to plans described in the Registration Statement, the Pricing Disclosure Package and the Prospectus; provided that any Lock-up Securities received upon such exercise, vesting or settlement shall be subject to the terms of this Letter Agreement;
(c) convert outstanding preferred stock, warrants to acquire preferred stock or convertible securities into shares of Common Stock or warrants to acquire shares of Common Stock; provided that any such shares of Common Stock or warrants received upon such conversion shall be subject to the terms of this Letter Agreement; and
(d) establish trading plans pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Lock-Up Securities; provided that (1) such plans do not provide for the transfer of Lock-Up Securities during the Restricted Period and (2) to the extent a public announcement or filing under the Exchange Act, if any, is required or voluntarily made by or on behalf of the undersigned or the Company regarding the establishment of such plan during the Lock-up Period, such announcement or filing shall include a statement to the effect that no transfer of Common Stock may be made under such plan during the Lock-up Period.
If the undersigned is not a natural person, the undersigned represents and warrants that no single natural person, entity or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) beneficially owns, directly or indirectly, 50% or more of the common equity interests, or 50% or more of the voting power, in the undersigned.
If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any Company-directed Securities the undersigned may purchase in the Public Offering.
If the undersigned is an officer or director of the Company, (i) BofA Securities, Inc. and J.P. Morgan Securities LLC on behalf of the Underwriters agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Lock-Up Securities, BofA Securities, Inc. and J.P. Morgan Securities LLC on behalf of the Underwriters will notify the Company of the impending release or waiver, and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by BofA Securities, Inc. and J.P. Morgan Securities LLC on behalf of the Underwriters hereunder to any such officer or director shall only be effective two business days after the publication date of such announcement. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration or that is to an immediate family member as defined in FINRA Rule 5130(i)(5) and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.
In furtherance of the foregoing, the Company, and any duly appointed transfer agent for the registration or transfer of the securities described herein, are hereby authorized to decline to make any transfer of securities if such transfer would constitute a violation or breach of this Letter Agreement.
The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Letter Agreement. All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.
The undersigned acknowledges and agrees that the Underwriters have not provided any recommendation or investment advice nor have the Underwriters solicited any action from the undersigned with respect to the Public Offering of the Securities and the undersigned has consulted their own legal, accounting, financial, regulatory and tax advisors to the extent deemed appropriate. The undersigned further acknowledges and agrees that, although the Representatives may be required or choose to provide certain Regulation Best Interest and Form CRS disclosures to you in connection with the Public Offering, the Representatives and the other Underwriters are not making a recommendation to you to enter into this Letter Agreement, participate in the Public Offering, or sell any Shares at the price determined in the Public Offering, and nothing set forth in such disclosures is intended to suggest that the Representatives or any Underwriter is making such a recommendation.
The undersigned understands that, if the Underwriting Agreement does not become effective by [●], 2021, or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Mandatory Convertible Preferred Stock to be sold thereunder, the undersigned shall be released from all obligations under this Letter Agreement. In addition, this Letter Agreement and all related restrictions and obligations shall otherwise automatically terminate upon the earliest to occur, if
any, of (a) prior to the execution of the Underwriting Agreement, the Representatives, on the one hand, or the Company, on the other hand, advising the other in writing that the Representatives jointly have or the Company has determined not to proceed with the Public Offer contemplated by the Underwriting Agreement, and (b) the registration statement is filed with the Securities and Exchange Commission with respect to the Public Offering contemplated by the Underwriting Agreement is withdrawn prior to the execution of the Underwriting Agreement. The undersigned understands that the Underwriters are entering into the Underwriting Agreement and proceeding with the Public Offering in reliance upon this Letter Agreement.
This Letter Agreement and any claim, controversy or dispute arising under or related to this Letter Agreement shall be governed by and construed in accordance with the laws of the State of New York.
Very truly yours, | ||
[NAME OF STOCKHOLDER] | ||
By: |
| |
Name: | ||
Title: |
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CLARIOS INTERNATIONAL INC.
Clarios International Inc. was organized by filing its original Certificate of Incorporation with the Secretary of State of the State of Delaware on [], 2021. This Amended and Restated Certificate of Incorporation (as amended and/or restated from time to time, this Certificate of Incorporation) was duly adopted in accordance with Sections 242 and 245 of the Delaware General Corporation Law, as from time to time amended (the DGCL), and by the written consent of its board of directors and the sole stockholder in accordance with Section 228 of the DGCL. The time of filing of this Certificate of Incorporation with the Secretary of State of the State of Delaware is called the Effective Time. This Certificate of Incorporation amends and restates the existing Amended and Restated Certificate of Incorporation of the Corporation in its entirety as follows:
ARTICLE I NAME
The name of the corporation is Clarios International Inc. (the Corporation).
ARTICLE - REGISTERED OFFICE AND AGENT
The address of the Corporations registered office in the State of Delaware is 1209 Orange Street, Corporation Trust Center, Wilmington, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.
ARTICLE III PURPOSE
The purpose of the Corporation is to engage in any and all lawful acts or activities for which corporations may be organized under the DGCL.
ARTICLE IV - PERPETUAL EXISTENCE
The Corporation shall have perpetual existence.
ARTICLE V - CAPITAL STOCK
SECTION 1. Authorized Stock. The aggregate number of shares of capital stock that the Corporation shall have authority to issue is [], which shall be divided into two classes consisting of [] shares of common stock, par value $0.01 per share (the Common Stock), and [] shares of preferred stock, par value $0.01 per share (the Preferred Stock).
Subject to the rights of the holders of any outstanding class or series of Preferred Stock, the number of authorized shares of any class or series of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the holders of a majority in voting power of the capital stock of the Corporation entitled to vote thereon, voting as a single class, and no separate vote of the holders of any class or series shall be required therefor irrespective of Section 242(b)(2) of the DGCL.
SECTION 2. Preferred Stock. The Board of Directors of the Corporation (the Board) is hereby authorized to provide, without approval of the stockholders of the Corporation, for the issuance of shares of Preferred Stock in one or more series, to establish from time to time the number of shares to be included in any such series, the voting powers (full, limited or no voting powers), the cumulative or non-cumulative dividend rights, if any, the conversion, redemption or sinking fund rights, if any, the priorities, preferences and relative, participating, optional and other special rights, if any, and the qualification, limitations or restrictions thereof, of the shares of any such series and to file with the Secretary of State of the State of Delaware a certificate pursuant to the DGCL describing such terms (a Preferred Stock Designation). Except as otherwise provided in a Preferred Stock Designation or required by law, shares of Preferred Stock shall not entitle the holders thereof to vote at or receive notice of any meeting of stockholders.
SECTION 3. Common Stock.
(a) Voting. Except as otherwise provided in a Preferred Stock Designation or required by law, the holders of outstanding shares of Common Stock shall have the exclusive right to vote for the election of directors and on all other matters submitted to a vote of the stockholders of the Corporation. Each holder of outstanding shares of Common Stock shall be entitled to one vote in respect of each share of Common Stock held as of the applicable date on any matter that is submitted to a vote of stockholders of the Corporation. Except as otherwise required by law, shares of Common Stock shall not entitle the holders thereof to vote on any amendment to this Certificate of Incorporation (including to a Preferred Stock Designation) that alters or changes the powers, preferences, rights or other terms of solely one or more outstanding class or series of Preferred Stock if the holders of such affected series are entitled, separately or together with the holders of one or more other such series, to vote on such amendment pursuant to this Certificate of Incorporation (including a Preferred Stock Designation) or pursuant to the DGCL, or if no vote of stockholders is required pursuant to the DGCL.
(b) Dividends. Subject to applicable law and any preferential dividend rights of the holders of any outstanding class or series of Preferred Stock provided in the relevant Preferred Stock Designation, the holders of Common Stock shall be entitled to receive dividends out of funds legally available therefor at such times and in such amounts as the Board may determine in its sole discretion.
(c) Liquidation. Upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary (a Liquidation Event), after the payment or provision for payment of all debts and liabilities of the Corporation and all preferential amounts to which the holders of any outstanding class or series of Preferred Stock may be entitled pursuant to the terms thereof with respect to the distribution of assets in liquidation, the holders of Common Stock shall be entitled to share ratably in the remaining assets of the Corporation available for distribution. For the avoidance of doubt, the term Liquidation Event shall not be deemed to be occasioned by or to include, without limitation, any voluntary consolidation, reorganization, conversion or merger of the Corporation with or into any other corporation or entity or other corporations or entities or a sale, lease, transfer, exchange or conveyance of all or a part of the Corporations assets.
(d) No Pre-Emptive Rights. Shares of Common Stock shall not entitle any holder thereof to any pre-emptive, subscription, redemption or conversion rights.
ARTICLE VI - BOARD OF DIRECTORS
SECTION 1. Number; Classification.
(a) Number. Except as otherwise provided in this Certificate of Incorporation or the DGCL, the business and affairs of the Corporation shall be managed by or under the direction of the Board consisting of not fewer than three individuals, nor more than eleven individuals (exclusive of Preferred Stock Directors (as defined below)). Subject to the rights granted to [Sponsor Group Partnership, including each of [Brookfield and CDPQ]] (the Sponsor Group) pursuant to the Stockholders Agreement to be entered into by and between the Corporation and the Sponsor Group (as the same may be amended, supplemented, restated or otherwise modified from time to time, the Stockholders Agreement), the exact number of directors constituting the Board shall be determined from time to time by resolution adopted by the affirmative vote of a majority of the total number of directors then in office.
(b) Classes. From and after the Effective Time, the directors (except as provided pursuant to the last paragraph of this Section 1) shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board. Subject to the Stockholders Agreement, the initial division of the Board into classes shall be made by the decision of the affirmative vote of a majority of the total number of directors then in office. Class I directors shall serve for an initial term ending at the annual meeting of stockholders to be held in 2022, Class II directors shall serve for an initial term ending at the annual meeting of stockholders to be held in 2023 and Class III directors shall serve for an initial term ending at the annual meeting of stockholders to be held in 2024. Commencing with the annual meeting of stockholders to be held in 2022, successors to the directors of the class whose term has expired at that annual meeting shall be elected for a three-year term and shall serve until the election and qualification of their respective successors in office.
(c) Written Ballot Not Required. Unless and except to the extent that the By-Laws of the Corporation (as amended and/or restated from time to time, the By-Laws) so require, the election of directors of the Corporation need not be by written ballot.
(d) Preferred Stock Directors. Notwithstanding the foregoing and notwithstanding Section 3 of this Article VI (and subject to the rights of the Sponsor Group under the Stockholders Agreement), whenever a Preferred Stock Designation expressly provides holders of any one or more series of Preferred Stock issued by the Corporation the right, voting separately by series or as a class, to elect directors (the Preferred Stock Directors), the total number of Preferred Stock Directors and the election, term of office, filling of vacancies and other features of such Preferred Stock directorships shall be governed by the applicable Preferred Stock Designation and the provisions of the DGCL applicable to Preferred Stock Directors and directorships. Upon commencement and for the duration of the period during which such right continues, the total number of directors of the Corporation authorized pursuant to Section 1(a) of this Article VI shall automatically increase by the number of Preferred Stock Directors specified in the applicable Preferred Stock Designation.
SECTION 2. Removal. Subject to the rights of the Sponsor Group granted pursuant to the Stockholders Agreement and subject to the special rights, if any, of the holders of any outstanding class or series of Preferred Stock as provided in the relevant Preferred Stock Designation and except as otherwise required by the DGCL, any director may be removed from office at any time, but only for cause and only by the affirmative vote of holders of at least 66 2/3% of the voting power of the outstanding Common Stock; provided, however, that prior to the
first date (the Trigger Date) on which the Sponsor Group ceases to beneficially own (directly or indirectly) shares representing at least 50% of the then issued and outstanding shares of the Common Stock, with such beneficial ownership to be determined in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), any such director may be removed at any time, with or without cause, by the holders of a majority of the voting power of the outstanding Common Stock.
SECTION 3. Vacancies and Newly Created Directorships. Subject to the special rights, if any, of the holders of any outstanding class or series of Preferred Stock as provided in the relevant Preferred Stock Designation, and subject to any requirements under the Stockholders Agreement, any vacancies on the Board resulting from an increase in the authorized number of directors, or from the death, resignation, retirement, disqualification or removal of a director or from any other event may be filled solely by a majority vote of the directors then in office (even if they constitute less than a quorum) or by a sole remaining director or by the stockholders; provided that following the Trigger Date, any vacancies on the Board resulting from an increase in the authorized number of directors, or from the death, resignation, retirement, disqualification or removal of a director or from any other event may be filled solely by a majority vote of the directors then in office (even if they constitute less than a quorum) or by a sole remaining director (and not by the stockholders). Any director elected to fill a vacancy shall hold office for the remaining term of such directors predecessor. If the number of directors is changed, any increase or decrease shall be apportioned among the classes as determined by a majority of the Board so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a newly created directorship shall hold office for the remaining term of that class. No decrease in the authorized number of directors shall shorten the term of any incumbent director.
SECTION 4. Other Powers. In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the Board is hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject to the provisions of the DGCL, this Certificate of Incorporation and the By-Laws of the Corporation.
ARTICLE VII - LIABILITY OF DIRECTORS AND OFFICERS
SECTION 1. Elimination of Certain Liability of Directors. To the fullest extent permitted by the DGCL, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the DGCL is amended after the effective date hereof to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended.
SECTION 2. Indemnification and Advancement of Expenses. The Corporation shall, to the fullest extent permitted by the DGCL (as it presently exists or may hereafter be amended but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior to such amendment), indemnify, hold harmless and advance expenses to any person made or threatened to be made a party to, or is otherwise involved in, any action, suit or proceeding, whether criminal, civil, administrative, or investigative, by reason of the fact that such person, or the legal representative of such person, is or was a director or officer of the Corporation, or while serving as a director or officer of the Corporation, serves or served at the request of the Corporation as a director, officer, employee, agent or manager of any other corporation, partnership, limited liability company, joint venture, trust or other enterprise or nonprofit entity, including service with respect to an employee benefit plan, whether the basis of such proceeding is alleged action in an official capacity or in any other capacity while serving in such official capacity, against all expense, liability and loss (including attorneys and other professionals fees, judgments, fines, Employee Retirement Income Security Act of 1974 (ERISA) taxes or penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such person in connection therewith.
SECTION 3. Amendment, Repeal, Etc. No amendment or repeal of this Article VII, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article VII, nor, to the fullest extent permitted by the DGCL, any modification of law, shall adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such amendment, repeal or adoption of an inconsistent provision. Nothing contained in this Certificate of Incorporation shall in any way terminate, limit, diminish or otherwise adversely affect any rights an officer or director of the Corporation may have under the certificate of incorporation of the Corporation as in effect at any time prior to the
effectiveness of this Certificate of Incorporation, or under the By-Laws or any other agreement with the Corporation or otherwise.
SECTION 4. Interpretation. Any reference in this Article VII to an officer of the Corporation or to an officer of any other enterprise shall mean an officer of the Corporation appointed by the Board pursuant to the By-Laws or an officer of such other enterprise appointed by the board of directors or other governing body of such other enterprise pursuant to its governing documents, and the term officer, as used in this Article VII shall not be deemed to include an employee or other agent of the Corporation or any such other enterprise who is not an officer thereof so appointed, regardless of whether such person has been given the title Vice
President or any other title that could be construed to suggest that such person is an officer of the Corporation or such other enterprise.
ARTICLE VIII - CORPORATE OPPORTUNITY
SECTION 1. Regulation of Certain Affairs. In recognition and anticipation that Exempted Persons (as defined below) (i) currently or may in the future serve as directors, officers or agents of the Corporation or its Subsidiaries (as defined below), (ii) currently or may in the future have access to information about the Corporation and its Subsidiaries that may, to the fullest extent permitted by applicable law, enhance each such Exempted Persons knowledge and understanding of (A) the industries in which the Corporation and its Subsidiaries operate (collectively, Acquired Knowledge), (B) the activities in which the Corporation and its Subsidiaries now engage, may continue to engage or may in the future engage (which shall include, without limitation, other business activities that overlap or compete with those in which the Corporation and its Affiliates (as defined below) and Subsidiaries may engage directly or indirectly) or (C) related lines of business in which the Corporation or its Subsidiaries may engage directly or indirectly and (iii) currently or may in the future have an interest in the same or similar areas of corporate opportunity as the Corporation or its Subsidiaries may have an interest directly or indirectly, the provisions of this Article VIII are set forth to regulate and define, to the fullest extent permitted by applicable law, the conduct of certain affairs of the Corporation and its Subsidiaries with respect to certain classes or categories of business opportunities as they may involve an Exempted Person, and the powers, rights, duties and liabilities of the Corporation and its Subsidiaries and their respective direct or indirect partners, members, and stockholders in connection therewith.
(a) Notwithstanding any provision of this Certificate of Incorporation to the contrary, to the fullest extent permitted by applicable law, if any Exempted Person acquires knowledge of a potential Corporate Opportunity (as defined below) or otherwise is then exploiting any Corporate Opportunity, the Corporation and its Affiliates and Subsidiaries shall have no interest or expectancy in such Corporate Opportunity, or in being offered an opportunity to participate in such Corporate Opportunity, and any interest or expectancy in any Corporate Opportunity or any expectation in being offered the opportunity to participate in any Corporate Opportunity is hereby renounced and waived so that such Exempted Person, to the fullest extent permitted by applicable law, (i) shall have no duty to communicate or present such Corporate Opportunity to the Corporation or any of its Affiliates or Subsidiaries or any stockholder; (ii) shall have the right to hold or pursue, directly or indirectly, any such Corporate Opportunity for such Exempted Persons own account and benefit or such Exempted Person may direct such Corporate Opportunity to another Person (as defined below); and (iii) shall not be liable
to the Corporation, any of its Affiliates or Subsidiaries, their respective Affiliates or their respective direct or indirect partners, members, or stockholders, for breach of any duty as a stockholder, director or officer of the Corporation or otherwise solely by reason of the fact that it pursues or acquires such Corporate Opportunity, directs such Corporate Opportunity to another Person or does not communicate information regarding such Corporate Opportunity to the Corporation or any of its Affiliates or Subsidiaries.
(b) The Corporation hereby expressly acknowledges and agrees that the Exempted Persons have the right to, and shall have no duty not to, (i) directly or indirectly engage in the same or similar business activities or lines of business as the Corporation or any of its Subsidiaries engages or proposes to engage, on such Exempted Persons own behalf, or in partnership with, or as an employee, officer, director, member or stockholder of any other Person, including those lines of business deemed to be competing with the Corporation or any of its Subsidiaries; (ii) do business with any potential or actual customer or supplier of the Corporation or any of its Affiliates or Subsidiaries; and (iii) employ or otherwise engage any officer or employee of the Corporation or any of its Affiliates or Subsidiaries. The Corporation hereby expressly acknowledges and agrees that neither the Corporation nor any of its Affiliates or Subsidiaries nor any stockholder shall have any rights in and to the business ventures of any Exempted Person, or the income or profits derived therefrom. To the fullest extent permitted by law, none of the Exempted Persons shall be liable to the Corporation, any of its Affiliates or Subsidiaries, their respective Affiliates or their respective direct or indirect partners, members, or stockholders, for breach of any duty as a stockholder, director or officer of the Corporation or otherwise solely by reason that such Exempted Person is engaging in any activities or lines of business or competing with the Corporation or its Subsidiaries.
(c) The Corporation hereby acknowledges and agrees that, in relation to any Corporate Opportunity waived or renounced by the Corporation, to the fullest extent permitted by applicable law, (i) in the event of any conflict of interest between the Corporation or any of its Subsidiaries, on the one hand, and any Exempted Person, on the other hand, such Exempted Person may act in its best interest or in the best interest of any other Exempted Person and (ii) no Exempted Person shall be obligated to (A) reveal to the Corporation or any of its Subsidiaries confidential information belonging to or relating to the business of any Exempted Person or (B) recommend or take any action in its capacity as stockholder, director or officer, as the case may be, that prefers the interest of the Corporation or any of its Subsidiaries over the interest of any Exempted Person.
(d) The Corporation hereby acknowledges and agrees that, in relation to any Corporate Opportunity waived or renounced by the Corporation, to the fullest extent permitted by applicable law, Exempted Persons are not restricted from using Acquired Knowledge in making investment, voting, monitoring, governance or other decisions relating to other entities or securities.
SECTION 2. Deemed Notice. Any Person purchasing or otherwise acquiring any interest in any shares of the capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article VIII.
SECTION 3. Severability. If this Article VIII or any portion hereof shall be invalidated or held to be unenforceable on any ground by any court of competent jurisdiction, the decision of which shall not have been reversed on appeal, this Article VIII shall be deemed to be modified to the minimum extent necessary to avoid a violation of law and, as so modified, this Article VIII and the remaining provisions hereof shall remain valid and enforceable in accordance with their terms to the fullest extent permitted by law.
SECTION 4. Effect of Stockholders Agreement. The provisions of Sections 1 through 3 of this Article VIII (i) shall be subject to compliance with any procedures regarding Corporate Opportunities specified in the Stockholders Agreement and (ii) shall continue with respect to an Exempted Person until the first date that both of the following conditions are true: (A) the Sponsor Group is not entitled to designate at least one (1) nominee to the Board pursuant to the Stockholders Agreement and (B) no individual is serving on the Board who has at any time been designated as a nominee by the Sponsor Group.
Neither the alteration, amendment or repeal of this Article VIII nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article VIII shall eliminate or reduce the effect of this Article VIII in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article VIII, would accrue or arise, prior to such alteration, amendment, repeal or adoption.
SECTION 5. Definitions. For the purposes of this Article VIII,
(a) Affiliate means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another Person.
(b) Sponsor Group Affiliated Person means, each of the Sponsor Group [(including Brookfield and CDPQ)] and all of [its][their] respective partners, principals,
directors, officers, members, managers, managing directors, advisors, consultants and employees, Affiliates of the Sponsor Group, the directors designated for nomination by the Sponsor Group pursuant to the Stockholders Agreement, or any officer of the Corporation that is an Affiliate of the Sponsor Group.
(c) Corporate Opportunity means (i) an investment or business opportunity or activity, including without limitation those that might be considered the same as or similar to the Corporations business or the business of any Affiliate or Subsidiary of the Corporation, including those deemed to be competing with the Corporation or any Affiliate or Subsidiary of the Corporation, or (ii) a prospective economic or competitive advantage in which the Corporation or any Affiliate or Subsidiary of the Corporation
could have an interest or expectancy. In addition to and notwithstanding the foregoing, a Corporate Opportunity shall not be deemed to be a potential opportunity for the Corporation or any Affiliates or Subsidiary if it is a business opportunity that (i) the Corporation, Affiliate or Subsidiary, as applicable, is not financially able or contractually permitted or legally able to undertake, (ii) from its nature, is not in the line of the Corporations, Affiliates or Subsidiarys, as applicable, business or is of no practical advantage to it or (iii) is one in which the Corporation, Affiliate or Subsidiary, as applicable, has no interest or reasonable expectancy.
(d) Exempted Person means any Sponsor Group Affiliated Person.
(e) Person means any individual, corporation, partnership, unincorporated association or other entity.
(f) Stockholders Agreement means the Stockholders Agreement by and among the Corporation and the stockholders party thereto, as amended from time to time.
(g) Subsidiary with respect to any Person means: (i) a corporation, a majority of whose capital stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly owned by such Person, by a Subsidiary of such Person, or by such Person and one or more Subsidiaries of such Person, without regard to whether the voting of such capital stock is subject to a voting agreement or similar restriction, (ii) a partnership or limited liability company in which such Person or a Subsidiary of such Person is, at the date of determination, (A) in the case of a partnership, a general partner of such partnership or (B) in the case of a limited liability company, the managing member or, in the absence of a managing member, a member with the power affirmatively to direct the policies and management of such limited liability company or
(iii) any other Person (other than a corporation) in which such Person, a Subsidiary of such Person or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, has (A) the power to elect or direct the election of a majority of the members of the governing body of such Person (whether or not such power is subject to a voting agreement or similar restriction) or (B) in the absence of such a governing body, a majority ownership interest.
ARTICLE IX - STOCKHOLDER ACTION; MEETINGS
SECTION 1. Actions at Meetings Duly Called; No Written Consent. Except as provided with respect to the holders of any outstanding class or series of Preferred Stock in the relevant Preferred Stock Designation, (a) prior to the Trigger Date, any action required or permitted to be taken at any annual or special meeting of the stockholders of the Corporation may be taken upon a vote of the stockholders at an annual or special meeting duly called or by written consent of the stockholders and (b) from and after the Trigger Date, any action required or permitted to be taken at any annual or special meeting of the stockholders of the Corporation may be taken only upon the vote of the stockholders at an annual or special meeting duly called and may not be taken by written consent of the stockholders.
SECTION 2. Regulation of Stockholder Submissions. The By-Laws may establish procedures regulating the submission by stockholders of nominations, proposals and other business for consideration at meetings of stockholders of the Corporation.
SECTION 3. Special Meetings. Subject to the rights of the holders of Preferred Stock, special meetings of the stockholders of the Corporation may be called only by the [Chairman of the Board (the Chairman), the Chief Executive Officer or the President of the Corporation]; provided, however, that prior to the Trigger Date, special meetings of the stockholders of the Corporation may also be called at any time at the request of the Sponsor Group.
ARTICLE X - BY-LAWS
In furtherance and not in limitation of the powers conferred by statute, the Board is expressly authorized to adopt, make, alter, amend or repeal the By-Laws of the Corporation. The stockholders of the Corporation may not adopt, amend or repeal any By-Law, and no provision of the By-Laws inconsistent therewith shall be adopted by the stockholders, unless (i) prior to the Trigger Date, such action is approved by the affirmative vote of the holders of a majority of the
voting power of the outstanding Common Stock and (ii) from and after the Trigger Date, such action is approved by the affirmative vote of the holders of at least 66 2/3% of the voting power of the outstanding Common Stock.
ARTICLE XI - AMENDMENT OF CERTIFICATE IN CORPORATION
Subject to any requirement of applicable law and to any voting rights granted pursuant to a Preferred Stock Designation, the Corporation reserves the right at any time from time to time to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and any other provisions authorized by the DGCL at the time in force, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of any nature conferred upon stockholders, directors or any other persons by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article. Notwithstanding anything to the contrary contained in this Certificate of Incorporation, and notwithstanding that a lesser percentage may be permitted from time to time by applicable law, no provision of Article VI, Article VII, Article VIII, Article IX, Article X, this Article XI, Article XII or Article XIII of this Certificate of Incorporation may be altered, amended or repealed in any respect, nor may any provision inconsistent therewith be adopted or added, unless in addition to any other vote required by this Certificate of Incorporation, specified in any agreement or otherwise required by law, and in addition to any voting rights granted to or held by the holders of any outstanding class or series of Preferred Stock (i) prior to the Trigger Date, such alteration, amendment, repeal, adoption or addition is approved by the affirmative vote of the holders of a majority of the voting power of the outstanding Common Stock and (ii) from and after the Trigger Date, such alteration, amendment, repeal, adoption or addition is approved by the affirmative vote of the holders of at least 66 2/3% of the voting power of the outstanding Common Stock.
ARTICLE XII - SECTION 203 OF THE DGCL
SECTION 1. Opt Out of DGCL 203. The Corporation shall not be governed by Section 203 of the DGCL until such time as the Sponsor Group no longer beneficially owns []% or more of the then outstanding shares of our Common Stock, at which such time the Corporation shall automatically become subject to Section 203 of the DGCL.
SECTION 2. Limitations on Business Combination. Notwithstanding the foregoing, during such time in which the Corporation is not subject to Section 203 of the DGCL, the Corporation shall not engage in any Business Combination, at any point in time at which the Corporations Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act
with any Interested Stockholder (as defined herein) for a period of three (3) years following the time that such stockholder became an Interested Stockholder, unless:
(a) prior to such time, the Board approved either the Business Combination or the transaction which resulted in the stockholder becoming an Interested Stockholder, or
(b) upon consummation of the transaction which resulted in the stockholder becoming an Interested Stockholder, the Interested Stockholder owned at least 85% of the Voting Stock (defined below) of the Corporation outstanding at the time the transaction commenced, excluding for purposes of determining the Voting Stock outstanding (but not the outstanding Voting Stock owned by the Interested Stockholder) those shares owned by (i) Persons who are directors and also officers or (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or
(c) at or subsequent to such time, the Business Combination is approved by the Board and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the Voting Stock of the Corporation outstanding that is not owned by the Interested Stockholder.
SECTION 3. Definitions. For purposes of this Article XII,
(a) Affiliate means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another Person.
(b) Associate, when used to indicate a relationship with any Person, means:
(i) any corporation, partnership, unincorporated association or other entity of which such Person is a director, officer or partner or is, directly or indirectly, the owner of 20% or more of any class of Voting Stock;
(ii) any trust or other estate in which such Person has at least a 20% beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity; and
(iii) any relative or spouse of such Person, or any relative of such spouse, who has the same residence as such Person.
(c) Business Combination, when used in reference to the Corporation and any Interested Stockholder of the Corporation, means:
(i) any merger or consolidation of the Corporation or any direct or indirect majority-owned subsidiary of the Corporation (a) with the Interested Stockholder, or (b) with any other corporation, partnership, unincorporated association or other entity if the merger or consolidation is caused by the Interested Stockholder and as a result of such merger or consolidation Section 2 of this Article XII is not applicable to the surviving entity;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a stockholder of the Corporation, to or with the Interested Stockholder, whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority owned subsidiary of the Corporation which assets have an aggregate market value equal to 10% or more of either the aggregate market value of all the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding stock of the Corporation;
(iii) any transaction which results in the issuance or transfer by the Corporation or by any direct or indirect majority-owned subsidiary of the Corporation of any stock of the Corporation or of such subsidiary to the Interested Stockholder, except: (a) pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into stock of the Corporation or any such subsidiary which securities were outstanding prior to the time that the Interested Stockholder became such; (b) pursuant to a merger under Section 251(g) of the DGCL; (c) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into stock of the Corporation or any such subsidiary which security is distributed, pro rata to all holders of a class or series of stock of the Corporation subsequent to the time the Interested Stockholder became such; (d) pursuant to an exchange offer by the Corporation to purchase stock made on the same terms to all holders of said stock; or (e) any issuance or transfer of stock by the Corporation; provided, however, that in no case under items (iii)-(v) of this subsection (c) shall there be an increase in the Interested Stockholders proportionate share of the stock of any class or series of the Corporation or of the Voting Stock of the Corporation (except as a result of immaterial changes due to fractional share adjustments);
(iv) any transaction involving the Corporation or any direct or indirect majority-owned subsidiary of the Corporation which has the effect, directly or indirectly, of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the Corporation or of any such subsidiary which is owned by the Interested Stockholder, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares of stock not caused, directly or indirectly, by the Interested Stockholder; or
(v) any receipt by the Interested Stockholder of the benefit, directly or indirectly (except proportionately as a stockholder of the Corporation), of any loans, advances, guarantees, pledges, or other financial benefits (other than those expressly permitted in subsections (i) to (iv) above) provided by or through the Corporation or any direct or indirect majority-owned subsidiary.
(d) control, including the terms controlling, controlled by and under common control with, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Stock, by contract, or otherwise. A Person who is the owner of 20% or more of the outstanding Voting Stock of the Corporation, partnership, unincorporated association or other entity shall be presumed to have control of such entity, in the absence of proof by a preponderance of the evidence to the contrary. Notwithstanding the foregoing, a presumption of control shall not apply where such Person holds Voting Stock, in good faith and not for the purpose of circumventing this Article XII, as an agent, bank, broker, nominee, custodian or trustee for one or more owners who do not individually or as a group have control of such entity.
(e) Interested Stockholder means any Person (other than the Corporation and any direct or indirect majority-owned subsidiary of the Corporation) that (i) is the owner of 15% or more of the outstanding Voting Stock of the Corporation, or (ii) is an Affiliate or Associate of the Corporation and was the owner of 15% or more of the outstanding Voting Stock of the Corporation at any time within the three (3) year period immediately prior to the date on which it is sought to be determined whether such Person is an Interested Stockholder, and the Affiliates and Associates of such Person; provided, however, that the term Interested Stockholder shall not include (a) the Sponsor Group or any of its Affiliates or successor or any group, or any member of any such group, to which such Persons are a party under Rule 13d-5 of the Exchange Act or (b) any Person whose ownership of shares in excess of the 15% limitation set forth herein is the result of any action taken solely by the Corporation; provided that such Person specified in this clause (b) shall be an Interested Stockholder if thereafter such Person acquires additional
shares of Voting Stock of the Corporation, except as a result of further corporate action not caused, directly or indirectly, by such Person. For the purpose of determining whether a Person is an Interested Stockholder, the Voting Stock of the Corporation deemed to be outstanding shall include stock deemed to be owned by the Person through application of the definition of owner below but shall not include any other unissued stock of the Corporation which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.
(f) owner, including the terms own and owned, when used with respect to any stock, means a Person that individually or with or through any of its Affiliates or Associates:
(i) beneficially owns such stock, directly or indirectly; or
(ii) has (a) the right to acquire such stock (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the owner of stock tendered pursuant to a tender or exchange offer made by such Person or any of such Persons Affiliates or Associates until such tendered stock is accepted for purchase or exchange; or (b) the right to vote such stock pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the owner of any stock because of such Persons right to vote such stock if the agreement, arrangement or understanding to vote such stock arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to ten (10) or more Persons; or
(iii) has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in item (b) of subsection (ii) above), or disposing of such stock with any other Person that beneficially owns, or whose Affiliates or Associates beneficially own, directly or indirectly, such stock.
(g) Person means any individual, corporation, partnership, unincorporated association or other entity.
(h) stock means, with respect to any corporation, capital stock and, with respect to any other entity, any equity interest.
(i) Voting Stock means stock of any class or series entitled to vote generally in the election of directors.
ARTICLE XIII - EXCLUSIVE FORUM
(a) Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee or stockholder of the Corporation to the Corporation or the Corporations stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, or this Certificate of Incorporation or the By-Laws (as either may be amended and/or restated from time to time) or (iv) any action asserting a claim governed by the internal affairs doctrine; provided, that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state court sitting in the State of Delaware.
(b) Unless the Corporation consents in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, including, the applicable rules and regulations promulgated thereunder.
(c) If any action the subject matter of which is within the scope of paragraph (a) above is filed in a court other than the Court of Chancery of the State of Delaware or another state court located within the State of Delaware, or if any action the subject matter of which is within the scope of paragraph (b) above is filed in a court other than in the federal district courts of the United States of America (in each case, a Foreign Action) in the name of any stockholder, such stockholder shall be deemed to have consented to (i) the personal jurisdiction of the Court of Chancery of the State of Delaware or another state court located within the State of Delaware in connection with any action brought in such court to enforce paragraph (a) above, and the personal jurisdiction of the federal district courts of the United States of America in connection with any action brought in such court to enforce paragraph (b) above (in each case, an FSC Enforcement Action) and (ii) having service of process made upon such stockholder in any such FSC Enforcement Action by service upon such stockholders counsel in the Foreign Action as agent for such stockholder.
IN WITNESS WHEREOF, this Certificate of Incorporation of the Corporation has been executed by its duly authorized officer this [] day of [].
Clarios International Inc. |
|
Name: [] |
Title: [] |
Exhibit 3.2
AMENDED AND RESTATED BY-LAWS
OF
CLARIOS INTERNATIONAL INC.
(a Delaware corporation)
(as of [], 2021)
ARTICLE I
Offices
SECTION 1. Registered Office. The registered office of Clarios International Inc. (the Corporation) shall be fixed in the Corporations certificate of incorporation (as amended and/or restated from time to time, and including any certificates of designation then in effect, the Certificate of Incorporation).
SECTION 2. Other Offices. The Board of Directors of the Corporation (the Board) may at any time establish other offices at any place or places where the Corporation is qualified to do business.
ARTICLE II
Stockholders
SECTION 1. Annual Meetings. An annual meeting of stockholders for the election of directors and the transaction of such other business as may be properly brought before such meeting shall be held at such date and time as the Board may from time to time determine, in each case at such place or by means of remote communications as may be determined by the Board. Any annual meeting of stockholders may from time to time be adjourned, postponed, recessed or canceled in accordance with Section 5(b) of this Article II.
SECTION 2. Special Meetings. Special meetings of stockholders may be called only as provided in the Certificate of Incorporation. In addition (and without limiting the restrictions or provisions of the Certificate of Incorporation), no such meeting shall be called or convened, or be deemed to have been duly called or convened, unless it shall have been called in accordance with these By-Laws. Any special meeting of the stockholders shall be held on the date, time and place, if any, as exclusively determined by the Board, as set forth in the notice of the meeting. The Board may postpone, reschedule, recess or cancel any such meeting (other than any such meeting called by the Sponsor Group prior to the Trigger Date). Business transacted at any such meeting shall be limited to the purpose(s) stated in the notice.
SECTION 3. Place of Meetings. Meetings of stockholders may be held at any place, either within or without the State of Delaware, or by means of remote communication, including by webcast, as authorized by Section 211(a)(2) of the General Corporation Law of the State of Delaware (as in effect from time to time, the DGCL), as determined by the Board and as specified in the notice of meeting. In the absence of such a determination, a meeting of stockholders shall be held at the principal executive office of the Corporation.
SECTION 4. Record Date.
(a) In order to determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing such record date is adopted by the Board and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If the Board fixes such a record date, such record date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be the close of business on the day next preceding the day on which notice of such meeting is given or, if such notice is waived, the close of business on the day next preceding the day on which such meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting and, in such case, shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote at the adjourned meeting.
(b) In any circumstances in which the stockholders are entitled to act by written consent without a meeting, in order to determine the stockholders entitled to consent to action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing such record date is adopted by the Board and which record date shall not be more than ten (10) days after the date upon which the resolution fixing such record date is adopted by the Board. If no record date is fixed by the Board, the record date for determining stockholders entitled to consent to action in writing without a meeting, when no prior action by the Board is required by the DGCL, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation at its registered office in the State of Delaware, its principal executive office or an officer or agent of the Corporation having custody of the books in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation at its registered office shall be made by personal delivery or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board and prior action by the Board is required by the DGCL, the record date for determining stockholders entitled to consent to action in writing without a meeting shall be the close of business on the day on which the Board adopts the resolution taking such prior action.
(c) In order to determine the stockholders (i) entitled to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of shares of capital stock of the Corporation or (ii) for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing such record date is adopted and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders therefor shall be at the close of business on the day on which the Board adopts the resolution relating to such action.
SECTION 5. Notice of Meetings.
(a) General Notice Requirements.
(i) Except as otherwise required by applicable law or as provided in these By-Laws or the Certificate of Incorporation, notice of the date, time and place or means of remote communication of all meetings of stockholders, the record date for determining stockholders entitled to vote at such meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting, and in the case of a special meeting, the purpose(s) of the meeting, shall be delivered no fewer than ten (10) nor more than sixty (60) days before the meeting date to each stockholder entitled to vote at such meeting as of the record date for determining stockholders entitled to notice of the meeting.
(ii) Notices pursuant to this Section 5 are deemed given (A) if by mail, when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholders address as it appears on the records of the Corporation or, if a stockholder has filed with the Secretary of the Corporation (the Secretary) a written request that notices to such stockholder be mailed to some other address, then directed to such stockholder at such other address; (B) if by facsimile, when directed to a number at which the stockholder has consented to receive notice; (C) if by e-mail, when directed to an e-mail address at which the stockholder has consented to receive such notice; (D) if by posting on an electronic network together with a separate notice to the stockholder of such specific posting, upon the later to occur of (x) such posting and (y) the giving of such separate notice of such posting; and (E) if by any other form of electronic transmission, when directed to the stockholder as required by law and, to the extent required by applicable law, in the manner consented to by the stockholder. An affidavit of the mailing or other means of giving any notice of any stockholders meeting, executed by the Secretary, an Assistant Secretary or any transfer agent of the Corporation giving the notice, shall be prima facie evidence of the giving of such notice or report. Notice shall be deemed to have been given to all stockholders of record who share an address if notice is given in accordance with the householding rules set forth in Rule 14a-3(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 233 of the DGCL.
(b) Notice of Adjourned Meeting. If an annual or special meeting of stockholders is adjourned to a different date, time or place (if any), written notice of the adjourned meeting need not be given if the new date, time, place (if any) or means of remote communication are announced at the meeting at which the adjournment is taken before the adjournment. If any such adjournment is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after any such adjournment, a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, the Board shall fix as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote at such adjourned meeting and shall give notice of such adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date so fixed for notice of such adjourned meeting. At any such adjourned meeting, any business may be transacted which could have been transacted at the original meeting.
(c) Waiver of Notice. Notice of a meeting of stockholders shall not be required to be given to any stockholder who attends such meeting in person or by proxy and does not, at the beginning of such meeting, object to the transaction of any business because the meeting has not been lawfully called or convened, or who, either before or after the meeting, submits a signed waiver of notice or waives notice by electronic transmission, in person or by proxy. To the extent permitted by law, a stockholders attendance at a meeting, in person or by proxy, waives objection by such stockholder to the meeting notice, unless the stockholder attends for the sole purpose of objecting to the meeting notice. Any stockholder so waiving notice of a meeting shall be bound by the proceedings of such meeting in all respects as if due notice thereof had been given.
SECTION 6. Stockholder Lists. The Corporation shall prepare, at least ten (10) days prior to each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each such stockholder and the number of shares registered in the name of each such stockholder. Such list shall be open for inspection by any stockholder, for purposes germane to such meeting, during ordinary business hours, for the ten (10) days prior to such meeting, either (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of such meeting, or (b) during ordinary business hours, at the principal executive office of the Corporation. If such meeting is to be held at a place, such list shall also be produced and kept open at such meeting during the whole time thereof and may be inspected by any stockholder who is present thereat. If such meeting is to be held solely by remote communications, such list shall also be produced and kept open during the whole time thereof for inspection by any stockholder on a reasonably accessible electronic network and the information required to gain access to such list shall be provided with the notice of such meeting. The stock ledger of the Corporation (as defined in Section 219 of the DGCL) shall be the only evidence as to who are the stockholders entitled to examine the list described in this Section 6 or to vote at any meeting of stockholders.
SECTION 7. Quorum; Manner of Acting.
(a) Except as otherwise required by applicable law, the rules or regulations of any stock exchange applicable to the Corporation or the Certificate of Incorporation or as provided with respect to meetings consisting solely of holders of shares of preferred stock of the Corporation (the Preferred Stock) in the certificate of designation providing for the issuance of such shares, the presence, at the commencement of such meeting, in person or by proxy, of holders of a majority in voting power of the issued and outstanding shares of capital stock of the Corporation entitled to vote at a meeting of stockholders shall be required in order to constitute a quorum for the transaction of business thereat.
(b) If authorized by the Board, stockholders and proxyholders not physically present at a meeting of stockholders may, by remote communications, (i) participate in a meeting of stockholders and (ii) be deemed present in person and vote at a meeting of stockholders, regardless of whether such meeting is to be held at a place or by remote communications, in each case, provided that the Corporation shall have implemented reasonable measures to (x) verify that each stockholder or proxyholder deemed present and permitted to vote at such meeting by remote communications is a stockholder or proxyholder and (y) provide such stockholders and proxyholders with a reasonable opportunity to participate in such meeting and to vote on matters submitted to a vote of stockholders, including an opportunity to read or hear the proceedings. If any stockholder or proxyholder votes at such meeting by remote communications, a record of such vote shall be maintained by the Corporation.
(c) Except as otherwise required by applicable law, the rules or regulations of any stock exchange applicable to the Corporation, or the Certificate of Incorporation, as otherwise provided in these By-Laws with respect to the election of directors, or as otherwise provided with respect to meetings consisting solely of holders of shares of Preferred Stock in the certificate of designation providing for the issuance of such shares, provided a quorum is present, the affirmative vote of the holders of a majority in voting power of the shares present in person or by proxy at the meeting and entitled to vote thereon shall be required to approve any matter submitted to a vote of stockholders at a meeting.
(d) Every stockholder entitled to vote or act at a meeting of stockholders may authorize another person or persons to vote or act for such stockholder by proxy. Such authorization must be granted by a means expressly permitted by the DGCL. Among other means, such authorization may be granted by a proxy (i) in a written
instrument executed by a stockholder or such stockholders duly authorized attorney-in-fact or (ii) transmitted by a stockholder or such stockholders duly authorized attorney-in-fact by telegram, cablegram or electronic transmission to a proxyholder or a proxy solicitation firm, proxy support system or similar agent duly authorized by such proxyholder to receive such transmission so long as such telegram, cablegram or other electronic transmission sets forth or is submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by such stockholder or attorney-in-fact. Such proxy must be filed with the Secretary or such proxyholder, proxy solicitation firm, proxy support agent or similar agent at or before such meeting. No proxy shall be voted or acted upon after three (3) years from its date unless such proxy provides that it may be voted or acted upon for a longer period. Except as otherwise provided therein, a proxy that entitles the agent authorized thereby to vote at a meeting of stockholders shall entitle such agent to vote at any adjournment or postponement of such meeting but shall not be valid after final adjournment of such meeting. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the relevant meeting of stockholders and voting or acting in person, by filing with the Secretary or such proxyholder, proxy solicitation form, proxy support agent or similar agent a written instrument revoking such proxy or by filing with the Secretary or such proxyholder, proxy solicitation form, proxy support agent or similar agent another duly executed proxy bearing a later date.
SECTION 8. Notice of Stockholder Business and Nominations; Director Qualifications.
(a) (i) At any annual meeting of stockholders, only such nominations of persons for election to the Board shall be made, and only such other business shall be conducted or considered, as have been properly brought before the meeting. To be properly brought before an annual meeting, nominations of persons for election or re-election to the Board or other business must be (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board; (B) otherwise properly brought before the meeting by or at the direction of the Board; (C) as provided in the Stockholders Agreement to be entered into by and between the Corporation and [Sponsor Group Partnership, including each of [Brookfield and CDPQ]] (the Sponsor Group) (as the same may be amended, supplemented, restated or otherwise modified from time to time, the Stockholders Agreement); or (D) otherwise properly brought before the meeting by a stockholder in accordance with clauses (ii), (iii) and (iv) of this Section 8(a) (this clause (D) being the exclusive means for a stockholder to bring nominations or other business before an annual meeting of stockholders, other than business properly included in the Corporations proxy materials pursuant to Rule 14a-8 under the Exchange Act). The provisions of this Section 8(a) and the following Section 8(b) apply to all nominations of persons for election to the Board and other business proposed to be brought before a meeting
(ii) For nominations of any person for election or re-election to the Board or other business to be properly brought before an annual meeting by a stockholder (A) the stockholder must have given timely notice thereof in writing to the Secretary, which notice must also fulfill the requirements of clause (iii) of this Section 8(a); (B) the subject matter of any proposed business must be a matter that is a proper subject matter for stockholder action at such meeting; and (C) the stockholder must be a stockholder of record of the Corporation at the time the notice required by this Section 8(a) is delivered to the Corporation and must be entitled to vote at the meeting.
(iii) To be considered timely notice, a stockholders notice must be received by the Secretary at the principal executive office of the Corporation not earlier than the opening of business one hundred and fifty (150) days before, and not later than the close of business one hundred and twenty (120) days before, the first anniversary of the date of the preceding years annual meeting of stockholders. If no annual meeting was held in the previous year, or if the date of the applicable annual meeting has been changed by more than thirty (30) days from the date of the previous years annual meeting, then a stockholders notice, in order to be considered timely, must be received by the Secretary at the principal executive offices of the Corporation not earlier than the opening of business one hundred and fifty (150) days before the date of such annual meeting, and not later than the close of business on the later of (x) one hundred and twenty (120) days prior to the date of such annual meeting; and (y) the 10th day following the day on which public announcement of the date of such annual meeting was first made. In no event shall the public announcement of an adjournment or postponement of an annual meeting or of a new record date for an annual meeting commence a new time period (or extend any time period) for the giving of a stockholders notice as described above. Such stockholders notice shall set forth the following information (and, if such notice relates to the nomination of any person for election or re-election as a director of the Corporation, the
questionnaire, representation and agreement required by the following Section 8(b) must also be delivered with and at the same time as such notice):
(A) as to each person whom the stockholder proposes to nominate for election as a director, (1) all information relating to such person that is required to be disclosed in accordance with Regulation 14A under the Exchange Act, whether in a solicitation of proxies for the election of directors in an election contest or otherwise, and such other information as may be required by the Corporation pursuant to any policy of the Corporation governing the selection of directors and publicly available (whether on the Corporations website or otherwise) as of the date of such notice; (2) such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (3) a statement whether such person, if elected, intends to tender any advance resignation notice(s) requested by the Board in connection with subsequent elections, such advance resignation to be contingent upon the nominees failure to receive a majority of the votes cast by stockholders and acceptance of such resignation by the Board and (4) a description of all agreements, arrangements or understandings between the stockholder or any beneficial owner on whose behalf such nomination is made, or their respective affiliates, and each nominee or any other person or persons (naming such person or persons) in connection with the making of such nomination or nominations;
(B) as to any other business the stockholder proposes to bring before the meeting, (1) a brief description of such business; (2) the text of the proposal to be voted on by stockholders (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend these By-Laws, the language of the proposed amendment); (3) the reasons for conducting such business at the meeting; and (4) a description of any direct or indirect material interest of the stockholder or of any beneficial owner on whose behalf the proposal is made, or their respective affiliates, in such business, and all agreements, arrangements and understandings between such stockholder or any such beneficial owner or their respective affiliates and any other person or persons (naming such person or persons) in connection with the proposal of such business;
(C) as to the stockholder giving the notice and each beneficial owner, if any, on whose behalf the business is proposed or nomination is made (each, a Party), (1) the name and address of such Party (in the case of each stockholder, as they appear on the Corporations books and records); (2) the class or series and number of shares of stock or other securities of the Corporation that are owned, directly or indirectly, beneficially or held of record by such Party or any of its affiliates (naming such affiliates); (3) a description of any agreement, arrangement or understanding (including any swap or other derivative or short position, profit interest, option, warrant, convertible security, stock appreciation or similar right with exercise or conversion privileges, hedging transactions, and securities lending or borrowing arrangement) to which such Party or any of its affiliates or associates and/or any others acting in concert with any of the foregoing is, directly or indirectly, a party as of the date of such notice (x) with respect to shares of stock or other securities of the Corporation or (y) the effect or intent of which is to transfer to or from any such person, in whole or in part, any of the economic consequences of ownership of any security of the Corporation, mitigate loss to, manage the potential risk or benefit of security price changes (increases or decreases) for, or increase or decrease the voting power of any such person with respect to securities of the Corporation or which has a value derived in whole or in part, directly or indirectly, from the value (or change in value) of any securities of the Corporation, in each case whether or not subject to settlement in the underlying security of the Corporation (each such agreement, arrangement or understanding, a Disclosable Arrangement), specifying in each case (I) the effect of such Disclosable Arrangement on voting or economic rights in securities in the Corporation, as of the date of the notice and (II) any changes in such voting or economic rights which may arise pursuant to the terms of such Disclosable Arrangement; (4) a description of any proxy, agreement, arrangement, understanding or relationship between or among such Parties, any of their respective affiliates or associates, and/or any others acting in concert with any of the foregoing with respect to the nomination or proposal and/or the voting, directly or indirectly, of any shares or any other security of the Corporation; (5) any rights to dividends on the shares
of the Corporation owned, directly or indirectly, beneficially by such Party that are separated or separable from the underlying shares of the Corporation; (6) any proportionate interest in shares of the Corporation or Disclosable Arrangements held, directly or indirectly, by a general or limited partnership or limited liability company in which such Party is a general partner or managing member or, directly or indirectly, beneficially owns an interest in a general partner or managing member; (7) any performance-related fees that such Party is directly or indirectly entitled to based on any increase or decrease in the value of shares of the Corporation or Disclosable Arrangements, if any, as of the date of such notice, including any such interests held by members of such Partys immediate family sharing the same household; (8) a representation that the stockholder is a holder of record of stock of the Corporation at the time of the giving of the notice, is entitled to vote at such meeting and will appear in person or by proxy at the meeting to propose such business or nomination; and (9) a representation as to whether such Party intends, or is part of a group which intends, (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporations outstanding shares of capital stock required to approve or adopt the proposal or elect the nominee and/or (y) otherwise to solicit proxies or votes from stockholders in support of such proposal or nomination; (10) any other information relating to such Party required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in an election contest pursuant to and in accordance with Regulation 14(a) of the Exchange Act; and (11) a certification regarding whether such Party has complied with all federal, state and other legal requirements in connection with such Partys acquisition of shares of capital stock or other securities of the Corporation; and
(D) an undertaking by each Party to notify the Corporation in writing of any change in the information previously disclosed pursuant to clauses (A), (B) and (C) of this Section 8(a)(iii) as of the record date for determining stockholders entitled to receive notice of such meeting and as of the date that is fifteen (15) days prior to the meeting or any adjournment or postponement thereof, by written notice received by the Secretary at the principal executive offices of the Corporation not later than five (5) days following such record date and not later than ten (10) days prior to the date for the meeting or any adjournment or postponement thereof, and thereafter by written notice so given and received within two (2) business days of any change in such information (and, in any event, by the close of business on the day preceding the meeting date).
The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation and to determine the independence of such nominee under the Exchange Act and the rules or regulations of any stock exchange applicable to the Corporation. In addition, a stockholder seeking to nominate a director candidate or bring another item of business before the annual meeting shall promptly provide any other information reasonably requested by the Corporation.
(iv) Notwithstanding anything in clause (iii) of this Section 8(a) to the contrary, in the event that the number of directors to be elected to the Board at an annual
meeting of stockholders is increased and there is no public announcement by the Corporation naming the nominees for the additional directorships at least one hundred (100) days prior to the first anniversary of the preceding years annual meeting of stockholders, a stockholders notice required by this Section 8(a) shall also be considered timely, but only with respect to nominees for the additional directorships, if it is received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation (it being understood that such notice must nevertheless comply with the requirements of clause (iii) of this Section 8(a)).
(b) To be eligible to be a nominee for election or re-election by the stockholders as a director of the Corporation or to serve as a director of the Corporation, a potential nominee must deliver (not later than the deadline prescribed for delivery of notice under clause (iii) or (iv), as applicable, of Section 8(a)) to the Secretary a written questionnaire with respect to the background and qualifications of such potential nominee and, if applicable, the background of any other person on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that, among other matters, such potential nominee or other person: (i) is not and will not become a party to any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person as to how such potential nominee, if elected as a director, will act or vote on any issue or question that has not been disclosed in such questionnaire; (ii) is not and will not become a party to any agreement, arrangement or understanding with any person other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed in such questionnaire; and (iii) in such potential nominees individual capacity and on behalf of any person on whose behalf the nomination is being made, would be in compliance, if elected or re-elected as a director, and will comply with, applicable law and all corporate governance, conflict of interest, confidentiality and other policies and guidelines of the Corporation applicable to directors generally and publicly available (whether on the Corporations website or otherwise) as of the date of such representation and agreement, including the requirements of Section 2 of Article III.
(c) Only such business shall be conducted at a special meeting of stockholders as (A) has been specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board; or (B) otherwise properly brought before the meeting by or at the direction of the Board. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporations notice of meeting, (i) by or at the direction of the Board or any committee thereof, (ii) as provided in the Stockholders Agreement and (iii) so long as and provided that the Board (or the Sponsor Group) requesting the special meeting pursuant to Section 3 of Article IX of the Certificate of Incorporation) has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time the notice provided for in Section 8(a)(iii) is delivered to the Secretary, who is entitled to vote at the meeting and upon such election and who complies with the requirements set forth in Sections 8(a)(iii) and 8(b) as if such requirements referred to such special meeting; provided, however, that to be considered timely notice under this clause (c), a stockholders notice must be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which public announcement of the date of such special meeting was first made. This clause (c) shall be the exclusive means for a stockholder to make nominations or other business proposals before a special meeting of stockholders (other than matters properly brought under Rule 14a-8 under the Exchange Act and included in the Corporations notice of meeting).
(d) Only such persons who are nominated for election or re-election as a director of the Corporation in accordance with the procedures, and who meet the other qualifications, set forth in Section 8(a), (b) and (c) shall be eligible to stand for election as directors and only such business shall be conducted at a meeting of stockholders as has been brought before the meeting in accordance with the procedures set forth in these By-Laws.
(e) Without limiting the applicability of the foregoing provisions of this Section 8, a stockholder who seeks to have any proposal or potential nominee included in the Corporations proxy materials must provide notice as required by and otherwise comply with the applicable requirements of the rules and regulations under the Exchange Act. Except for the immediately preceding sentence, nothing in this Section 8 shall be deemed to affect any rights of (i) stockholders to request inclusion of proposals in the Corporations proxy statement pursuant to Rule 14a-8 under the Exchange Act; or (ii) the holders of any outstanding class or series of Preferred Stock, voting as a class
separately from the holders of common stock, to elect directors pursuant to any certificate of designation of such series of Preferred Stock or the Certificate of Incorporation. Subject to Rule 14a-8 under the Exchange Act, nothing in these By-Laws shall be construed to permit any stockholder, or give any stockholder the right, to include or have disseminated or described in the Corporations proxy statement any nomination of director or directors or any other business proposal.
(f) Notwithstanding anything to the contrary contained in this Section 8, prior to the first date on which the Sponsor Group ceases to collectively beneficially own (directly or indirectly) shares representing at least 50% of the then issued and outstanding shares of the Common Stock of the Corporation, with such beneficial ownership to be determined in accordance with Rule 13d-3 promulgated under the Exchange Act (the Trigger Date) or [Brookfield] no longer controls the Sponsor Group, the Sponsor Group shall not be subject to the notice provisions set forth in paragraphs (a)(ii), (a)(iii), (a)(iv), (b), (c) or (d) of this Section 8.
(g) For purposes of this Section 8, public announcement means disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service, or that is generally available on internet news sites or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
SECTION 9. Organization.
(a) Meetings of stockholders shall be presided over by the Chairman, or in the Chairmans absence, the CEO, if any, or if none or in the CEOs absence, a Vice-President, or, if none of the foregoing is present, by a chairman to be chosen by the stockholders entitled to vote who are present in person or by proxy at the meeting.
(b) The Secretary, or in the Secretarys absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the presiding officer of the meeting shall appoint any person present to act as secretary of the meeting.
(c) Unless required by the DGCL, requested by any stockholder present in person or by proxy and entitled to vote at such meeting or directed by the chairman of such meeting, neither the vote for the election of directors nor upon any other business before any meeting of stockholders is required to be conducted by written ballot. On a vote by written ballot, (i) each written ballot cast by a stockholder voting in person shall state the name of such stockholder, the number of shares of capital stock of the Corporation held of record by such stockholder and the number of such shares voted by such stockholder and (ii) each ballot cast by proxy shall bear the name of such proxy, the name of the stockholder for whom such proxy is voting, the number of shares of capital stock of the Corporation held of record by such stockholder and the number of such shares voted on behalf of such stockholder.
(d) Shares of capital stock of the Corporation held by the Corporation or any of its majority-owned subsidiaries in treasury shall not be shares entitled to vote at, or to be counted in determining the presence of a quorum for, any meeting of stockholders or be counted in determining the total number of outstanding shares of capital stock of the Corporation. This Section 9(d) shall not limit the right of the Corporation or any of its subsidiaries to vote any shares of capital stock of the Corporation held by the Corporation or such subsidiary in a fiduciary capacity.
(e) To the extent (but only to the extent) expressly provided in the Certificate of Incorporation and subject to the record and notice requirements of Section 4(b), action required or permitted to be taken at a meeting of stockholders may be taken without a meeting, subject to the record date and notice requirements of Section 4 and Section 5 of this Article II. Prompt written notice of the taking of such action shall be given by the Secretary to all stockholders who have not consented in writing to such action.
SECTION 10. Conduct of Business.
(a) The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the chair of the meeting. The Board may adopt by resolution such rules and regulations for the conduct of any meeting of stockholders as it deems
appropriate, provided such rules and regulations are not inconsistent with any other provision of these By-Laws, Certificate of Incorporation or the DGCL. Except to the extent inconsistent with the rules and regulations adopted by the Board, the chair of the meeting shall have the right and authority to convene, recess and/or adjourn the meeting, to determine the order of business and the procedure at the meeting, including such rules and regulations of the manner of voting, the conduct of discussion and such other matters as seems to such chair of the meeting in order, and to do all such acts as, in the judgment of the chair of the meeting, are appropriate for the proper conduct of the meeting.
(b) Rules and regulations relating to the conduct of any meeting of stockholders, whether adopted by the Board or prescribed by the chair of the meeting, may include the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons as the chair of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants and on stockholder proposals.
(c) The chair of any meeting of stockholders shall have the power and duty to determine all matters relating to the conduct of the meeting, including determining whether any nomination or item of business has been properly brought before the meeting in accordance with these By-Laws (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination is made or proposal solicited (or is part of a group that solicited) or did not so solicit, as the case may be, proxies in support of such stockholders nominee or proposal in compliance with such stockholders representation as required by Section 8(a)(iii)(C)(9)). If the chair determines and declares that any nomination or item of business has not been properly brought before a meeting of stockholders, then such nomination shall be disregarded and such business shall not be transacted or considered at such meeting. Unless and to the extent determined by the Board or the chair of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
(d) The Corporation, in advance of any meeting of stockholders, shall appoint one or more inspectors of election to act at the meeting or any adjournment thereof and make a written report thereof, and may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act a meeting, the vacancy may be filled by appointment made by the directors at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of such inspectors duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of such inspectors ability, and may perform such other duties not inconsistent herewith as may be requested by the Corporation. Each inspector shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders.
SECTION 11. Requirement to Appear. Notwithstanding anything to the contrary contained in Section 8, if a stockholder that has provided timely notice of a nomination or item of business in accordance with Section 8 (or a qualified representative of such stockholder) does not appear at the annual or special meeting of stockholders to present such nomination or item of business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 11, to be considered a qualified representative of a stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or reliable reproduction of the writing or electronic transmission, at the meeting of the stockholders.
ARTICLE III
Directors
SECTION 1. General Powers. Except as otherwise provided by the Certificate of Incorporation or the DGCL, the business and affairs of the Corporation shall be managed by, or under the direction of, the Board. Subject to applicable law and any limitations in the Certificate of Incorporation or these By-Laws, including those reserving certain powers for the stockholders, the Board may exercise (or grant authority to be exercised) all the powers and authority of the Corporation.
SECTION 2. Number; Election. The number of directors constituting the Board shall be such number as is from time to time determined in the manner provided in the Certificate of Incorporation. A nominee for director shall be elected to the Board if the votes cast for such nominees election exceed the votes cast against such nominees election; provided, however, that directors shall be elected by a plurality of the votes cast at any meeting of stockholders or in any action by written consent in lieu of such a meeting for which (a) the Corporation receives a notice that a stockholder has nominated a person for election to the Board that was timely made in accordance with the applicable nomination periods provided in these By-Laws, and (b) such nomination or notice has not been withdrawn on or before the 10th day before the Corporation first mails its initial proxy statement in connection with such election of directors. Abstentions and broker non-votes shall not be counted as votes cast.
SECTION 3. Resignation; Removal. Subject to the Stockholders Agreement and Certificate of Incorporation, any director may resign at any time upon notice to the Corporation in writing or by electronic transmission and such resignation shall take effect upon receipt thereof by the President or Secretary, unless otherwise specified in the resignation. Any director or the entire board may only be removed from office in the manner provided in and to the extent permitted in the Certificate of Incorporation and Stockholders Agreement.
SECTION 4. Vacancies. Vacancies on the Board, whether caused by resignation, death, disqualification, removal or other cause, as well as any newly created directorships resulting from an increase in the authorized number of directors, may be filled only in the manner provided in and to the extent permitted under the Certificate of Incorporation and the Stockholders Agreement. A vacancy that will occur at a specific later date may be filled before the vacancy occurs but the new Director may not take office until the vacancy occurs.
SECTION 5. Regular Meetings. Regular meetings of the Board shall be held at such times, on such dates and at such places as the Board shall determine from time to time. A notice of any such regular meetings, the time, date or place of which has been so publicized, shall not be required.
SECTION 6. Annual Meeting. Following the annual meeting of stockholders, the newly elected Board shall meet for the purpose of the election of officers and the transaction of such other business as may properly come before the meeting. Such meeting may be held without notice immediately after the annual meeting of stockholders at the same place, if any, at which such stockholders meeting is held.
SECTION 7. Special Meetings. Special meetings of the Board shall be held whenever called by the Chairman, the President, or a majority of the directors then in office.
SECTION 8. Places of Meetings. Meetings of the Board may be held at any place within or without the State of Delaware, as may from time to time be fixed by resolution of the Board or as may be specified in the notice of meeting.
SECTION 9. Notice of Special Meetings. Notice of the time, date and place (if any) of all special meetings of the Board shall be given to each director. Except as otherwise provided by law, notice of each such meeting shall be mailed to each director, addressed to such director at such directors residence or usual place of business, at least 48 hours prior to the day on which such meeting is to be held, provided that in lieu thereof, notice may be delivered to each director personally or by telephone or sent by facsimile, e-mail or other electronic transmission addressed to each director at either of such places, not later than noon of the calendar day before the day on which such meeting is to be held. A notice of a special meeting of the Board need not specify the purposes of the meeting. Notice of any meeting of the Board shall not be required to be given to any director who submits a signed waiver of notice, or waives notice of such meeting by electronic transmission, whether before or after the meeting, or if such director is present and does not, at the beginning of such meeting, object to the transaction of any business because the meeting
has not been lawfully called or convened; and any meeting of the Board shall be a legal meeting without any notice thereof having been given if all the directors then in office are present or have waived or not objected to lack of notice thereof.
SECTION 10. Quorum and Manner of Voting.
(a) Except as otherwise provided by law, prior to the Trigger Date, at any meeting of the Board the presence of
(i) a majority of the total number of directors together with
(ii) if the Sponsor Group has designated for nomination, pursuant to the Stockholders Agreement, at least one (1) director who is serving on the Board, one (1) director so designated by the Sponsor Group shall be required in order to constitute a quorum for all purposes; provided, however, that the Sponsor Group may, in its sole discretion, agree to waive the quorum requirement set forth in clause (ii) above with respect to a director designated for nomination by the Sponsor Group who is serving on the Board. From and after the Trigger Date, at any meeting of the Board the presence of a majority of the total number of directors shall be required in order to constitute a quorum for all purposes. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting from time to time to another time and place without notice.
(b) At any meeting of the Board at which a quorum is present, all matters shall be determined by the vote of a majority of the directors present at such meeting at which there is aquorum, except as is required or provided by the DGCL, the Certificate of Incorporation or any other provision of these By-Laws.
(c) The Secretary shall act as secretary of each meeting of the Board and keep the minutes thereof, but, in the absence of the Secretary, the Chairman of such meeting shall appoint some other person to act as secretary of such meeting.
SECTION 11. Meetings by Means of Telephone Conference. Any or all directors may participate in a regular or special meeting of the Board, or any meeting of any committee thereof, by, or conduct the meeting through the use of, any means of communication by which all directors participating may hear each other during the meeting, and such participation in a meeting pursuant to this Section 11 shall constitute presence at such meeting.
SECTION 12. Action Without Meeting. Any action required or permitted to be taken at any regular or special meeting of the Board, or any meeting of any committee thereof, may be taken without a meeting if all of the directors consent in writing (which writings may be executed in counterparts or be different writings) or by electronic transmission to such action. Action taken under this Section 12 is effective when the last director signs or delivers the consent, unless the consent specifies a different effective date. Such writing or writings or electronic transmission or transmissions shall be filed with the minutes of proceedings of the Board.
SECTION 13. Compensation. The Board shall have the authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity.
ARTICLE IV
Committees
SECTION 1. Regular Committees. The Board shall appoint one or more of its members to an Audit Committee and may, from time to time, establish additional committees of the Board. The members of each such committee shall consist of such directors (but only such directors) designated by the Board. The Board may designate one or more directors as alternate members of any committee who may replace any absent or disqualified member of any committee at any meeting of such committee. Any vacancy on any committee resulting from death, resignation or any other event or circumstance, which is not filled by an alternate member, shall be filled by (and only by) the Board. Directors elected to fill such vacancies shall hold office for the balance of the terms of the members whose vacancies are so filled. All members of any committee of the Board shall serve at the pleasure of the Board. Each committee will report its actions in the interim between meetings of the Board at the next meeting of the Board or as otherwise directed by the Board.
SECTION 2. Regular Committee Powers. Any committee of the Board, to the extent designated by the Board, (a) shall have and may exercise all of the powers and authority of the Board and do all of the lawful acts and things that may be done by the Board in the management of the business and affairs of the Corporation and (b) may authorize the seal of the Corporation to be affixed to all papers that may require it; provided, however, that no such committee shall have the power or authority to: approve, adopt or recommend to the stockholders, any action or matter (other than the election or removal of directors) required by the DGCL to be submitted to stockholders for approval; adopt, amend or repeal these By-Laws; or take any action or assume any authority otherwise prohibited by applicable law (including the rules and regulations of any stock exchange applicable to the Corporation).
SECTION 3. Procedures. Unless otherwise expressly authorized by the Board in the resolution or resolutions designating such committee, the members of committees shall act only as a committee, and the individual members shall have no power as such. Any member of any committee may be removed as such at any time as (but only as) provided in the resolution or resolutions designating such committee. The presence, at any meeting thereof, of a majority of the total number of members which a committee would have if there were no vacancies thereon shall be required in order to constitute a quorum for the transaction of business at such meeting unless the committee charter specifies otherwise. All matters shall be determined by a majority vote of the members present at a meeting at which a quorum is present (or where the committee consists of only one or two members, or only two members are present and constitute a quorum, by unanimous vote). The term of office of each member of any committee shall commence at the time of such members election and qualification and shall continue until such members successor shall have been duly elected or until such members earlier death, resignation or removal. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or by resolution of the Board or required by law. Adequate provision shall be made for notice to members of all meetings. Each committee of the Board shall keep minutes of its meetings and shall report its proceedings to the Board as specified in its charter or when otherwise requested by the Board.
ARTICLE V
Officers
SECTION 1. Appointment; Term of Office. The Board shall elect at least the following officers: a Chairman, a CEO, a Chief Financial Officer (CFO), a President, a Treasurer and a Secretary. The Board may also elect, appoint, or provide for the appointment of such other officers and agents as may from time to time appear necessary or advisable in the conduct of the affairs of the Corporation. Each officer of the Corporation shall hold office for such term as may be prescribed by the Board and until such officers successor is chosen and qualifies or until such officers earlier death, disqualification, resignation or removal. The Board may fill any vacancy occurring in any office of the Corporation. Two or more offices may be held by the same person. No officer need be a stockholder or Director, except that the Chairman of the Board shall be chosen from among the directors.
SECTION 2. Resignation. Any officer may resign by delivering a resignation in writing or by electronic transmission to the Corporation at its principal executive office, and such resignation shall be effective upon receipt unless it is specified to be effective at a later time. If a resignation is made effective at a later date and the Corporation accepts the future effective date, the Board may fill the pending vacancy before the effective date if the Board provides that the successor shall not take office until the effective date. An officers resignation shall not affect the Corporations contract rights, if any, with the officer.
SECTION 3. Removal. The Board may remove any officer at any time with or without cause.
SECTION 4. Powers and Duties; Delegation.
(a) Each officer of the Corporation shall have such duties and powers as are customarily incident to such persons office (subject to the direction and control of the Board and except as otherwise provided by these By-Laws or by resolution of the Board), and such other duties and powers as may be designated by the Board or by direction of an officer authorized by the Board to prescribe the duties of such other officer.
(b) Whenever an officer or officers is absent, or whenever for any reason the Board may deem it desirable, the Board may delegate the powers and duties of any officer to any director, or any other officers or agents.
SECTION 5. Compensation of Officers. The compensation of the officers of the Corporation for their services as such shall be fixed from time to time by or at the direction of the Board. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that such officer is also a director of the Corporation.
SECTION 6. Voting Stock Held by Corporation. Except as otherwise provided by the Board, the CEO, President or CFO may waive notice and shall have full power and authority to act in the name and on behalf of the Corporation, or appoint another person or persons to act as proxy or attorney in fact for the Corporation with or without discretionary power or power of substitution, at any meeting of stockholders, partners or owners of any other corporation, partnership or other entity in which the Corporation may hold securities, a partnership interest or another ownership interest.
The Board may from time to time confer like powers upon any other person or persons and the CEO, President and CFO may delegate such officers powers under this Section 6 to any other officer of the Corporation.
ARTICLE VI
Books and Records
SECTION 1. Location. The books and records of the Corporation may be kept at such place or places within or outside the State of Delaware as the Board or the respective officers in charge thereof may from time to time determine. The record books containing the names and addresses of all stockholders, the number and class of shares of stock held by each and the dates when they respectively became the owners of record thereof shall be kept by the Secretary as prescribed in the By-Laws or by such officer or agent as shall be designated by the Board.
SECTION 2. Addresses of Stockholders. Notices of meetings and all other corporate notices may be delivered personally or mailed to each stockholder at the stockholders address as it appears on the records of the Corporation.
ARTICLE VII
Shares; Dividends
SECTION 1. Certificates. Shares of capital stock of the Corporation may, but shall not be required to, be issued in certificated form. Each holder of record of shares represented by certificates shall be entitled to a duly signed certificate in proper form certifying that such holder is the record holder of such shares. Certificates shall be signed by any two officers authorized to execute certificates. The Chairman of the Board, the CEO, the President or a Vice President, the Secretary, any Assistant Secretary or the Treasurer or any Assistant Treasurer shall be authorized to executive certificates. The signatures of the officers upon such certificates may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any certificate shall have ceased to be such an officer, transfer agent or registrar before such certificate is issued, such certificate may be issued with the same effect as if such person were such officer, transfer agent or registrar on the date of issuance of such certificate. To the extent required by the DGCL, within a reasonable time after the issue or transfer of shares without certificates, the Corporation shall send the applicable stockholder(s) a written statement of the information required by the DGCL to be on certificates of the Corporation.
SECTION 2. Transfers; Record Owners.
(a) Shares of capital stock of the Corporation held of record shall be transferable only on the transfer books of the Corporation, only by the record holder of such shares, in person or by such record holders duly authorized attorney or legal representative, written evidence of whose authority must be filed with the Corporation. No transfer shall be valid until such transfer has been entered on the transfer books of the Corporation by an entry showing from and to whom transferred and (i) if the shares are certificated, the surrender of the certificate, duly endorsed or
accompanied by duly executed stock powers (with such proof of authenticity of signature and proper succession or assignation, if applicable, as the Corporation or its agent may require) for a like number of shares, payment of all taxes thereon, compliance with any restrictions on transfer thereof and cancellation of the certificate or (ii) if uncertificated, the presentation of a duly executed stock transfer power or other proper transfer instructions (with such proof of authenticity of signature and proper succession or assignation, if applicable, as the Corporation or its agent may require) for a like number of shares, payment of all taxes thereon and compliance with any restrictions on transfer thereof.
(b) The person in whose name shares of capital stock of the Corporation stand on the records of the Corporation shall be deemed the owner of such shares for all purposes as regards the Corporation. Such person may be referred to herein as the holder of record, the registered owner or like terms.
(c) The Board may make such additional rules and regulations and take such action as it may deem expedient, not inconsistent with the Certificate of Incorporation and these By-Laws, concerning the issue, transfer and registration of certificates.
SECTION 3. Lost or Destroyed Certificates. The Corporation may issue (a) a new certificate or certificates for shares of capital stock of the Corporation or (b) uncertificated shares of capital stock of the Corporation in order to replace any certificate or certificates for shares theretofore issued by it alleged to have been lost, stolen or destroyed, and the Corporation may require the holder of the lost, stolen or destroyed certificate, or such holders legal representative, to give to the Corporation a bond or other security to indemnify it against all losses, liabilities and expenses (including attorneys fees and expenses) incurred in connection with investigating, defending and settling any claim that may be made against it on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificated or uncertificated share or shares.
SECTION 4. Dividends. Subject to the provisions of the Certificate of Incorporation and to the extent permitted by the DGCL, the Board may declare and the Corporation may pay dividends on shares of any class or series of capital stock of the Corporation at such times and in such amounts as the Board determines.
ARTICLE VIII
Indemnification
SECTION 1. Power to Indemnify in Action, Suits or Proceedings. Subject to the limitations set forth in Section 4 of this Article VIII, the Corporation shall, to the fullest extent permitted by law, indemnify and hold harmless any person made or threatened to be made a party to, or is otherwise involved in, any action, suit or proceeding, whether criminal, civil, administrative, or investigative (each, a proceeding), by reason of the fact that such person, or the legal representative of such person, is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee, agent or manager of any other corporation, partnership, limited liability company, joint venture, trust or other enterprise or nonprofit entity, including service with respect to an employee benefit plan, (each such person, an Eligible Person), whether the basis of such proceeding is alleged action in an official capacity as an Eligible Person or in any other capacity while serving in such official capacity, against all damage, claim, expense, liability and loss (including attorneys and other professionals fees, judgments, fines, ERISA taxes or penalties and amounts to be paid in settlement) incurred or suffered by such person in connection therewith.
SECTION 2. Expenses Payable In Advance. To the fullest extent permitted by the law, each Eligible Person shall, subject in all events to satisfaction of the terms and conditions set forth in or imposed pursuant to clauses (a) and (b) of this Section 2 and to the limitations contained in Section 4 of this Article VIII, have the right to be paid by the Corporation the expenses (including attorneys and other professionals fees and disbursements and court costs) incurred in defending any proceeding described in Section 1 of this Article VIII in advance of its final disposition (an advancement of expenses) upon (a) the receipt of an undertaking (an undertaking) by or on behalf of such Eligible Person to cooperate with the Corporation and its insurers in connection with the proceeding and any related matter and to repay all amounts so advanced if it is ultimately determined by final judicial decision from which there is no further right to appeal (a final adjudication) that such person is not entitled to be indemnified by the Corporation for such expenses pursuant to this Article VIII (it being understood that no collateral
securing or other assurance of performance of such undertaking shall be required of such Eligible Person by the Corporation) and (b) in the case of an advancement of expenses for any Eligible Person other than a present or former director of the Corporation, such other terms and conditions as the Corporation, in its sole discretion, deems appropriate.
SECTION 3. Indemnification and Advancement of Expenses to Certain Other Persons. The Corporation may from time to time grant rights to indemnification and advancement of expenses to such persons and with such scope and effect as the Board may determine, subject to applicable law.
SECTION 4. Limitations. Notwithstanding anything to the contrary set forth herein, no Eligible Person shall be entitled to any advancement of expenses for, or to indemnification from or to be held harmless by the Corporation against expenses, liabilities or losses, incurred by such Eligible Person in asserting any claim or commencing or prosecuting any proceeding (except as provided in Section 5 of this Article VIII), but such advancement of expenses and indemnification and hold harmless rights may be provided by the Corporation in any specific instance as permitted by Sections 6 or 8 of this Article VIII, or in any specific instance in which the Board or any person designated to grant such authorization pursuant to a resolution adopted by the Board first authorizes the commencement or prosecution of such a proceeding or the assertion of such a claim.
SECTION 5. Enforcement. The rights to indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall be enforceable by any person entitled to such indemnification or advancement of expenses in any court of competent jurisdiction. To the fullest extent permitted by law, if successful in whole or in part in any such proceeding, or in a proceeding brought by the Corporation to recover an advancement of expenses, the person entitled to such indemnification or advancement of expenses shall be entitled to be paid also the expense of prosecuting or defending such suit. Notice of any application to a court by any such person pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application; provided, however, that such notice shall not be required for an award of or a determination of entitlement to indemnification or advancement of expenses.
SECTION 6. Non-Exclusivity and Survival of Indemnification.
(a) The rights to indemnification and to the advancement of expenses provided by or granted pursuant to this Article VIII shall be deemed independent of, and shall not be deemed exclusive of or a limitation on, any other rights to which any person seeking indemnification or advancement of expenses may be entitled or may hereafter acquire under any statute, provision of the Certificate of Incorporation, provision of these By-Laws, agreement, vote of stockholders or of disinterested directors or otherwise, both as to such persons official capacity and as to action in another capacity while holding such office. It is the intent of the Corporation that indemnification of and advancement of expenses to Eligible Persons shall be made to the fullest extent permitted by law.
(b) The Corporations obligation, if any, to indemnify, to hold harmless, or to provide advancement of expenses to any Eligible Person who was or is serving at its request as a director, officer, employee, agent or manager of another corporation, partnership, limited liability company, joint venture, trust or other enterprise or nonprofit entity (including service with respect to an employee benefit plan) shall be reduced by any amount such Eligible Person actually collects as indemnification, holding harmless, or advancement of expenses from such other corporation, partnership, limited liability company, joint venture, trust or other enterprise nonprofit entity.(c) The rights to indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall be contract rights, and such rights shall continue as to a person who has ceased to be an Eligible Person (or in the case of any other person entitled to indemnity granted pursuant to this Article VIII, has ceased to serve the Corporation) and shall inure to the benefit of the estate, heirs, legatees, distributees, executors, administrators and other comparable legal representatives of such person. A right to indemnification or to advancement of expenses arising under any provision of this Article VIII shall not be eliminated or impaired by an amendment, alteration or repeal of any provision of these By-Laws after the occurrence of the act or omission that is the subject of the proceeding for which indemnification or advancement of expenses is sought (even in the case of a proceeding based on a state of facts that is commenced after such time).
SECTION 7. Insurance. The Corporation may, but shall not be required to, purchase and maintain insurance, at its expense, on behalf of itself and any person who is or was a director, officer, employee, agent or manager of the Corporation or any other enterprise or entity, including service with respect to an employee benefit plan, against any expense, liability or loss, whether or not the Corporation would have the power, the ability or the obligation to indemnify such person against such expense, liability or loss under the DGCL. Nothing contained in this Article VIII shall prevent the Corporation from entering into any agreement with any person that provides independent indemnification, hold harmless or exoneration rights to such person or further regulates the terms on which indemnification, hold harmless or exoneration rights are to be provided to such person or provides independent assurance of the Corporations obligation to indemnify, hold harmless and/or exonerate such person, whether or not such indemnification, hold harmless or exoneration rights are on the same or different terms than provided for by this Article VIII or is in respect of such person acting in any other capacity, and nothing contained herein shall be exclusive of, or a limitation on, any right to indemnification, to be held harmless, to exoneration or to advancement of expenses to which any person is otherwise entitled. The Corporation may create a trust fund, grant a security interest or use other means (including a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification and the advancement of expenses as provided in this Article VIII.
SECTION 8. Severability. If all or any portion of this Article VIII is invalidated or held to be unenforceable on any ground by any court of competent jurisdiction, the decision of which has not been reversed on appeal, this Article VIII shall be deemed to be modified to the minimum extent necessary to avoid a violation of law and, as so modified, shall remain valid and enforceable in accordance with its terms to the fullest extent permitted by law.
SECTION 9. Definitions. Unless otherwise noted, the phrases and terms set forth in this Article VIII shall be given the same meaning as the identical terms and phrases are given in Section 145 of the DGCL, as that Section may be amended and supplemented from time to time.
SECTION 10. Interpretation. Any reference in this Article VIII to an officer of the Corporation or to an officer of any other enterprise shall mean an officer of the Corporation appointed by the Board pursuant to these By-Laws or an officer of such other enterprise appointed by the board of directors or other governing body of such other enterprise pursuant to its governing documents, and the term officer, as used in this Article VIII shall not be deemed to include an employee or other agent of the Corporation or any such other enterprise who is not an officer thereof so appointed, regardless of whether such person has been given the title Vice President or any other title that could be construed to suggest that such person is an officer of the Corporation or such other enterprise.
ARTICLE IX
Corporate Seal
The Corporation may have a corporate seal. The corporate seal shall have inscribed thereon the name of the Corporation and the year of its incorporation, and shall be in such form and contain such other words and/or figures as the Board shall determine. The corporate seal of the Corporation in effect prior to the effectiveness of these By-Laws shall continue to be corporate seal of the Corporation until such corporate seal is replaced or otherwise modified by the Board. The corporate seal may be used by printing, engraving, lithographing, stamping or otherwise making, placing or affixing, or causing to be printed, engraved, lithographed, stamped or otherwise made, placed or affixed, upon any paper or document, by any process whatsoever, an impression, facsimile or other reproduction of said corporate seal.
ARTICLE X
Fiscal Year
The fiscal year of the Corporation shall be fixed, and shall be subject to change, by the Board. Unless otherwise fixed by the Board, the fiscal year of the Corporation shall end on September 30 in each year.
ARTICLE XI
Waiver of Notice
Whenever notice is required or permitted to be given by these By-Laws or by the Certificate of Incorporation or by law, a waiver thereof given in writing or by electronic transmission by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice.
ARTICLE XII
Bank Accounts, Drafts, Contracts, Etc.
SECTION 1. Execution of Contracts. Except as provided otherwise in these By-Laws, the Board may from time to time authorize any officer, employee, agent or representative of the Corporation, in the name and on behalf of the Corporation, to enter into any contract (which includes any deeds, bonds, mortgages or other obligations) or execute and deliver any instrument. Such authorization may be general or confined to specific instances.
SECTION 2. Checks; Drafts; Notes. All checks, drafts and other orders for the payment of moneys out of the accounts and funds of the Corporation and all notes or other evidences of indebtedness of the Corporation shall be signed in the name and on behalf of the Corporation in the manner authorized from time to time by the Board or these By-Laws.
SECTION 3. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in the banks, trust companies or other depositories selected from time to time by the Board or by an officer, employee, agent or representative of the Corporation to whom such authority may from time to time be delegated by the Board or these By-Laws. For the purpose of making such a deposit, any officer, employee, agent or representative to whom authority to make such a deposit is delegated by the Board or these By-Laws may endorse, assign and deliver checks, drafts and other orders for the payment of moneys which are payable to the order of the Corporation.
SECTION 4. Proxies; Powers of Attorney; Other Instruments. The Chairman, the CEO, the President or any other person designated by any of them shall have the power and authority to execute and deliver proxies, powers of attorney and other instruments on behalf of the Corporation in connection with the rights and powers incident to the ownership of stock or other securities of another entity by the Corporation. The Chairman, the CEO, the President or any other person authorized by proxy or power of attorney executed and delivered by any of them on behalf of the Corporation may attend and vote at any meeting of stockholders of any entity in which the Corporation may hold stock or other securities, and may exercise on behalf of the Corporation any and all of the rights and powers incident to the ownership of such stock or other securities at any such meeting, or otherwise as specified in the proxy or power of attorney so authorizing any such person. The Board, from time to time, may confer like powers upon any other person.
ARTICLE XIII
Amendments
These By-Laws, in whole or in part, may be amended or repealed and new By-Laws, in whole or in part, may be adopted as provided in the Certificate of Incorporation and applicable law.
ARTICLE XIV
Construction
The words include and including and similar terms shall be deemed to be followed by the words without limitation. Whenever used in these By-Laws, any noun or pronoun shall be deemed to include the plural as well as the singular and to cover all genders. Any reference in these By-Laws to a provision of any statute shall be deemed to include any successor provision. Unless the context otherwise requires, the term person shall be deemed to include any natural person or any corporation, organization or other entity.
ARTICLE XV
Reliance upon Books, Reports and Records
Each director, each member of any committee designated by the Board, and each officer of the Corporation shall, in the performance of such persons duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board, or by any other person as to matters that such director, committee member or officer reasonably believes are within such other persons professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.
Exhibit 3.3
FORM OF CERTIFICATE OF DESIGNATIONS
OF
[DIVIDEND RATE]% SERIES A MANDATORY CONVERTIBLE PREFERRED STOCK
OF
CLARIOS INTERNATIONAL INC.
Clarios International Inc., a Delaware corporation (the Corporation), hereby certifies that, pursuant to the provisions of Sections 103, 141 and 151 of the General Corporation Law of the State of Delaware, (a) [on [ ], 2021 [and [ ], 2021,] the board of directors of the Corporation (the Board of Directors), pursuant to authority conferred upon the Board of Directors by the Amended and Restated Certificate of Incorporation of the Corporation (as such may be amended, modified or restated from time to time, the Charter), delegated to the Pricing Committee of the Board of Directors (the Pricing Committee), the power to create, designate, authorize and provide for the issuance of shares of a new series of the Corporations undesignated preferred stock, to be designated the [Dividend Rate]% Series A Mandatory Convertible Preferred Stock, and to establish the number of shares to be included in such series, and to fix the powers, preferences and rights of the shares of such series and the qualifications, limitations and restrictions thereof; and (b) on [ ], 2021, the Pricing Committee adopted the resolution set forth immediately below, which resolution is now, and at all times since its date of adoption has been, in full force and effect]:
RESOLVED, that pursuant to the authority conferred upon the Board of Directors by the Charter, which authorizes the issuance of up to [ ] shares of preferred stock, par value $0.01 per share, a series of preferred stock be, and hereby is, created and designated [Dividend Rate]% Series A Mandatory Convertible Preferred Stock, and that the designation and number of shares of such series, and the voting powers, designations, preferences and rights, and qualifications, limitations or restrictions and other terms thereof, are as set forth in this certificate of designations, as it may be amended from time to time (this Certificate of Designations) as follows:
Part 1. Designation and Number of Shares. Pursuant to the Charter, there is hereby created out of the authorized and unissued shares of preferred stock of the Corporation, par value $0.01 per share (Preferred Stock), a series of Preferred Stock consisting of [ ] shares of Preferred Stock designated as the [Dividend Rate]% Series A Mandatory Convertible Preferred Stock (the Mandatory Convertible Preferred Stock). Such number of shares may be decreased by resolution of the Board of Directors or any duly authorized committee thereof, subject to the terms and conditions hereof and the requirements of applicable law; provided that no decrease shall reduce the number of shares of Mandatory Convertible Preferred Stock to a number less than the number of such shares then outstanding.
Part 2. Standard Provisions. The Standard Provisions contained in Annex A attached hereto are incorporated herein by reference in their entirety and shall be deemed to be a part of this Certificate of Designations to the same extent as if such provisions had been set forth in full in this Certificate of Designations.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations to be signed by [Signatory Name], its [Signatory Title], this [ ] day of [ ], 2021.
CLARIOS INTERNATIONAL INC. | ||||
By: |
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Name: | ||||
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By: |
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[Signature Page to Certificate of Designations of Mandatory Convertible Preferred Stock]
ANNEX A
STANDARD PROVISIONS
Section 1. General Matters; Ranking. Each share of Mandatory Convertible Preferred Stock shall be identical in all respects to every other share of Mandatory Convertible Preferred Stock. The Mandatory Convertible Preferred Stock, with respect to dividend rights and/or distribution rights upon the liquidation, winding-up or dissolution, as applicable, of the Corporation, shall rank (i) senior to each class or series of Junior Stock, (ii) on parity with each class or series of Parity Stock, (iii) junior to each class or series of Senior Stock and (iv) junior to the Corporations existing and future indebtedness.
Section 2. Standard Definitions. As used herein with respect to Mandatory Convertible Preferred Stock:
Accumulated Dividend Amount means, with respect to any Fundamental Change, the aggregate amount of undeclared, accumulated and unpaid dividends, if any, for Dividend Periods prior to the relevant Fundamental Change Effective Date, including for the partial Dividend Period, if any, from, and including, the Dividend Payment Date immediately preceding such Fundamental Change Effective Date to, but excluding, such Fundamental Change Effective Date, subject to the proviso in Section 9(a).
ADRs shall have the meaning set forth in Section 14.
Agent Members shall have the meaning set forth in Section 20(a).
Applicable Market Value means the Average VWAP per share of Common Stock over the Settlement Period.
Average Price shall have the meaning set forth in Section 3(c)(iii).
Average VWAP per share over a certain period means the arithmetic average of the VWAP per share for each Trading Day in the relevant period.
Averaging Period shall have the meaning set forth in Section 13(a)(v).
Board of Directors shall have the meaning set forth in the recitals.
Business Day means any day other than a Saturday or Sunday or any other day on which commercial banks in New York City are authorized or required by law or executive order to close.
By-Laws means the Amended and Restated By-Laws of the Corporation, as they may be amended or restated from time to time.
Certificate of Designations shall have the meaning set forth in the recitals.
Charter shall have the meaning set forth in the recitals.
Clause A Distribution shall have the meaning set forth in Section 13(a)(iii).
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Clause B Distribution shall have the meaning set forth in Section 13(a)(iii).
Clause C Distribution shall have the meaning set forth in Section 13(a)(iii).
close of business means 5:00 p.m., New York City time.
Common Stock means the common stock, par value $0.01 per share, of the Corporation.
Conversion and Dividend Disbursing Agent means Computershare Trust Company, N.A., the Corporations duly appointed conversion and dividend disbursing agent for Mandatory Convertible Preferred Stock, and any successor appointed under Section 15.
Conversion Date shall mean the Mandatory Conversion Date, the Fundamental Change Conversion Date or the Early Conversion Date, as applicable.
Corporation shall have the meaning set forth in the recitals.
Depositary means DTC or its nominee or any successor appointed by the Corporation.
Dividend Payment Date means [ ], [ ], [ ] and [ ] of each year to, and including, [Scheduled Mandatory Conversion Date], 2024, commencing on, and including, [ ], 2021.
Dividend Period means the period from, and including, a Dividend Payment Date to, but excluding, the next Dividend Payment Date, except that the initial Dividend Period shall commence on, and include, the Initial Issue Date and shall end on, and exclude, the [ ], 2021 Dividend Payment Date.
Dividend Rate shall have the meaning set for in Section 3(a).
DTC means The Depository Trust Company.
Early Conversion shall have the meaning set forth in Section 8(a).
Early Conversion Additional Conversion Amount shall have the meaning set forth in Section 8(b)(i).
Early Conversion Average Price shall have the meaning set forth in Section 8(b)(ii).
Early Conversion Date shall have the meaning set forth in Section 10(b).
Early Conversion Settlement Period shall have the meaning set forth in Section 8(b)(ii).
Effective Date means the first date on which the shares of Common Stock trade on the Relevant Stock Exchange, regular way, reflecting the relevant share split or share combination, as applicable.
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Ex-Date means the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the issuance, dividend or distribution in question, from the Corporation or, if applicable, from the seller of the Common Stock on such exchange or market (in the form of due bills or otherwise) as determined by such exchange or market.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
Exchange Property shall have the meaning set forth in Section 14.
Expiration Date shall have the meaning set forth in Section 13(a)(v).
Fixed Conversion Rates means the Maximum Conversion Rate and the Minimum Conversion Rate.
Floor Price shall have the meaning set forth in Section 3(e)(ii).
A Fundamental Change shall be deemed to have occurred, at any time after the Initial Issue Date of the Mandatory Convertible Preferred Stock, if any of the following occurs:
(i) | any person or group (as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable), other than the Corporation, any of its Wholly-Owned Subsidiaries, a Permitted Holder or any of the Corporations or its Wholly-Owned Subsidiaries employee benefit plans, files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of the Corporations then outstanding Common Stock; |
(ii) | the consummation of (A) any recapitalization, reclassification or change of the Common Stock (other than changes resulting from a subdivision or combination or change in par value) as a result of which the Common Stock would be converted into, or exchanged for, stock, other securities, other property or assets (including cash or a combination thereof); (B) any consolidation, merger or other combination of the Corporation or binding share exchange pursuant to which the Common Stock will be converted into, or exchanged for, stock, other securities or other property or assets (including cash or a combination thereof); or (C) any sale, lease or other transfer or disposition in one transaction or a series of transactions of all or substantially all of the consolidated assets of the Corporation and its Subsidiaries taken as a whole, to any person other than one or more of its Wholly-Owned Subsidiaries; or |
(iii) | the Common Stock (or other Exchange Property) ceases to be listed or quoted for trading on any of NYSE, the NASDAQ Global Select Market or the NASDAQ Global Market (or another U.S. national securities exchange or any of their respective successors). |
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However, a transaction or transactions described in clause (i) or clause (ii) above will not constitute a Fundamental Change if at least 90% of the consideration received or to be received by holders of Common Stock, excluding cash payments for fractional shares or pursuant to statutory appraisal rights, in connection with such transaction or transactions consists of shares of common stock that are listed or quoted on any of NYSE, the NASDAQ Global Select Market or the NASDAQ Global Market (or any of their respective successors) or will be so listed or quoted when issued or exchanged in connection with such transaction or transactions and as a result of such transaction or transactions such consideration (excluding cash payments for fractional shares or pursuant to statutory appraisal rights) becomes the Exchange Property.
Fundamental Change Conversion shall have the meaning set forth in Section 9(a)(i).
Fundamental Change Conversion Date shall have the meaning set forth in Section 10(c).
Fundamental Change Conversion Period means the period beginning on, and including, the Fundamental Change Effective Date and ending at the close of business on the date that is 20 calendar days after the Fundamental Change Effective Date (or, if later, the date that is 20 calendar days after the date of notice of such Fundamental Change), but in no event later than [Scheduled Mandatory Conversion Date], 2024.
Fundamental Change Conversion Rate means, for any Fundamental Change Conversion, the conversion rate per share of Mandatory Convertible Preferred Stock set forth in the table below for the Fundamental Change Effective Date and the Fundamental Change Share Price applicable to such Fundamental Change:
Fundamental Change Share Price | ||||||||||||||||||||||||||||||||||||||||||||||||
Fundamental Change Effective Date |
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
[ ], 2021 |
[ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | ||||||||||||||||||||||||
[ ], 2022 |
[ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | ||||||||||||||||||||||||
[ ], 2023 |
[ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | ||||||||||||||||||||||||
[ ], 2024 |
[ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] | [ | ] |
The exact Fundamental Change Share Price and Fundamental Change Effective Date may not be set forth in the table, in which case:
(i) | if the Fundamental Change Share Price is between two Fundamental Change Share Prices in the table above or the Fundamental Change Effective Date is between two Fundamental Change Effective Dates in the table above, the Fundamental Change Conversion Rate shall be determined by a straight-line interpolation between the Fundamental Change Conversion Rates set forth for the higher and lower Fundamental Change Share Prices and the earlier and later Fundamental Change Effective Dates, as applicable, based on a 365 or 366-day year, as applicable; |
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(ii) | if the Fundamental Change Share Price is in excess of $[ ] per share (subject to adjustment in the same manner as adjustments are made to the Fundamental Change Share Prices in the column headings of the table above), then the Fundamental Change Conversion Rate shall be the Minimum Conversion Rate; and |
(iii) | if the Fundamental Change Share Price is less than $[ ] per share (subject to adjustment in the same manner as adjustments are made to the Fundamental Change Share Prices in the column headings of the table above), then the Fundamental Change Conversion Rate shall be the Maximum Conversion Rate. |
The Fundamental Change Share Prices in the column headings in the table above are each subject to adjustment as of any date on which the Fixed Conversion Rates are adjusted. The adjusted Fundamental Change Share Prices shall equal (x) the Fundamental Change Share Prices applicable immediately prior to such adjustment, multiplied by (y) a fraction, the numerator of which is the Minimum Conversion Rate immediately prior to the adjustment giving rise to the Fundamental Change Share Price adjustment and the denominator of which is the Minimum Conversion Rate as so adjusted. The Fundamental Change Conversion Rates set forth in the table above are each subject to adjustment in the same manner and at the same time as each Fixed Conversion Rate as set forth in Section 13.
Fundamental Change Conversion Right shall have the meaning set forth in Section 9(a).
Fundamental Change Dividend Make-whole Amount shall have the meaning set forth in Section 9(a)(ii).
Fundamental Change Effective Date shall mean the effective date of the relevant Fundamental Change.
Fundamental Change Notice shall have the meaning set forth in Section 9(b).
Fundamental Change Share Price means, for any Fundamental Change, the price paid (or deemed paid) per share of Common Stock in the Fundamental Change, which shall equal (i) if all holders of Common Stock receive only cash in exchange for their Common Stock in such Fundamental Change, the amount of cash paid per share of Common Stock in such Fundamental Change, and (ii) in all other cases, the Average VWAP per share of Common Stock over the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the applicable Fundamental Change Effective Date.
Global Preferred Share shall have the meaning set forth in Section 20(a).
Holder means each Person in whose name shares of Mandatory Convertible Preferred Stock are registered, who shall be treated by the Corporation and the Registrar as the absolute owner of those shares of Mandatory Convertible Preferred Stock for the purpose of making payment and settling conversions and for all other purposes.
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Initial Issue Date means [Initial Issue Date], 2021, the first original issue date of shares of the Mandatory Convertible Preferred Stock.
Initial Price means $50.00, divided by the Maximum Conversion Rate, which quotient is initially equal to approximately $[ ].
Junior Stock means (i) the Common Stock and (ii) each other class or series of capital stock of the Corporation established after the Initial Issue Date, the terms of which do not expressly provide that such class or series ranks either (x) senior to the Mandatory Convertible Preferred Stock as to dividend rights or distribution rights upon the Corporations liquidation, winding-up or dissolution or (y) on parity with the Mandatory Convertible Preferred Stock as to dividend rights and distribution rights upon the Corporations liquidation, winding- up or dissolution.
Liquidation Dividend Amount shall have the meaning set forth in Section 4(a).
Liquidation Preference means, as to Mandatory Convertible Preferred Stock, $50.00 per share.
Mandatory Conversion shall have the meaning set forth in Section 7(a).
Mandatory Conversion Additional Conversion Amount shall have the meaning set forth in Section 7(c)(i).
Mandatory Conversion Date means the second Business Day immediately following the last Trading Day of the Settlement Period.
Mandatory Conversion Rate shall have the meaning set forth in Section 7(b).
Mandatory Convertible Preferred Stock shall have the meaning set forth in Part 1 of this Certificate of Designations.
Market Disruption Event means (i) a failure by the Relevant Stock Exchange to open for trading during its regular trading session; or (ii) the occurrence or existence, prior to 1:00 p.m., New York City time, on any Scheduled Trading Day for the Common Stock, for more than a one half-hour period in the aggregate during regular trading hours of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the Relevant Stock Exchange or otherwise) in the Common Stock.
Maximum Conversion Rate shall have the meaning set forth in Section 7(b)(iii).
Minimum Conversion Rate shall have the meaning set forth in Section 7(b)(i).
Nonpayment shall have the meaning set forth in Section 6(b)(i).
Nonpayment Remedy shall have the meaning set forth in Section 6(b)(iii).
NYSE means the New York Stock Exchange.
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[Officer means the Chief Executive Officer, the Chief Financial Officer, the President, any Executive Vice President, any Senior Vice President, any Vice President, any Assistant Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Corporation.]
open of business means 9:00 a.m., New York City time.
Parity Stock means any class or series of capital stock of the Corporation established after the Initial Issue Date, the terms of which expressly provide that such class or series shall rank on parity with the Mandatory Convertible Preferred Stock as to dividend rights and distribution rights upon the Corporations liquidation, winding-up or dissolution.
Permitted Holder means (a) Brookfield Business Partners, L.P. and its affiliates (including the funds, partnerships or other co-investment vehicles managed, advised or controlled by Brookfield Business Partners, L.P. or its affiliates), (b) Caisse de dépôt et placement du Québec and its affiliates (including the funds, partnerships or other co-investment vehicles managed, advised or controlled by Caisse de dépôt et placement du Québec or its affiliates) (the entities described in clauses (a) and (b), collectively, the Investors) and (c) any person or entity with whom one or more of the Investors form(s) a group (as such term is used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable); provided that no such entity or person shall constitute a Permitted Holder if all such entities and persons, collectively, have, directly or indirectly, beneficial ownership of more than [ ]% of the total voting power of the Corporations then outstanding Common Stock.
Person means any individual, partnership, firm, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature.
Preferred Stock shall have the meaning set forth in Part 1 of this Certificate of Designations.
Preferred Stock Directors shall have the meaning set forth in Section 6(b)(i).
Pricing Committee shall have the meaning set forth in the recitals.
Prospectus means the preliminary prospectus dated [ ], 2021 relating to the offering and sale of the Mandatory Convertible Preferred Stock.
Record Date means, with respect to any dividend, distribution or other transaction or event in which the holders of the Common Stock (or other applicable security) have the right to receive any cash, securities or other property or in which the Common Stock (or such other security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of holders of the Common Stock (or such other security) entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or a duly authorized committee thereof, statute, contract or otherwise).
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Record Holder means, with respect to any Dividend Payment Date, a Holder of record of the Mandatory Convertible Preferred Stock as such Holder appears on the stock register of the Corporation at the close of business on the related Regular Record Date.
Registrar initially means Computershare Trust Company, N.A., the Corporations duly appointed registrar for Mandatory Convertible Preferred Stock and any successor appointed under Section 15.
Regular Record Date means, with respect to any Dividend Payment Date, the [ ], [ ], [ ] and [ ], as the case may be, immediately preceding the relevant Dividend Payment Date. These Regular Record Dates shall apply regardless of whether a particular Regular Record Date is a Business Day.
Relevant Stock Exchange means NYSE or, if the Common Stock is not then listed on NYSE, the principal other U.S. national or regional securities exchange on which the Common Stock is then listed or, if the Common Stock is not then listed on a U.S. national or regional securities exchange, the principal other market on which the Common Stock is then listed or admitted for trading.
Reorganization Event shall have the meaning set forth in Section 14.
Scheduled Trading Day means any day that is scheduled to be a Trading Day.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
Senior Stock means each class or series of capital stock of the Corporation established after the Initial Issue Date, the terms of which expressly provide that such class or series shall rank senior to the Mandatory Convertible Preferred Stock as to dividend rights or distribution rights upon the Corporations liquidation, winding-up or dissolution.
Settlement Period means the 20 consecutive Trading Day period commencing on, and including, the 21st Scheduled Trading Day immediately preceding [Scheduled Mandatory Conversion Date], 2024.
Share Dilution Amount means the increase in the number of diluted shares of Common Stock outstanding (determined in accordance with U.S. generally accepted accounting principles, and as measured from the Initial Issue Date) resulting from the grant, vesting or exercise of equity-based compensation to directors, employees and agents and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.
Shelf Registration Statement means a shelf registration statement filed with the Securities and Exchange Commission in connection with the issuance of, or for resales of, shares of Common Stock issued as payment of a dividend on shares of the Mandatory Convertible Preferred Stock, including dividends paid in connection with a conversion.
Spin-Off means a payment of a dividend or other distribution on the Common Stock of shares of capital stock of any class or series, or similar equity interest, of or relating to a
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Subsidiary or other business unit of the Corporation that are, or, when issued, will be, listed or admitted for trading on a U.S. national securities exchange.
Subsidiary means, with respect to any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of capital stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, general partners or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person; (ii) such Person and one or more Subsidiaries of such Person; or (iii) one or more Subsidiaries of such Person.
Threshold Appreciation Price means $50.00, divided by the Minimum Conversion Rate, which quotient is initially equal to approximately $[ ].
Trading Day means a day on which (i) there is no Market Disruption Event and (ii) trading in Common Stock generally occurs on the Relevant Stock Exchange; provided that if the Common Stock is not listed or admitted for trading, Trading Day means a Business Day.
Transfer Agent shall initially mean Computershare Trust Company, N.A., the Corporations duly appointed transfer agent for Mandatory Convertible Preferred Stock and any successor appointed under Section 15.
Trigger Event shall have the meaning set forth in Section 13(a)(iii).
Unit of Exchange Property shall have the meaning set forth in Section 14.
Valuation Period shall have the meaning set forth in Section 13(a)(iii).
Voting Preferred Stock means any class or series of Preferred Stock (other than the Mandatory Convertible Preferred Stock) ranking equally with the Mandatory Convertible Preferred Stock as to dividends and to the distribution of assets upon liquidation, dissolution or winding up and upon which like voting rights for the election of directors have been conferred and are exercisable.
VWAP per share of Common Stock on any Trading Day means the per share volume-weighted average price as displayed on Bloomberg page BTRY<EQUITY>AQR (or its equivalent successor if such page is not available) in respect of the period from the scheduled open of trading until the scheduled close of trading of the primary trading session on such Trading Day (or if such volume-weighted average price is not available, the market value per share of Common Stock on such Trading Day as determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained by the Corporation for this purpose).
Wholly-Owned Subsidiary means, with respect to any Person, any Subsidiary of such Person, except that, solely for purposes of this definition, the reference to more than 50% in the definition of Subsidiary shall be deemed to be replaced by a reference to 100%.
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Section 3. Dividends.
(a) Rate. Subject to the rights of holders of any class or series of Senior Stock, Holders shall be entitled to receive, when, as and if declared by the Board of Directors (or an authorized committee thereof) out of funds of the Corporation legally available for payment, in the case of dividends paid in cash, and shares of Common Stock legally permitted to be issued, in the case of dividends paid in shares of Common Stock, cumulative dividends at the rate per annum of [Dividend Rate]% of the Liquidation Preference per share of Mandatory Convertible Preferred Stock (the Dividend Rate) (equivalent to $[ ] per annum per share), payable in cash, by delivery of shares of Common Stock or through any combination of cash and shares of Common Stock pursuant to Section 3(c), as determined by the Corporation in its sole discretion (subject to the limitations set forth in Section 3(e)).
If declared, dividends on Mandatory Convertible Preferred Stock shall be payable quarterly on each Dividend Payment Date at such annual rate, and dividends shall accumulate from the most recent date as to which dividends shall have been paid or, if no dividends have been paid, from the Initial Issue Date, whether or not in any Dividend Period or Dividend Periods there have been funds legally available or shares of Common Stock legally permitted for the payment of such dividends.
If declared, dividends shall be payable on the relevant Dividend Payment Date to Record Holders on the immediately preceding Regular Record Date, whether or not such Record Holders early convert their shares of Mandatory Convertible Preferred Stock, or such shares are automatically converted, after a Regular Record Date and on or prior to the immediately succeeding Dividend Payment Date. If a Dividend Payment Date is not a Business Day, payment shall be made on the next succeeding Business Day, without any interest or other payment in lieu of interest accruing with respect to this delay.
The amount of dividends payable on each share of Mandatory Convertible Preferred Stock for each full Dividend Period (subsequent to the initial Dividend Period) shall be computed by dividing the Dividend Rate by four. Dividends payable on Mandatory Convertible Preferred Stock for the initial Dividend Period and any other partial Dividend Period shall be computed based upon the actual number of days elapsed during such period over a 360-day year (consisting of twelve 30-day months). Accumulated dividends on shares of the Mandatory Convertible Preferred Stock shall not bear interest, nor shall additional dividends be payable thereon, if they are paid subsequent to the applicable Dividend Payment Date.
No dividend shall be paid unless and until the Board of Directors, or an authorized committee of the Board of Directors, declares a dividend payable with respect to the Mandatory Convertible Preferred Stock. No dividend shall be declared or paid upon, or any sum of cash or number of shares of Common Stock set apart for the payment of dividends upon, any outstanding shares of Mandatory Convertible Preferred Stock with respect to any Dividend Period unless all dividends for all preceding Dividend Periods have been declared and paid upon, or a sufficient sum of cash or number of shares of Common Stock have been set apart for the payment of such dividends upon, all outstanding shares of Mandatory Convertible Preferred Stock.
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Holders shall not be entitled to any dividends on Mandatory Convertible Preferred Stock, whether payable in cash, property or shares of Common Stock, in excess of full cumulative dividends.
Except as described in this Section 3(a), dividends on shares of Mandatory Convertible Preferred Stock converted to Common Stock shall cease to accumulate, and all other rights of Holders shall terminate, from and after the applicable Conversion Date.
(b) Priority of Dividends. So long as any share of Mandatory Convertible Preferred Stock remains outstanding, no dividend or distribution shall be declared or paid on Common Stock or any other class or series of Junior Stock, and no Common Stock or any other class or series of Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by the Corporation or any of its Subsidiaries unless, in each case, all accumulated and unpaid dividends for all preceding Dividend Periods have been declared and paid in full in cash, shares of the Common Stock or a combination thereof upon, or a sufficient sum of cash or number of shares of Common Stock has been set apart for the payment of such dividends upon, all outstanding shares of Mandatory Convertible Preferred Stock. The foregoing limitation shall not apply to:
(i) any dividend or distribution payable in shares of Common Stock or other Junior Stock;
(ii) purchases, redemptions or other acquisitions of Common Stock, other Junior Stock or Parity Stock in connection with the administration of any benefit or other incentive plan, including any employment contract, in the ordinary course of business (including purchases to offset the Share Dilution Amount pursuant to a publicly announced repurchase plan, or acquisitions of shares of Common Stock surrendered, deemed surrendered or withheld in connection with the exercise of stock options or the vesting of restricted stock or restricted stock units); provided that the number of shares purchased to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount;
(iii) purchases of Common Stock pursuant to a contractually binding agreement to buy such securities that existed prior to the date of the Prospectus;
(iv) any dividends or distributions of rights or Common Stock or other Junior Stock in connection with a stockholders rights plan or any redemption or repurchase of rights pursuant to any stockholders rights plan;
(v) the exchange or conversion of Junior Stock for or into other Junior Stock or of Parity Stock for or into other Parity Stock (with the same or lesser aggregate liquidation preference) or Junior Stock and, in each case, the payment of cash solely in lieu of fractional shares; and
(vi) the deemed purchase or acquisition of fractional interests in shares of Common Stock, other Junior Stock or Parity Stock pursuant to the conversion or exchange provisions of such shares or the security being converted or exchanged.
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When dividends on shares of the Mandatory Convertible Preferred Stock (i) have not been declared and paid in full on any Dividend Payment Date, or (ii) have been declared but a sum of cash or number of shares of Common Stock sufficient for payment thereof has not been set aside for the benefit of the Holders thereof on the applicable Regular Record Date, no dividends may be declared or paid on any shares of Parity Stock unless dividends are declared on the shares of Mandatory Convertible Preferred Stock such that the respective amounts of such dividends declared on the shares of Mandatory Convertible Preferred Stock and such shares of Parity Stock shall be allocated pro rata among the Holders of the shares of the Mandatory Convertible Preferred Stock and the holders of any shares of Parity Stock then outstanding. For purposes of calculating the pro rata allocation of partial dividend payments, the Corporation shall allocate those payments so that the respective amounts of those payments for the declared dividend bear the same ratio to each other as all accumulated dividends and all declared and unpaid dividends per share on the shares of Mandatory Convertible Preferred Stock and such shares of Parity Stock bear to each other (subject to their having been declared by the Board of Directors, or an authorized committee thereof, out of legally available funds); provided that any unpaid dividends on the Mandatory Convertible Preferred Stock will continue to accumulate except as otherwise provided in this Certificate of Designations. For purposes of this calculation, with respect to non-cumulative Parity Stock, the Corporation shall use the full amount of dividends that would be payable for the most recent dividend period if dividends were declared in full on such non-cumulative Parity Stock.
Subject to the foregoing, and not otherwise, such dividends as may be determined by the Board of Directors (or an authorized committee thereof) may be declared and paid (payable in cash or other property or securities) on any securities, including Common Stock and other Junior Stock, from time to time out of any funds legally available for such payment, and Holders shall not be entitled to participate in any such dividends.
(c) Method of Payment of Dividends. (i) Subject to the limitations set forth in Section 3(e), the Corporation may pay any declared dividend (or any portion of any declared dividend) on the shares of Mandatory Convertible Preferred Stock, whether or not for a current Dividend Period or any prior Dividend Period, as determined in the Corporations sole discretion:
(A) in cash;
(B) by delivery of shares of Common Stock; or
(C) through any combination of cash and shares of Common Stock.
(ii) The Corporation shall make each payment of a declared dividend on the shares of Mandatory Convertible Preferred Stock in cash, except to the extent the Corporation elects to make all or any portion of such payment in shares of Common Stock. The Corporation shall give notice to Holders of any such election, and the portion of such payment that will be made in cash and the portion that will be made in shares of Common Stock, no later than 10 Scheduled Trading Days prior to the Dividend Payment Date for such dividend, provided that if the Corporation does not provide timely notice of
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this election, the Corporation will be deemed to have elected to pay the relevant dividend in cash.
(iii) All cash payments to which a Holder is entitled in connection with a declared dividend on the shares of Mandatory Convertible Preferred Stock will be computed to the nearest cent. If the Corporation elects to make any such payment of a declared dividend, or any portion thereof, in shares of Common Stock, such shares shall be valued for such purpose, in the case of any dividend payment or portion thereof, at 97% of the Average VWAP per share of Common Stock over the five consecutive Trading Day period beginning on, and including, the sixth Scheduled Trading Day prior to the applicable Dividend Payment Date (such Average VWAP, the Average Price). If the five Trading Day period to determine the Average Price ends on or after the relevant Dividend Payment Date (whether because a Scheduled Trading Day is not a Trading Day due to the occurrence of a Market Disruption Event or otherwise), then the Dividend Payment Date will be postponed until the second Business Day after the final Trading Day of such five Trading Day period, provided that no interest or other amounts will accrue or accumulate as a result of such postponement.
(d) No fractional shares of Common Stock shall be delivered to the Holders in payment or partial payment of dividends. A cash adjustment (computed to the nearest cent) shall instead be paid by the Corporation to each Holder that would otherwise be entitled to receive a fraction of a share of Common Stock based on the Average Price with respect to such dividend.
(e) Notwithstanding the foregoing, in no event shall the number of shares of Common Stock to be delivered in connection with any declared dividend, including any declared dividend payable in connection with a conversion, exceed a number equal to:
(i) the declared dividend, divided by
(ii) $[ ], subject to adjustment in a manner inversely proportional to any anti-dilution adjustment to each Fixed Conversion Rate as provided in Section 13 (such dollar amount, as adjusted, the Floor Price).
To the extent that the amount of any declared dividend exceeds the product of (x) the number of shares of Common Stock delivered in connection with such declared dividend and (y) 97% of the Average Price, the Corporation shall, if it is legally able to do so, and to the extent permitted under the terms of the documents governing the Corporations indebtedness, notwithstanding any notice by the Corporation to the contrary, pay such excess amount in cash (computed to the nearest cent). To the extent that the Corporation is not able to pay such excess amount in cash under applicable law and in compliance with its indebtedness, the Corporation shall not have any obligation to pay such amount in cash or deliver additional shares of Common Stock in respect of such amount.
(f) To the extent that a Shelf Registration Statement is required in the Corporations reasonable judgment in connection with the issuance of, or for resales of, shares of Common Stock issued as payment of a dividend on the shares of Mandatory Convertible Preferred Stock, including dividends paid in connection with a conversion, the Corporation shall,
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to the extent such a Shelf Registration Statement is not currently filed and effective, use its commercially reasonable efforts to file and maintain the effectiveness of such a Shelf Registration Statement until the earlier of such time as all such shares of Common Stock have been resold thereunder and such time as all such shares are freely tradable without registration by holders thereof that are not (and were not at any time during the preceding three months), affiliates of the Corporation for purposes of the Securities Act. To the extent applicable, the Corporation shall also use its commercially reasonable efforts to have such shares of the Common Stock approved for listing on NYSE (or if the Common Stock is not listed on NYSE, on the principal other U.S. national or regional securities exchange on which the Common Stock is then listed), and qualified or registered under applicable state securities laws, if required; provided that the Corporation will not be required to qualify as a foreign corporation or to take any action that would subject it to general service of process in any such jurisdiction where it is not presently qualified or where it is not presently subject to taxation as a foreign corporation and such qualification or action would subject it to such taxation.
Section 4. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation, winding-up or dissolution of the Corporation, each Holder shall be entitled to receive, per share of Mandatory Convertible Preferred Stock, the Liquidation Preference of $50.00 per share of Mandatory Convertible Preferred Stock, plus an amount (the Liquidation Dividend Amount) equal to accumulated and unpaid dividends on such share, whether or not declared, to, but excluding, the date fixed for liquidation, winding-up or dissolution to be paid out of the assets of the Corporation legally available for distribution to its stockholders, after satisfaction of debt and other liabilities owed to the Corporations creditors and holders of shares of any Senior Stock and before any payment or distribution is made to holders of any Junior Stock, including, without limitation, Common Stock.
(b) If, upon the voluntary or involuntary liquidation, winding-up or dissolution of the Corporation, the amounts payable with respect to (1) the Liquidation Preference plus the Liquidation Dividend Amount on the shares of the Mandatory Convertible Preferred Stock and (2) the liquidation preference of, and the amount of accumulated and unpaid dividends (to, but excluding, the date fixed for liquidation, winding-up or dissolution) on, all Parity Stock, if applicable, are not paid in full, the Holders and all holders of any such Parity Stock shall share equally and ratably in any distribution of the Corporations assets in proportion to their respective liquidation preferences and amounts equal to the accumulated and unpaid dividends to which they are entitled.
(c) After the payment to any Holder of the full amount of the Liquidation Preference and the Liquidation Dividend Amount for such Holders shares of Mandatory Convertible Preferred Stock, such Holder as such shall have no right or claim to any of the remaining assets of the Corporation.
(d) Neither the sale, lease nor exchange of all or substantially all of the Corporations assets or business (other than in connection with the liquidation, winding-up or dissolution of the Corporation), nor its merger or consolidation into or with any other Person,
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shall be deemed to be the voluntary or involuntary liquidation, winding-up or dissolution of the Corporation.
Section 5. No Redemption; No Sinking Fund.
The Mandatory Convertible Preferred Stock shall not be subject to any redemption, sinking fund or other similar provisions. However, at the Corporations option, it may purchase or exchange the Mandatory Convertible Preferred Stock from time to time in the open market, by tender or exchange offer or otherwise, without the consent of, or notice to, Holders.
Section 6. Voting Rights.
(a) General. Holders shall not have any voting rights other than those set forth in this Section 6, except as specifically required by Delaware corporate law or by the Charter from time to time.
(b) Right to Elect Two Directors Upon Nonpayment. (i) Whenever dividends on any shares of the Mandatory Convertible Preferred Stock have not been declared and paid for the equivalent of six or more Dividend Periods, whether or not for consecutive Dividend Periods (a Nonpayment), the authorized number of directors on the Board of Directors shall, at the Corporations next annual meeting of the stockholders or at a special meeting of stockholders, if any, as provided below, automatically be increased by two and Holders, voting together as a single class with holders of any and all other series of Voting Preferred Stock then outstanding, shall be entitled, at the Corporations next annual meeting of stockholders or at a special meeting of stockholders as provided below, to vote for the election of a total of two additional members of the Board of Directors (the Preferred Stock Directors); provided that the election of any such Preferred Stock Directors will not cause the Corporation to violate the corporate governance requirements of NYSE (or any other exchange or automated quotation system on which the Corporations securities may be listed or quoted) that requires listed or quoted companies to have a majority of independent directors; and provided further that the Board of Directors shall, at no time, include more than two Preferred Stock Directors.
(ii) In the event of a Nonpayment, the holders of record of at least 25% of the shares of the Mandatory Convertible Preferred Stock and any other series of Voting Preferred Stock may request that a special meeting of stockholders be called to elect such Preferred Stock Directors (provided, however, that if the next annual or a special meeting of stockholders is scheduled to be held within 90 days of the receipt of such request, the election of such Preferred Stock Directors shall be included in the agenda for, and shall be held at, such scheduled annual or special meeting of stockholders). The Preferred Stock Directors shall stand for reelection annually, at each subsequent annual meeting of the stockholders, so long as the Holders continue to have such voting rights. At any meeting at which the Holders are entitled to elect Preferred Stock Directors, the holders of record of a majority of the then outstanding shares of Mandatory Convertible Preferred Stock and all other series of Voting Preferred Stock, present in person or represented by proxy, shall constitute a quorum and the vote of the holders of a majority of such shares of Mandatory Convertible Preferred Stock and other Voting Preferred Stock so present or represented by proxy at any such meeting at which there shall be a quorum shall be
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sufficient to elect the Preferred Stock Directors. Whether a plurality, majority or other portion in voting power of Mandatory Convertible Preferred Stock and any other Voting Preferred Stock have been voted in favor of any matter shall be determined by reference to the respective liquidation preference amounts of the Mandatory Convertible Preferred Stock and such other Voting Preferred Stock voted.
(iii) If and when all accumulated and unpaid dividends on the Mandatory Convertible Preferred Stock have been paid in full, or declared and a sum or number of shares of the Common Stock sufficient for such payment shall have been set aside for the benefit of the Holders thereof on the applicable Regular Record Date (a Nonpayment Remedy), the Holders shall immediately and, without any further action by the Corporation, be divested of the voting rights described in this Section 6(b), subject to the revesting of such rights in the event of each subsequent Nonpayment. If such voting rights for the Holders and all other holders of Voting Preferred Stock shall have terminated, each Preferred Stock Director then in office shall be automatically disqualified as a director and shall no longer be a director and the term of office of each such Preferred Stock Director so elected shall terminate at such time and the authorized number of directors on the Board of Directors shall automatically decrease by two.
(iv) Any Preferred Stock Director may be removed at any time, with or without cause, by the holders of record of a majority in voting power of the outstanding shares of the Mandatory Convertible Preferred Stock and any other series of Voting Preferred Stock then outstanding (voting together as a single class), when they have the voting rights described in this Section 6(b). In the event that a Nonpayment shall have occurred and there shall not have been a Nonpayment Remedy, any vacancy in the office of a Preferred Stock Director (other than prior to the initial election of Preferred Stock Directors after a Nonpayment) may be filled by the written consent of the Preferred Stock Director remaining in office, except in the event that such vacancy is created as a result of such Preferred Stock Director being removed, or if no Preferred Stock Director remains in office, such vacancy may be filled by a vote of the holders of record of a majority in voting power of the outstanding shares of Mandatory Convertible Preferred Stock and any other series of Voting Preferred Stock then outstanding (voting together as a single class) when they have the voting rights described in this Section 6(b); provided that the election of any such Preferred Stock Directors to fill such vacancy will not cause the Corporation to violate the corporate governance requirements of NYSE (or any other exchange or automated quotation system on which the Corporations securities may be listed or quoted) that requires listed or quoted companies to have a majority of independent directors. The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the Board of Directors for a vote.
(c) Other Voting Rights. So long as any shares of the Mandatory Convertible Preferred Stock are outstanding, in addition to any other vote or consent of stockholders required by law or by the Charter, the Corporation shall not, without the affirmative vote or consent of the holders of record of at least two-thirds in voting power of the outstanding shares of the Mandatory Convertible Preferred Stock and all other series of Voting Preferred Stock at the time outstanding and entitled to vote thereon (subject to the last paragraph of this Section 6(c)), voting
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together as a single class, given in person or by proxy, either in writing without a meeting or by vote at an annual or special meeting of such stockholders:
(i) amend or alter the provisions of the Charter so as to authorize or create, or increase the authorized amount of, any class or series of Senior Stock;
(ii) amend, alter or repeal the provisions of the Charter or this Certificate of Designations so as to adversely affect the special rights, preferences, privileges or voting powers of the Mandatory Convertible Preferred Stock; or
(iii) consummate a binding share exchange or reclassification involving the Mandatory Convertible Preferred Stock or a merger or consolidation of the Corporation with another entity, unless in each case: (i) the shares of the Mandatory Convertible Preferred Stock remain outstanding and are not amended in any respect or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity (or the Mandatory Convertible Preferred Stock is otherwise exchanged or reclassified), are converted or reclassified into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent or the right to receive such securities; and (ii) the shares of the Mandatory Convertible Preferred Stock remaining outstanding or such shares of preference securities, as the case may be, have such rights, preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the Mandatory Convertible Preferred Stock immediately prior to the consummation of such transaction, taken as a whole;
provided, however, that in the event a transaction would trigger voting rights under both of clauses (ii) and (iii) above, clause (iii) shall govern; provided, further, however, that for all purposes of this Section 6(c):
(1) any increase in the amount of the Corporations authorized but unissued shares of Preferred Stock,
(2) any increase in the amount of the Corporations authorized or issued shares of Mandatory Convertible Preferred Stock, and
(3) the creation and issuance, or an increase in the authorized or issued amount, of any other series of Parity Stock or Junior Stock,
in each case, shall be deemed not to adversely affect the special rights, preferences, privileges or voting powers of the Mandatory Convertible Preferred Stock and shall not require the affirmative vote or consent of Holders.
If any amendment, alteration, repeal, share exchange, reclassification, merger or consolidation specified in this Section 6(c) would affect the rights, preferences or voting rights of one or more but not all series of Voting Preferred Stock (including the Mandatory Convertible Preferred Stock for this purpose), then only the series of Voting Preferred Stock, the rights, preferences or voting rights of which are adversely affected and entitled to vote, shall vote as a class in lieu of all other series of Voting Preferred Stock.
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(d) Notwithstanding anything to the contrary in Section 6(c), without the consent of the Holders, the Corporation may amend, alter, supplement or repeal any terms of this Certificate of Designations and/or the Mandatory Convertible Preferred Stock to:
(i) conform the terms of this Certificate of Designations and/or the Mandatory Convertible Preferred Stock to the description thereof set forth in the Description of Mandatory Convertible Preferred Stock section of the Prospectus, as supplemented and/or amended by the related pricing term sheet; or
(ii) file a certificate of correction with respect to this Certificate of Designations to the extent permitted by Section 103(f) of the Delaware General Corporation Law.
(e) Prior to the close of business on the applicable Conversion Date, the shares of Common Stock issuable upon conversion of the Mandatory Convertible Preferred Stock shall not be deemed to be outstanding for any purpose and Holders shall have no rights, powers or preferences with respect to such shares of Common Stock, including voting rights (including the right to vote on any amendment to the Charter or this Certificate of Designations that would adversely affect the rights, powers or preferences of the Common Stock), rights to respond to tender offers for the Common Stock and rights to receive any dividends or other distributions on the Common Stock, by virtue of holding the Mandatory Convertible Preferred Stock.
(f) The number of votes that each share of Mandatory Convertible Preferred Stock and any Voting Preferred Stock participating in the votes set forth in this Section 6 shall have shall be in proportion to the liquidation preference of such share.
(g) The rules and procedures for calling and conducting any meeting of the Holders (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other procedural aspect or matter with regard to such a meeting or such consents shall be governed by any rules the Board of Directors (or an authorized committee thereof), in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Charter, the By-Laws, applicable law and the rules of any national securities exchange or other trading facility on which the Mandatory Convertible Preferred Stock is listed or traded at the time.
Section 7. Mandatory Conversion on the Mandatory Conversion Date.
(a) Each outstanding share of Mandatory Convertible Preferred Stock shall automatically convert (unless previously converted in accordance with Section 8 or Section 9) on the Mandatory Conversion Date (Mandatory Conversion), into a number of shares of Common Stock equal to the Mandatory Conversion Rate.
(b) The Mandatory Conversion Rate shall, subject to adjustment in accordance with Section 7(c), be as follows:
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(i) if the Applicable Market Value is greater than the Threshold Appreciation Price, then the Mandatory Conversion Rate shall be equal to [ ] shares of Common Stock per share of Mandatory Convertible Preferred Stock (the Minimum Conversion Rate);
(ii) if the Applicable Market Value is less than or equal to the Threshold Appreciation Price but equal to or greater than the Initial Price, then the Mandatory Conversion Rate shall be equal to $50.00 divided by the Applicable Market Value, rounded to the nearest ten-thousandth of a share of Common Stock; or
(iii) if the Applicable Market Value is less than the Initial Price, then the Mandatory Conversion Rate shall be equal to [ ] shares of Common Stock per share of Mandatory Convertible Preferred Stock (the Maximum Conversion Rate);
provided that the Fixed Conversion Rates are each subject to adjustment in accordance with the provisions of Section 13.
(c) If the Corporation declares a dividend on the Mandatory Convertible Preferred Stock for the Dividend Period ending on, but excluding, [Scheduled Mandatory Conversion Date], 2024, the Corporation shall pay such dividend to the Record Holders as of the immediately preceding Regular Record Date, in accordance with Section 3 and subject to the limitations set forth therein. If on or prior to [Scheduled Mandatory Conversion Date], 2024, the Corporation has not declared all or any portion of the accumulated and unpaid dividends on the Mandatory Convertible Preferred Stock through [Scheduled Mandatory Conversion Date], 2024, the Mandatory Conversion Rate shall be adjusted so that Holders receive an additional number of shares of Common Stock equal to:
(i) the amount of such accumulated and unpaid dividends per share of Mandatory Convertible Preferred Stock that have not been declared (the Mandatory Conversion Additional Conversion Amount), divided by
(ii) the greater of (x) the Floor Price and (y) 97% of the Average Price (calculated using [Scheduled Mandatory Conversion Date], 2024 as the applicable Dividend Payment Date).
To the extent that the Mandatory Conversion Additional Conversion Amount exceeds the product of such number of additional shares of Common Stock and 97% of the Average Price, the Corporation shall, if it is legally able to do so, and to the extent permitted under the terms of the documents governing its indebtedness, declare and pay such excess amount in cash (computed to the nearest cent) pro rata to the Holders. To the extent that the Corporation is not able to pay such excess amount in cash under applicable law and in compliance with its indebtedness, the Corporation shall not have any obligation to pay such amount in cash or deliver additional shares of Common Stock in respect of such amount.
Section 8. Early Conversion at the Option of the Holder.
(a) Other than during a Fundamental Change Conversion Period, subject to satisfaction of the conversion procedures set forth in Section 10, the Holders shall have the
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option to convert their Mandatory Convertible Preferred Stock, in whole or in part (but in no event less than one share of Mandatory Convertible Preferred Stock), at any time prior to [Scheduled Mandatory Conversion Date], 2024 (an Early Conversion), into shares of Common Stock at the Minimum Conversion Rate, subject to adjustment in accordance with Section 8(b).
(b) If, as of any Early Conversion Date, the Corporation has not declared all or any portion of the accumulated and unpaid dividends for all full Dividend Periods ending on or before a Dividend Payment Date prior to such Early Conversion Date, the Minimum Conversion Rate shall be adjusted, with respect to the relevant Early Conversion, so that the Holders converting their Mandatory Convertible Preferred Stock at such time receive an additional number of shares of Common Stock equal to:
(i) such amount of accumulated and unpaid dividends per share of Mandatory Convertible Preferred Stock that have not been declared for such prior full Dividend Periods (the Early Conversion Additional Conversion Amount), divided by
(ii) the greater of (x) the Floor Price and (y) the Average VWAP per share of Common Stock over the 20 consecutive Trading Day period (the Early Conversion Settlement Period) commencing on, and including, the 21st Scheduled Trading Day immediately preceding the Early Conversion Date (such Average VWAP, the Early Conversion Average Price).
To the extent that the Early Conversion Additional Conversion Amount exceeds the product of such number of additional shares of Common Stock and the Early Conversion Average Price, the Corporation shall not have any obligation to pay the shortfall in cash or deliver shares of Common Stock in respect of such shortfall.
Except as set forth in the first sentence of this Section 8(b), upon any Early Conversion of any shares of Mandatory Convertible Preferred Stock, the Corporation shall make no payment or allowance for unpaid dividends on such shares of the Mandatory Convertible Preferred Stock, unless such Early Conversion Date occurs after the Regular Record Date for a declared dividend and on or prior to the immediately succeeding Dividend Payment Date, in which case the Corporation shall pay such dividend on such Dividend Payment Date to the Record Holder of the converted shares of the Mandatory Convertible Preferred Stock as of such Regular Record Date, in accordance with Section 3.
Section 9. Fundamental Change Conversion.
(a) If a Fundamental Change occurs on or prior to [Scheduled Mandatory Conversion Date], 2024, the Holders shall have the right (the Fundamental Change Conversion Right) during the Fundamental Change Conversion Period to:
(i) convert their shares of Mandatory Convertible Preferred Stock, in whole or in part (but in no event less than one share of Mandatory Convertible Preferred Stock) (any such conversion pursuant to this Section 9(a) being a Fundamental Change Conversion) into a number of shares of Common Stock (or Units of Exchange Property in accordance with Section 14) equal to the Fundamental Change Conversion Rate per share of Mandatory Convertible Preferred Stock;
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(ii) with respect to such converted shares of Mandatory Convertible Preferred Stock, receive an amount equal to the present value, calculated using a discount rate of [Dividend Rate]% per annum, of all dividend payments on such shares (excluding any Accumulated Dividend Amount) for (a) the partial Dividend Period, if any, from, and including, the Fundamental Change Effective Date to, but excluding, the next Dividend Payment Date and (b) all the remaining full Dividend Periods from, and including, the Dividend Payment Date following the Fundamental Change Effective Date to, but excluding, [Scheduled Mandatory Conversion Date], 2024 (the Fundamental Change Dividend Make-whole Amount), payable in cash or shares of Common Stock in accordance with Section 9(d)(i); and
(iii) with respect to such converted shares of Mandatory Convertible Preferred Stock, receive the Accumulated Dividend Amount, payable in cash or shares of Common Stock in accordance with Section 9(d)(ii),
subject in the case of clauses (ii) and (iii) to the limitations with respect to the number of shares of Common Stock the Corporation shall be required to deliver as set forth in Section 9(d); provided that, if the Fundamental Change Effective Date or the Fundamental Change Conversion Date falls after the Regular Record Date for a declared dividend and prior to the next Dividend Payment Date, the Corporation shall pay such dividend on such Dividend Payment Date to the Record Holders as of such Regular Record Date, in accordance with Section 3, and such dividend shall not be included in the Accumulated Dividend Amount, and the Fundamental Change Dividend Make-whole Amount shall not include the present value of the payment of such dividend.
(b) To exercise the Fundamental Change Conversion Right, Holders must submit their shares of Mandatory Convertible Preferred Stock for conversion at any time during the Fundamental Change Conversion Period. Holders that submit their shares of Mandatory Convertible Preferred Stock during the Fundamental Change Conversion Period shall be deemed to have exercised their Fundamental Change Conversion Right. Holders who do not submit their shares for conversion during the Fundamental Change Conversion Period shall not be entitled to convert their Mandatory Convertible Preferred Stock at the relevant Fundamental Change Conversion Rate or to receive the relevant Fundamental Change Dividend Make-whole Amount or the relevant Accumulated Dividend Amount.
The Corporation shall provide written notice (the Fundamental Change Notice) to Holders of the Fundamental Change Effective Date as soon as reasonably practicable and in any event no later than the second Business Day immediately following the actual Fundamental Change Effective Date. The Fundamental Change Notice shall state:
(i) the event causing the Fundamental Change;
(ii) the anticipated Fundamental Change Effective Date or actual Fundamental Change Effective Date, as the case may be;
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(iii) that Holders shall have the right to effect a Fundamental Change Conversion in connection with such Fundamental Change during the Fundamental Change Conversion Period;
(iv) the Fundamental Change Conversion Period; and
(v) the instructions a Holder must follow to effect a Fundamental Change Conversion in connection with such Fundamental Change.
(c) As soon as reasonably practicable and in any event no later than the second Business Day following the Fundamental Change Effective Date, the Corporation shall notify Holders of:
(i) the Fundamental Change Conversion Rate (if notice is provided to Holders prior to the anticipated Fundamental Change Effective Date, specifying how the Fundamental Change Conversion Rate will be determined);
(ii) the Fundamental Change Dividend Make-whole Amount and whether the Corporation will pay such amount in cash, shares of Common Stock (or to the extent applicable, Units of Exchange Property) or a combination thereof, specifying the combination, if applicable; and
(iii) the Accumulated Dividend Amount as of the Fundamental Change Effective Date and whether the Corporation will pay such amount in cash, shares of Common Stock (or to the extent applicable, Units of Exchange Property) or a combination thereof, specifying the combination, if applicable.
(d) (i) For any shares of the Mandatory Convertible Preferred Stock that are converted during the Fundamental Change Conversion Period, in addition to the Common Stock issued upon conversion at the Fundamental Change Conversion Rate, the Corporation shall at its option (subject to satisfaction of the requirements of this Section):
(A) pay the Fundamental Change Dividend Make-whole Amount in cash (computed to the nearest cent), to the extent the Corporation is legally permitted to do so;
(B) increase the number of shares of Common Stock (or Units of Exchange Property) to be issued on conversion by a number equal to (x) the Fundamental Change Dividend Make-whole Amount divided by (y) the greater of (i) the Floor Price and (ii) 97% of the Fundamental Change Share Price; or
(C) pay the Fundamental Change Dividend Make-whole Amount in a combination of cash and shares of Common Stock (or Units of Exchange Property) in accordance with the provisions of clauses (A) and (B) above.
(ii) In addition, to the extent that the Accumulated Dividend Amount exists as of the Fundamental Change Effective Date, the converting Holder shall be entitled to receive such Accumulated Dividend Amount upon such Fundamental Change
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Conversion. The Corporation shall, at its option, pay the Accumulated Dividend Amount (subject to satisfaction of the requirements of this Section):
(A) in cash (computed to the nearest cent), to the extent the Corporation is legally permitted to do so and to the extent permitted under the terms of the documents governing its indebtedness;
(B) in an additional number of shares of Common Stock (or Units of Exchange Property) equal to (x) the Accumulated Dividend Amount divided by (y) the greater of (i) the Floor Price and (ii) 97% of the Fundamental Change Share Price; or
(C) through any combination of cash and shares of Common Stock (or Units of Exchange Property) in accordance with the provisions of clauses (A) and (B) above.
(iii) The Corporation shall pay the Fundamental Change Dividend Make-whole Amount and the Accumulated Dividend Amount in cash, except to the extent the Corporation elects on or prior to the second Business Day following the relevant Fundamental Change Effective Date to make all or any portion of such payments in shares of Common Stock (or Units of Exchange Property). If the Corporation elects to deliver Common Stock (or Units of Exchange Property) in respect of all or any portion of the Fundamental Change Dividend Make-whole Amount or the Accumulated Dividend Amount, to the extent that the Fundamental Change Dividend Make-whole Amount or the Accumulated Dividend Amount or the dollar amount of any portion thereof paid in Common Stock (or Units of Exchange Property) exceeds the product of (x) the number of additional shares the Corporation delivers in respect thereof and (y) 97% of the Fundamental Change Share Price, the Corporation shall, if it is legally able to do so, and to the extent permitted under the terms of the documents governing its indebtedness, pay such excess amount in cash (computed to the nearest cent). To the extent that the Corporation is not able to pay such excess amount in cash under applicable law and in compliance with its indebtedness, the Corporation shall not have any obligation to pay such amount in cash or deliver additional shares of Common Stock (or Units of Exchange Property) in respect of such amount.
(iv) No fractional shares of Common Stock (or, to the extent applicable, Units of Exchange Property) shall be delivered by the Corporation to converting Holders in respect of the Fundamental Change Dividend Make-whole Amount or the Accumulated Dividend Amount. The Corporation shall instead pay a cash adjustment (computed to the nearest cent) to each a converting Holder that would otherwise be entitled to receive a fraction of a share of Common Stock (or to the extent applicable, Units of Exchange Property) based on the Average VWAP per share of Common Stock (or to the extent applicable, Units of Exchange Property) over the five consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the relevant Fundamental Change Conversion Date.
(v) If the Corporation is prohibited from paying or delivering, as the case may be, the Fundamental Change Dividend Make-whole Amount (whether in cash or in shares of Common Stock), in whole or in part, due to limitations of applicable Delaware law,
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then the Fundamental Change Conversion Rate will instead be increased by a number of shares of Common Stock equal to:
(A) the cash amount of the aggregate unpaid and undelivered Fundamental Change Dividend Make-whole Amount, divided by
(B) the greater of (i) the Floor Price and (ii) 97% of the Fundamental Change Share Price.
To the extent that the cash amount of the aggregate unpaid and undelivered Fundamental Change Dividend Make-whole Amount exceeds the product of such number of additional shares and 97% of the Fundamental Change Share Price, the Corporation shall not have any obligation to pay the shortfall in cash or deliver additional shares of Common Stock in respect of such amount.
Section 10. Conversion Procedures.
(a) Pursuant to Section 7, on the Mandatory Conversion Date, any outstanding shares of Mandatory Convertible Preferred Stock shall automatically convert into shares of Common Stock.
Subject to any applicable rules and procedures of the Depositary, if more than one share of Mandatory Convertible Preferred Stock held by the same Holder is automatically converted on the Mandatory Conversion Date, the full number of shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Mandatory Convertible Preferred Stock so converted. A Holder of shares of the Mandatory Convertible Preferred Stock that are mandatorily converted shall not be required to pay any transfer or similar taxes or duties relating to the issuance or delivery of the Common Stock, except that such Holder shall be required to pay any tax or duty that may be payable relating to any transfer involved in the issuance or delivery of the Common Stock in a name other than the name of such Holder.
A certificate representing the shares of Common Stock issuable upon Mandatory Conversion shall be issued and delivered to the converting Holder or, if the shares of Mandatory Convertible Preferred Stock being converted are in book-entry form, the shares of Common Stock issuable upon Mandatory Conversion shall be delivered to the converting Holder through book-entry transfer through the facilities of the Depositary, in each case, together with delivery by the Corporation to the converting Holder of any cash to which the converting Holder is entitled, on the later of (i) the Mandatory Conversion Date and (ii) the Business Day after the Holder has paid in full all applicable taxes and duties, if any (in each case, subject to any delay in accordance with Section 13(a)(iii) or Section 13(a)(v)).
The Person or Persons entitled to receive the shares of Common Stock issuable upon Mandatory Conversion shall be treated as the record holder(s) of such shares of Common Stock as of the close of business on the Mandatory Conversion Date. Except as provided under Section 13, prior to the close of business on the Mandatory Conversion Date, the Common Stock issuable upon conversion of Mandatory Convertible Preferred Stock on the Mandatory Conversion Date shall not be deemed to be outstanding for any purpose and Holders shall have
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no rights, powers or preferences with respect to such Common Stock, including voting rights, rights to respond to tender offers for the Common Stock and rights to receive any dividends or other distributions on the Common Stock, by virtue of holding the Mandatory Convertible Preferred Stock.
(b) To effect an Early Conversion pursuant to Section 8, a Holder must:
(i) complete and manually sign the conversion notice on the back of the Mandatory Convertible Preferred Stock certificate or a facsimile of such conversion notice;
(ii) deliver the completed conversion notice and the certificated shares of Mandatory Convertible Preferred Stock to be converted to the Conversion and Dividend Disbursing Agent;
(iii) if required, furnish appropriate endorsements and transfer documents; and
(iv) if required, pay all transfer or similar taxes or duties, if any.
Notwithstanding the foregoing, to effect an Early Conversion pursuant to Section 8 of shares of Mandatory Convertible Preferred Stock held in global form, the Holder must, in lieu of the foregoing, comply with the applicable procedures of DTC (or any other Depositary for the shares of Mandatory Convertible Preferred Stock held in global form appointed by the Corporation).
The Early Conversion shall be effective on the date on which a Holder has satisfied the foregoing requirements, to the extent applicable (the Early Conversion Date).
Subject to any applicable rules and procedures of the Depositary, if more than one share of Mandatory Convertible Preferred Stock is surrendered for conversion at one time by or for the same Holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Mandatory Convertible Preferred Stock so surrendered.
A Holder shall not be required to pay any transfer or similar taxes or duties relating to the issuance or delivery of Common Stock if such Holder exercises its Early Conversion right, but such Holder shall be required to pay any tax or duty that may be payable relating to any transfer involved in the issuance or delivery of Common Stock in a name other than the name of such Holder.
A certificate representing the shares of Common Stock issuable upon Early Conversion shall be issued and delivered to the converting Holder or, if the shares of Mandatory Convertible Preferred Stock being converted are in book-entry form, the shares of Common Stock issuable upon Early Conversion shall be delivered to the converting Holder through book-entry transfer through the facilities of the Depositary, in each case, together with delivery by the Corporation to the converting Holder of any cash to which the converting Holder is entitled, on the latest of (i) the second Business Day immediately succeeding the Early Conversion Date, (ii) if applicable, the second Business Day immediately succeeding the last day of the Early Conversion
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Settlement Period, and (iii) the Business Day after the Holder has paid in full all applicable taxes and duties, if any (in each case, subject to any delay in accordance with Section 13(a)(iii) or Section 13(a)(v)).
The Person or Persons entitled to receive the shares of Common Stock issuable upon Early Conversion shall be treated for all purposes as the record holder(s) of such shares of Common Stock as of the close of business on the applicable Early Conversion Date. Except as set forth in Section 13, prior to the close of business on such applicable Early Conversion Date, the shares of Common Stock issuable upon Early Conversion of any shares of the Mandatory Convertible Preferred Stock shall not be deemed to be outstanding for any purpose, and Holders shall have no rights, powers or preferences with respect to such shares of Common Stock, including voting rights, rights to respond to tender offers for the Common Stock and rights to receive any dividends or other distributions on the Common Stock, by virtue of holding shares of Mandatory Convertible Preferred Stock.
In the event that an Early Conversion is effected with respect to shares of Mandatory Convertible Preferred Stock representing less than all the shares of the Mandatory Convertible Preferred Stock held by a Holder, upon such Early Conversion the Corporation shall execute and instruct the Registrar and Transfer Agent to countersign and deliver to the Holder thereof, at the expense of the Corporation, a certificate evidencing the shares of Mandatory Convertible Preferred Stock as to which Early Conversion was not effected, or, if the Mandatory Convertible Preferred Stock is held in book-entry form, the Corporation shall cause the Transfer Agent and Registrar to reduce the number of shares of the Mandatory Convertible Preferred Stock represented by the global certificate by making a notation on Schedule I attached to the global certificate or otherwise notate such reduction in the register maintained by such Transfer Agent and Registrar.
(c) To effect a Fundamental Change Conversion pursuant to Section 9, a Holder must:
(i) complete and manually sign the conversion notice on the back of the Mandatory Convertible Preferred Stock certificate or a facsimile of such conversion notice;
(ii) deliver the completed conversion notice and the certificated shares of Mandatory Convertible Preferred Stock to be converted to the Conversion and Dividend Disbursing Agent;
(iii) if required, furnish appropriate endorsements and transfer documents; and
(iv) if required, pay all transfer or similar taxes or duties, if any.
Notwithstanding the foregoing, to effect a Fundamental Change Conversion pursuant to Section 9 of shares of Mandatory Convertible Preferred Stock held in global form, the Holder must, in lieu of the foregoing, comply with the applicable procedures of DTC (or any other Depositary for the shares of Mandatory Convertible Preferred Stock held in global form appointed by the Corporation).
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The Fundamental Change Conversion shall be effective on the date on which a Holder has satisfied the foregoing requirements, to the extent applicable (the Fundamental Change Conversion Date).
Subject to any applicable rules and procedures of the Depositary, if more than one share of Mandatory Convertible Preferred Stock is surrendered for conversion at one time by or for the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Mandatory Convertible Preferred Stock so surrendered.
A Holder shall not be required to pay any transfer or similar taxes or duties relating to the issuance or delivery of Common Stock if such Holder exercises its Fundamental Change Conversion Right, but such Holder shall be required to pay any tax or duty that may be payable relating to any transfer involved in the issuance or delivery of Common Stock in a name other than the name of such Holder.
A certificate representing the shares of Common Stock issuable upon Fundamental Change Conversion shall be issued and delivered to the converting Holder or, if the shares of Mandatory Convertible Preferred Stock being converted are in book-entry form, the shares of Common Stock issuable upon Fundamental Change Conversion shall be delivered to the converting Holder through book-entry transfer through the facilities of the Depositary, in each case, together with delivery by the Corporation to the converting Holder of any cash to which the converting Holder is entitled, on the later of (i) the second Business Day immediately succeeding the Fundamental Change Conversion Date and (ii) the Business Day after the Holder has paid in full all applicable taxes and duties, if any (in each case, subject to any delay in accordance with Section 13(a)(iii) or Section 13(a)(v)).
The Person or Persons entitled to receive the shares of Common Stock issuable upon such Fundamental Change Conversion shall be treated for all purposes as the record holder(s) of such shares of Common Stock as of the close of business on the applicable Fundamental Change Conversion Date. Except as set forth in Section 13, prior to the close of business on such applicable Fundamental Change Conversion Date, the shares of Common Stock issuable upon Fundamental Change Conversion of any shares of the Mandatory Convertible Preferred Stock shall not be deemed to be outstanding for any purpose, and Holders shall have no rights, powers or preferences with respect to such shares of Common Stock, including voting rights, rights to respond to tender offers for the Common Stock and rights to receive any dividends or other distributions on the Common Stock, by virtue of holding shares of Mandatory Convertible Preferred Stock.
In the event that a Fundamental Change Conversion is effected with respect to shares of Mandatory Convertible Preferred Stock representing less than all the shares of the Mandatory Convertible Preferred Stock held by a Holder, upon such Fundamental Change Conversion the Corporation shall execute and instruct the Registrar and Transfer Agent to countersign and deliver to the Holder thereof, at the expense of the Corporation, a certificate evidencing the shares of Mandatory Convertible Preferred Stock as to which Fundamental Change Conversion was not effected, or, if the Mandatory Convertible Preferred Stock is held in book-entry form, the Corporation shall cause the Transfer Agent and Registrar to reduce the number of shares of
29
the Mandatory Convertible Preferred Stock represented by the global certificate by making a notation on Schedule I attached to the global certificate or otherwise notate such reduction in the register maintained by such Transfer Agent and Registrar.
(d) In the event that a Holder shall not by written notice designate the name in which shares of Common Stock to be issued upon conversion of such Mandatory Convertible Preferred Stock should be registered or, if applicable, the address to which the certificate or certificates representing such shares of Common Stock should be sent, the Corporation shall be entitled to register such shares, and make such payment, in the name of the Holder as shown on the records of the Corporation and, if applicable, to send the certificate or certificates representing such shares of Common Stock to the address of such Holder shown on the records of the Corporation.
(e) Shares of Mandatory Convertible Preferred Stock shall cease to be outstanding on the applicable Conversion Date, subject to the right of Holders of such shares to receive shares of Common Stock issuable upon conversion of such shares of Mandatory Convertible Preferred Stock and other amounts and shares of Common Stock, if any, to which they are entitled pursuant to Section 7, 8 or 9, as applicable and, if the applicable Conversion Date occurs after the Regular Record Date for a declared dividend and prior to the immediately succeeding Dividend Payment Date, subject to the right of the Record Holders of such shares of the Mandatory Convertible Preferred Stock on such Regular Record Date to receive payment of the full amount of such declared dividend on such Dividend Payment Date pursuant to Section 3.
Section 11. Reservation of Common Stock.
(a) The Corporation shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of Mandatory Convertible Preferred Stock as herein provided, and free from any preemptive or other similar rights, a number of shares of Common Stock equal to the maximum number of shares of Common Stock deliverable upon conversion of all shares of Mandatory Convertible Preferred Stock (which shall initially equal a number of shares of Common Stock equal to the sum of (x) the product of (i) [ ] shares of Mandatory Convertible Preferred Stock, and (ii) the initial Maximum Conversion Rate and (y) the product of (i) [ ] shares of Mandatory Convertible Preferred Stock, and (ii) the maximum number of shares of Common Stock that would be added to the Mandatory Conversion Rate assuming (A) the Corporation paid no dividends on the shares of Mandatory Convertible Preferred Stock prior to the Mandatory Conversion Date and (B) the Floor Price is greater than 97% of the relevant Average Price). For purposes of this Section 11(a), the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding shares of Mandatory Convertible Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single Holder.
(b) Notwithstanding the foregoing, the Corporation shall be entitled to deliver upon conversion of shares of Mandatory Convertible Preferred Stock or as payment of any dividend on such shares of Mandatory Convertible Preferred Stock, as herein provided, shares of Common Stock reacquired and held in the treasury of the Corporation (in lieu of the issuance of authorized and unissued shares of Common Stock), so long as any such treasury shares are free
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and clear of all liens, charges, security interests or encumbrances (other than liens, charges, security interests and other encumbrances created by the Holders).
(c) All shares of Common Stock delivered upon conversion of, or as payment of a dividend on, the Mandatory Convertible Preferred Stock shall be duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens, claims, security interests and other encumbrances (other than liens, charges, security interests and other encumbrances created by the Holders) and free of preemptive rights.
(d) Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of Mandatory Convertible Preferred Stock, the Corporation shall use commercially reasonable efforts to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority.
(e) The Corporation hereby covenants and agrees that, if at any time the Common Stock shall be listed on NYSE or any other national securities exchange or automated quotation system, the Corporation shall, if permitted by the rules of such exchange or automated quotation system, list and use its commercially reasonable efforts to keep listed, so long as the Common Stock shall be so listed on such exchange or automated quotation system, all Common Stock issuable upon conversion (including, for the avoidance of doubt, with respect to the Mandatory Conversion Additional Conversion Amount or Early Conversion Additional Conversion Amount) of, or issuable in respect of the payment of dividends, the Accumulated Dividend Amount and the Fundamental Change Dividend Make-whole Amount on, the Mandatory Convertible Preferred Stock; provided, however, that if the rules of such exchange or automated quotation system permit the Corporation to defer the listing of such Common Stock until the earlier of (x) the first conversion of Mandatory Convertible Preferred Stock into Common Stock in accordance with the provisions hereof and (y) the first payment of any dividends, any Accumulated Dividend Amount or any Fundamental Change Dividend Make-whole Amount on the Mandatory Convertible Preferred Stock, the Corporation covenants to list such Common Stock issuable upon the earlier of (1) the first conversion of the Mandatory Convertible Preferred Stock and (2) the first payment of any dividends, any Accumulated Dividend Amount or any Fundamental Change Dividend Make-whole Amount on the Mandatory Convertible Preferred Stock in accordance with the requirements of such exchange or automated quotation system at such time.
Section 12. Fractional Shares.
(a) No fractional shares of Common Stock shall be issued to Holders as a result of any conversion of shares of Mandatory Convertible Preferred Stock.
(b) In lieu of any fractional shares of Common Stock otherwise issuable in respect of the aggregate number of shares of the Mandatory Convertible Preferred Stock of any Holder that are converted on the Mandatory Conversion Date pursuant to Section 7 or at the option of such Holder pursuant to Section 8 or Section 9, the Corporation shall pay such Holder an amount in cash (computed to the nearest cent) equal to the product of (i) that same fraction and (ii) the Average VWAP of the Common Stock over the five consecutive Trading Day period
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ending on, and including, the Trading Day immediately preceding the Mandatory Conversion Date, Early Conversion Date or Fundamental Change Conversion Date, as applicable.
Section 13. Anti-Dilution Adjustments to the Fixed Conversion Rates.
(a) Each Fixed Conversion Rate shall be adjusted as set forth in this Section 13, except that the Corporation shall not make any adjustments to the Fixed Conversion Rates if Holders participate (other than in the case of a share split or share combination), at the same time and upon the same terms as holders of Common Stock and solely as a result of holding the Mandatory Convertible Preferred Stock, in any of the transactions set forth in Sections 13(a)(i)-(vi) without having to convert their Mandatory Convertible Preferred Stock as if they held a number of shares of Common Stock equal to (i) the Maximum Conversion Rate as of the Record Date for such transaction, multiplied by (ii) the number of shares of Mandatory Convertible Preferred Stock held by such Holder.
(i) If the Corporation exclusively issues shares of Common Stock as a dividend or distribution on shares of Common Stock, or if the Corporation effects a share split or share combination, each Fixed Conversion Rate shall be adjusted based on the following formula:
CR1 = CR0 × | OS1 | |||||
OS0 |
where,
CR0 = | such Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date of such dividend or distribution, or immediately prior to the open of business on the Effective Date of such share split or share combination, as applicable; |
CR1 = | such Fixed Conversion Rate in effect immediately after the close of business on such Record Date or immediately after the open of business on such Effective Date, as applicable; |
OS0 = | the number of shares of Common Stock outstanding immediately prior to the close of business on such Record Date or immediately prior to the open of business on such Effective Date, as applicable, before giving effect to such dividend, distribution, share split or share combination; and |
OS1 = | the number of shares of Common Stock outstanding immediately after giving effect to such dividend, distribution, share split or share combination. |
Any adjustment made under this Section 13(a)(i) shall become effective immediately after the close of business on the Record Date for such dividend or distribution, or immediately after the open of business on the Effective Date for such share split or share combination, as applicable. If any dividend or distribution of the type set forth in this Section 13(a)(i) is declared but not so paid or made, each Fixed Conversion Rate shall be immediately readjusted, effective as of the date the Board of Directors or a committee thereof determines not to pay such dividend or distribution, to such Fixed Conversion Rate that would then be in effect if such dividend or
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distribution had not been declared. For the purposes of this clause (i), the number of shares of Common Stock outstanding immediately prior to the close of business on the Record Date and the number of shares of Common Stock outstanding immediately after giving effect to such dividend, distribution, share split or share combination shall, in each case, not include shares that the Corporation holds in treasury. The Corporation shall not pay any dividend or make any distribution on shares of Common Stock that it holds in treasury.
(ii) If the Corporation issues to all or substantially all holders of Common Stock any rights, options or warrants entitling them, for a period of not more than 60 calendar days after the announcement date of such issuance, to subscribe for or purchase shares of Common Stock at a price per share that is less than the Average VWAP per share of Common Stock for the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of such issuance, each Fixed Conversion Rate shall be increased based on the following formula:
CR1 = CR0 × | OS0 + X | |||||
| ||||||
OS0 + Y |
where,
CR0 = | such Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for such issuance; |
CR1 = | such Fixed Conversion Rate in effect immediately after the close of business on such Record Date; |
OS0 = | the number of shares of Common Stock outstanding immediately prior to the close of business on such Record Date; |
X = | the total number of shares of Common Stock issuable pursuant to such rights, options or warrants; and |
Y = | the number of shares of Common Stock equal to (i) the aggregate price payable to exercise such rights, options or warrants, divided by (ii) the Average VWAP per share of Common Stock over the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of the issuance of such rights, options or warrants. |
Any increase made under this Section 13(a)(ii) shall be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the close of business on the Record Date for such issuance. To the extent that such rights, options or warrants are not exercised prior to their expiration or shares of Common Stock are not delivered after the exercise of such rights, options or warrants, each Fixed Conversion Rate shall be decreased to such Fixed Conversion Rate that would then be in effect had the increase with respect to the issuance of such rights, options or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered, if any. If such rights, options or warrants are not so issued, each Fixed Conversion Rate shall be immediately readjusted,
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effective as of the date the Board of Directors or a committee thereof determines not to pay such dividend or distribution, to such Fixed Conversion Rate that would then be in effect if such Record Date for such issuance had not occurred.
For the purpose of this Section 13(a)(ii), in determining whether any rights, options or warrants entitle the holders of Common Stock to subscribe for or purchase shares of Common Stock at less than such Average VWAP per share for the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of such issuance, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received by the Corporation for such rights, options or warrants and any amount payable on exercise or conversion thereof, the value of such consideration, if other than cash, to be determined by the Corporation in good faith.
(iii) If the Corporation distributes shares of its capital stock, evidences of the Corporations indebtedness, other assets or property of the Corporation or rights, options or warrants to acquire its capital stock or other securities, to all or substantially all holders of Common Stock, excluding:
(A) dividends, distributions or issuances as to which the provisions set forth in Section 13(a)(i) or Section 13(a)(ii) shall apply;
(B) dividends or distributions paid exclusively in cash as to which the provisions set forth in Section 13(a)(iv) shall apply;
(C) any dividends and distributions upon conversion of, or in exchange for, shares of Common Stock in connection with a recapitalization, reclassification, change, consolidation, merger or other combination, share exchange, or sale, lease or other transfer or disposition resulting in the change in the conversion consideration as set forth under Section 14;
(D) except as otherwise set forth in Section 13(a)(vii), rights issued pursuant to a shareholder rights plan adopted by the Corporation; and
(E) Spin-Offs as to which the provisions set forth below in this Section 13(a)(iii) shall apply; then each Fixed Conversion Rate shall be increased based on the following formula:
CR1 = CR0 × | SP0 | |||||
| ||||||
SP0 FMV |
where,
CR0 = | such Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for such distribution; |
CR1 = | such Fixed Conversion Rate in effect immediately after the close of business on such Record Date; |
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SP0 = | the Average VWAP per share of Common Stock over the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the Ex-Date for such distribution; and |
FMV = | the fair market value (as determined by the Corporation in good faith) of the shares of capital stock, evidences of indebtedness, assets, property, rights, options or warrants so distributed, expressed as an amount per share of Common Stock on the Ex-Date for such distribution. |
Any increase made under the portion of this Section 13(a)(iii) shall become effective immediately after the close of business on the Record Date for such distribution. If such distribution is not so paid or made, each Fixed Conversion Rate shall be immediately readjusted, effective as of the date the Board of Directors or a committee thereof determines not to pay such dividend or distribution, to be such Fixed Conversion Rate that would then be in effect if such distribution had not been declared.
Notwithstanding the foregoing, if FMV (as defined above) is equal to or greater than SP0 (as defined above), in lieu of the foregoing increase, each Holder shall receive, in respect of each share of Mandatory Convertible Preferred Stock, at the same time and upon the same terms as holders of Common Stock, the amount and kind of the Corporations capital stock, evidences of the Corporations indebtedness, other assets or property of the Corporation or rights, options or warrants to acquire its capital stock or other securities that such Holder would have received if such Holder owned a number of shares of Common Stock equal to the Maximum Conversion Rate in effect on the Record Date for the distribution.
With respect to an adjustment pursuant to this Section 13(a)(iii) where there has been a Spin-Off, each Fixed Conversion Rate shall be increased based on the following formula:
CR1 = CR0 × | FMV0 + MP0 | |||||
| ||||||
MP0 |
where,
CR0 = | such Fixed Conversion Rate in effect immediately prior to the open of business on the Ex-Date for the Spin-Off; |
CR1 = | such Fixed Conversion Rate in effect immediately after the open of business on the Ex-Date for the Spin-Off; |
FMV0 = | the Average VWAP per share of the capital stock or similar equity interest distributed to holders of Common Stock applicable to one share of Common Stock over the 10 consecutive Trading Day period commencing on, and including, the Ex-Date for the Spin-Off (the Valuation Period); and |
MP0 = | the Average VWAP per share of Common Stock over the Valuation Period. |
The increase to each Fixed Conversion Rate under the preceding paragraph shall be calculated as of the close of business on the last Trading Day of the Valuation Period but shall be
35
given effect as of immediately after the open of business on the Ex-Date of the Spin-Off. Because the Corporation shall make the adjustment to each Fixed Conversion Rate with retroactive effect, the Corporation shall delay the settlement of any conversion of the Mandatory Convertible Preferred Stock where any date for determining the number of shares of Common Stock issuable to a Holder occurs during the Valuation Period until the second Business Day after the last date for determining the number of shares of Common Stock issuable to a Holder with respect to such conversion occurs. If such dividend or distribution is not so paid, each Fixed Conversion Rate shall be decreased, effective as of the date the Board of Directors or a committee thereof determines not to make or pay such dividend or distribution, to be such Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared.
For purposes of this Section 13(a)(iii) (and subject in all respects to Section 13(a)(i) and Section 13(a)(ii)):
(A) rights, options or warrants distributed by the Corporation to all or substantially all holders of the Common Stock entitling them to subscribe for or purchase shares of the Corporations capital stock, including Common Stock (either initially or under certain conditions), which rights, options or warrants, until the occurrence of a specified event or events (Trigger Event):
(1) are deemed to be transferred with such shares of the Common Stock;
(2) are not exercisable; and
(3) are also issued in respect of future issuances of the Common Stock,
shall be deemed not to have been distributed for purposes of this Section 13(a)(iii) (and no adjustment to the Fixed Conversion Rates under this Section 13(a)(iii) shall be required) until the occurrence of the earliest Trigger Event, whereupon such rights, options or warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Fixed Conversion Rates shall be made under this Section 13(a)(iii).
(B) If any such right, option or warrant, including any such existing rights, options or warrants distributed prior to the Initial Issue Date, are subject to events, upon the occurrence of which such rights, options or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and Record Date with respect to new rights, options or warrants with such rights (in which case the existing rights, options or warrants shall be deemed to terminate and expire on such date without exercise by any of the holders thereof).
(C) In addition, in the event of any distribution (or deemed distribution) of rights, options or warrants, or any Trigger Event or other event (of the type described in the immediately preceding clause (B)) with respect thereto that was counted for purposes
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of calculating a distribution amount for which an adjustment to the Fixed Conversion Rates under this clause (iii) was made:
(1) in the case of any such rights, options or warrants that shall all have been redeemed or repurchased without exercise by any holders thereof, upon such final redemption or repurchase (x) the Fixed Conversion Rates shall be readjusted as if such rights, options or warrants had not been issued and (y) the Fixed Conversion Rates shall then again be readjusted to give effect to such distribution, deemed distribution or Trigger Event, as the case may be, as though it were a cash distribution pursuant to Section 13(a)(iv), equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights, options or warrants (assuming such holder had retained such rights, options or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase; and
(2) in the case of such rights, options or warrants that shall have expired or been terminated without exercise by any holders thereof, the Fixed Conversion Rates shall be readjusted as if such rights, options and warrants had not been issued;
provided that, in each case, such rights, options or warrants are deemed to be transferred with such shares of the Common Stock and are also issued in respect of future issuances of the Common Stock.
For purposes of Section 13(a)(i), Section 13(a)(ii) and this Section 13(a)(iii), if any dividend or distribution to which this Section 13(a)(iii) is applicable includes one or both of:
(A) a dividend or distribution of shares of Common Stock to which Section 13(a)(i) is applicable (the Clause A Distribution); or
(B) an issuance of rights, options or warrants to which Section 13(a)(ii) is applicable (the Clause B Distribution), then:
(1) such dividend or distribution, other than the Clause A Distribution and the Clause B Distribution, shall be deemed to be a dividend or distribution to which this Section 13(a)(iii) is applicable (the Clause C Distribution) and any Fixed Conversion Rate adjustment required by this Section 13(a)(iii) with respect to such Clause C Distribution shall then be made; and
(2) the Clause A Distribution and Clause B Distribution shall be deemed to immediately follow the Clause C Distribution and any Fixed Conversion Rate adjustment required by Section 13(a)(i) and Section 13(a)(ii) with respect thereto shall then be made, except that, if determined by the Corporation (I) the Record Date of the Clause A Distribution and the Clause B Distribution shall be deemed to be the Record Date of the Clause C Distribution and (II) any shares of Common Stock included in the Clause A Distribution or Clause B Distribution shall be deemed not to be outstanding immediately prior to the close of business on such Record Date or immediately prior to the open of business on such Effective Date within the meaning of Section 13(a)(i) or outstanding immediately prior to close of business on such Record Date within the meaning of Section 13(a)(ii).
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(iv) If any cash dividend or distribution is made to all or substantially all holders of Common Stock, each Fixed Conversion Rate shall be adjusted based on the following formula:
CR1 = CR0 × | SP0 | |||||
| ||||||
SP0 C |
where,
CR0 = | such Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for such dividend or distribution; |
CR1 = | such Fixed Conversion Rate in effect immediately after the close of business on the Record Date for such dividend or distribution; |
SP0 = | the Average VWAP per share of Common Stock over the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the Ex-Date for such distribution; and |
C = | the amount in cash per share the Corporation distributes to all or substantially all holders of Common Stock. |
Any increase made under this Section 13(a)(iv) shall become effective immediately after the close of business on the Record Date for such dividend or distribution. If such dividend or distribution is not so paid, each Fixed Conversion Rate shall be decreased, effective as of the date the Board of Directors or a committee thereof determines not to make or pay such dividend or distribution, to be such Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared.
Notwithstanding the foregoing, if C (as defined above) is equal to or greater than SP0 (as defined above), in lieu of the foregoing increase, each Holder shall receive, for each share of Mandatory Convertible Preferred Stock, at the same time and upon the same terms as holders of shares of Common Stock, the amount of cash that such Holder would have received if such Holder owned a number of shares of Common Stock equal to the Maximum Conversion Rate on the Record Date for such cash dividend or distribution.
(v) If the Corporation or any of its Subsidiaries make a payment in respect of a tender or exchange offer for Common Stock, other than an odd-lot tender offer, to the extent that the cash and value of any other consideration included in the payment per share of Common Stock exceeds the Average VWAP per share of Common Stock over the 10 consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer (the Expiration Date), each Fixed Conversion Rate shall be increased based on the following formula:
CR1 = CR0 x | AC + (SP1 x OS1) | |||||
| ||||||
OS0 x SP1 |
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where,
CR0 = | such Fixed Conversion Rate in effect immediately prior to the close of business on the Expiration Date; |
CR1 = | such Fixed Conversion Rate in effect immediately after the close of business on the Expiration Date; |
AC = | the aggregate value of all cash and any other consideration (as determined by the Corporation in good faith) paid or payable for shares purchased in such tender or exchange offer; |
OS0 = | the number of shares of Common Stock outstanding immediately prior to the Expiration Date (prior to giving effect to the purchase of all shares accepted for purchase or exchange in such tender or exchange offer); |
OS1 = | the number of shares of Common Stock outstanding immediately after the Expiration Date (after giving effect to the purchase of all shares accepted for purchase or exchange in such tender or exchange offer); and |
SP1 = | the Average VWAP of Common Stock over the 10 consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the Expiration Date (the Averaging Period). |
The increase to each Fixed Conversion Rate under the preceding paragraph shall be calculated at the close of business on the last Trading Day of the Averaging Period but shall be given effect as of immediately after the close of business on the Expiration Date. Because the Corporation will make the adjustment to each Fixed Conversion Rate with retroactive effect, the Corporation shall delay the settlement of any conversion of Mandatory Convertible Preferred Stock where any date for determining the number of shares of Common Stock issuable to a Holder occurs within the Averaging Period until the second Business Day after the last date for determining the number of shares of Common Stock issuable to a Holder with respect to such conversion occurs. For the avoidance of doubt, no adjustment under this Section 13(a)(v) will be made if such adjustment would result in a decrease in any Fixed Conversion Rate, except as set forth in the immediately succeeding sentence.
In the event that the Corporation or one of its Subsidiaries is obligated to purchase shares of Common Stock pursuant to any such tender offer or exchange offer, but the Corporation or such Subsidiary is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then each Fixed Conversion Rate shall again be adjusted to be such Fixed Conversion Rate that would then be in effect if such tender offer or exchange offer had not been made.
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(vi) If:
(A) the Record Date for a dividend or distribution on shares of the Common Stock occurs after the end of the 20 consecutive Trading Day period used for calculating the Applicable Market Value and before the Mandatory Conversion Date; and
(B) such dividend or distribution would have resulted in an adjustment of the number of shares of Common Stock issuable to the Holders had such Record Date occurred on or before the last Trading Day of such 20-Trading Day period,
then the Corporation shall deem the Holders to be holders of record, for each share of their Mandatory Convertible Preferred Stock, of a number of shares of Common Stock equal to the Mandatory Conversion Rate for purposes of that dividend or distribution, and in such a case, the Holders would receive the dividend or distribution on the Common Stock together with the number of shares of Common Stock issuable upon Mandatory Conversion of their Mandatory Convertible Preferred Stock.
(vii) If the Corporation has a rights plan in effect upon conversion of the Mandatory Convertible Preferred Stock into Common Stock, the Holders shall receive, in addition to any shares of Common Stock received in connection with such conversion, the rights under the rights plan. However, if, prior to any conversion, the rights have separated from the shares of Common Stock in accordance with the provisions of the applicable rights plan, each Fixed Conversion Rate shall be adjusted at the time of separation as if the Corporation distributed to all or substantially all holders of Common Stock, shares of its capital stock, evidences of indebtedness, assets, property, rights, options or warrants as set forth in Section 13(a)(iii), subject to readjustment in the event of the expiration, termination or redemption of such rights.
(viii) The Corporation may (but is not required to), to the extent permitted by law and the rules of NYSE or any other securities exchange on which the shares of Common Stock or Mandatory Convertible Preferred Stock are then listed, increase each Fixed Conversion Rate by any amount for a period of at least 20 Business Days if such increase is irrevocable during such 20 Business Days and the Corporation determines that such increase would be in the best interest of the Corporation. The Corporation may also (but is not required to) make such increases in each Fixed Conversion Rate as it deems advisable in order to avoid or diminish any income tax to holders of Common Stock resulting from any dividend or distribution of shares of Common Stock (or issuance of rights or warrants to acquire shares of Common Stock) or from any event treated as such for income tax purposes or for any other reason. However, in either case, the Corporation may only make such discretionary adjustments if it makes the same proportionate adjustment to each Fixed Conversion Rate.
(ix) The Corporation shall not adjust the Fixed Conversion Rates:
(A) upon the issuance of shares of Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on securities
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of the Corporation and the investment of additional optional amounts in Common Stock under any plan;
(B) upon the issuance of any shares of Common Stock or rights or warrants to purchase such shares of Common Stock pursuant to any present or future benefit or other incentive plan or program of or assumed by the Corporation or any of its Subsidiaries;
(C) upon the issuance of any shares of Common Stock pursuant to any option, warrant, right or exercisable, exchangeable or convertible security not described in (B) of this Section 13(a)(ix) and outstanding as of the Initial Issue Date;
(D) for a change in par value of the Common Stock;
(E) for stock repurchases that are not tender offers referred to in Section 13(a)(v), including structured or derivative transactions or pursuant to a stock repurchase program approved by the Board of Directors;
(F) for accumulated dividends on the Mandatory Convertible Preferred Stock, except as described in Sections 7, 8 and 9; or
(G) for any other issuance of shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock or the right to purchase shares of Common Stock or such convertible or exchangeable securities, except as otherwise stated herein.
(x) Adjustments to each Fixed Conversion Rate will be calculated to the nearest 1/10,000th of a share of Common Stock. No adjustment to any Fixed Conversion Rate will be required unless the adjustment would require an increase or decrease of at least 1% of the Fixed Conversion Rate; provided, however, that if an adjustment is not made because the adjustment does not change the Fixed Conversion Rates by at least 1%, then such adjustment will be carried forward and taken into account in any future adjustment. Notwithstanding the foregoing, on each date for determining the number of shares of Common Stock issuable to a Holder upon any conversion of the Mandatory Convertible Preferred Stock the Corporation shall give effect to all adjustments that otherwise had been deferred pursuant to this clause (x), and those adjustments will no longer be carried forward and taken into account in any future adjustment. Except as otherwise provided above, the Corporation will be responsible for making all calculations called for under the Mandatory Convertible Preferred Stock. These calculations include, but are not limited to, determinations of the Fundamental Change Share Price, the VWAPs, the Average VWAPs and the Fixed Conversion Rates of the Mandatory Convertible Preferred Stock and shall be made in good faith.
(xi) For the avoidance of doubt, if an adjustment is made to the Fixed Conversion Rates, no separate inversely proportionate adjustment will be made to the Initial Price or the Threshold Appreciation Price because the Initial Price is equal to $50.00 divided by the Maximum Conversion Rate (as adjusted in the manner described herein) and the Threshold Appreciation Price is equal to $50.00 divided by the Minimum Conversion Rate (as adjusted in the manner described herein).
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(xii) Whenever any provision of this Certificate of Designations requires the Corporation to calculate the VWAP per share of Common Stock over a span of multiple days, the Corporation shall make appropriate adjustments in good faith (including, without limitation, to the Applicable Market Value, the Early Conversion Average Price, the Fundamental Change Share Price and the Average Price, as the case may be) to account for any adjustments to the Fixed Conversion Rates (as the case may be) that become effective, or any event that would require such an adjustment if the Ex-Date, Effective Date, Record Date or Expiration Date, as the case may be, of such event occurs during the relevant period used to calculate such prices or values, as the case may be.
(b) Whenever the Fixed Conversion Rates and the Fundamental Change Conversion Rates set forth in the table in the definition of Fundamental Change Conversion Rate are to be adjusted, the Corporation shall:
(i) compute such adjusted Fixed Conversion Rates and Fundamental Change Conversion Rates;
(ii) within 10 Business Days after the Fixed Conversion Rates are to be adjusted, provide or cause to be provided, a written notice to the Holders of the occurrence of such event; and
(iii) within 10 Business Days after the Fixed Conversion Rates are to be adjusted, provide or cause to be provided, to the Holders, a statement setting forth in reasonable detail the method by which the adjustments to the Fixed Conversion Rates and Fundamental Change Conversion Rates were determined and setting forth such adjusted Fixed Conversion Rates and Fundamental Change Conversion Rates.
Section 14. Recapitalizations, Reclassifications and Changes of Common Stock. In the event of:
(i) any consolidation or merger of the Corporation with or into another Person (other than a merger or consolidation in which the Corporation is the surviving corporation and in which the Common Stock outstanding immediately prior to the merger or consolidation is not exchanged for cash, securities or other property of the Corporation or another Person);
(ii) any sale, transfer, lease or conveyance to another Person of all or substantially all of the property and assets of the Corporation;
(iii) any reclassification of Common Stock into securities including securities other than Common Stock; or
(iv) any statutory exchange of securities of the Corporation with another Person (other than in connection with a merger or acquisition),
in each case, as a result of which the Common Stock would be converted into, or exchanged for, stock, other securities or other property or assets (including cash or any combination thereof) (each, a Reorganization Event), each share of the Mandatory Convertible Preferred Stock
42
outstanding immediately prior to such Reorganization Event shall, without the consent of the Holders, become convertible into the kind of stock, other securities or other property or assets (including cash or any combination thereof) that such Holder would have been entitled to receive if such Holder had converted its Mandatory Convertible Preferred Stock into Common Stock immediately prior to such Reorganization Event (such stock, other securities or other property or assets (including cash or any combination thereof), the Exchange Property, with each Unit of Exchange Property meaning the kind and amount of such Exchange Property that a holder of one share of Common Stock is entitled to receive).
If the transaction causes the Common Stock to be converted into, or exchanged for, the right to receive more than a single type of consideration (determined based in part upon any form of stockholder election), the Exchange Property into which the Mandatory Convertible Preferred Stock shall be convertible shall be deemed to be:
(i) the weighted average of the types and amounts of consideration received by the holders of Common Stock that affirmatively make such an election; and
(ii) if no holders of Common Stock affirmatively make such an election, the types and amounts of consideration actually received by the holders of the Common Stock.
The Corporation shall notify Holders of the weighted average referred to in clause (i) in the preceding sentence as soon as practicable after such determination is made.
The number of Units of Exchange Property the Corporation shall deliver for each share of Mandatory Convertible Preferred Stock converted following the effective date of such Reorganization Event shall be determined as if references in Section 7, Section 8 and Section 9 to shares of Common Stock were to Units of Exchange Property (without interest thereon and without any right to dividends or distributions thereon which have a Record Date that is prior to the date such shares of Mandatory Convertible Preferred Stock are actually converted). For the purpose of determining which of clauses (i), (ii) and (iii) of Section 7(b) shall apply upon Mandatory Conversion, and for the purpose of calculating the Mandatory Conversion Rate if clause (ii) of Section 7(b) is applicable, the value of a Unit of Exchange Property shall be determined in good faith by the Corporation, except that if a Unit of Exchange Property includes common stock or American Depositary Receipts (ADRs) that are traded on a U.S. national securities exchange, the value of such common stock or ADRs shall be the average over the 20 consecutive Trading Day period used for calculating the Applicable Market Value of the volume-weighted average prices for such common stock or ADRs, as displayed on the applicable Bloomberg screen (as determined in good faith by the Corporation); or, if such price is not available, the average market value per share of such common stock or ADRs over such period as determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained by the Corporation for this purpose.
The above provisions of this Section 14 shall similarly apply to successive Reorganization Events, and if the Exchange Property in respect of any Reorganization Event includes, in whole or in part, securities of another entity, this Certificate of Designations shall, without the consent of the Holders, be deemed to provide for anti-dilution and other adjustments
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in respect of such securities that shall be as nearly equivalent as practicable, as determined by the Corporation acting in a commercially reasonable manner and in good faith, to the adjustments set forth in Section 13.
The Corporation (or any successor thereto) shall, as soon as reasonably practicable (but in any event within 20 calendar days) after the occurrence of any Reorganization Event, provide written notice to the Holders of such occurrence and of the kind and amount of cash, securities or other property that constitute the Exchange Property. Failure to deliver such notice shall not affect the operation of this Section 14.
Section 15. Transfer Agent, Registrar, and Conversion and Dividend Disbursing Agent. The duly appointed Transfer Agent, Registrar and Conversion and Dividend Disbursing Agent for Mandatory Convertible Preferred Stock shall be Computershare Trust Company, N.A.. The Corporation may, in its sole discretion, remove the Transfer Agent, Registrar or Conversion and Dividend Disbursing Agent in accordance with the agreement between the Corporation and the Transfer Agent, Registrar or Conversion and Dividend Disbursing Agent, as the case may be; provided that if the Corporation removes Computershare Trust Company, N.A., the Corporation shall appoint a successor transfer agent, registrar or conversion and dividend disbursing agent, as the case may be, who shall accept such appointment prior to the effectiveness of such removal. Upon any such removal or appointment, the Corporation shall give notice thereof to the Holders.
Section 16. Record Holders. To the fullest extent permitted by applicable law, the Corporation and the Transfer Agent may deem and treat the Holder of any shares of Mandatory Convertible Preferred Stock as the true and lawful owner thereof for all purposes.
Section 17. Notices. All notices or communications in respect of the Mandatory Convertible Preferred Stock shall be sufficiently given if given in writing and delivered by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designations, in the Charter or the By-Laws and by applicable law. Notwithstanding the foregoing, if the shares of Mandatory Convertible Preferred Stock are represented by Global Preferred Shares, such notices may also be given to the Holders in any manner permitted by DTC or any similar facility used for the settlement of transactions in Mandatory Convertible Preferred Stock.
Section 18. No Preemptive Rights. The Holders shall have no preemptive or preferential rights to purchase or subscribe for any stock, obligations, warrants or other securities of the Corporation of any class.
Section 19. Other Rights. The shares of Mandatory Convertible Preferred Stock shall not have any rights, preferences, privileges or voting powers or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Charter or as provided by applicable law.
Section 20. Book-Entry Form.
(a) The Mandatory Convertible Preferred Stock shall be issued in the form of one or more permanent global shares of Mandatory Convertible Preferred Stock in definitive, fully registered form eligible for book-entry settlement with the global legend as set forth on the
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form of Mandatory Convertible Preferred Stock certificate attached hereto as Exhibit A (each, a Global Preferred Share), which is hereby incorporated in and expressly made part of this Certificate of Designations. The Global Preferred Shares may have notations, legends or endorsements required by law, stock exchange rules, agreements to which the Corporation is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Corporation). The Global Preferred Shares shall be deposited on behalf of the Holders represented thereby with the Registrar, at its [New York] office as custodian for the Depositary, and registered in the name of the Depositary, duly executed by the Corporation and countersigned and registered by the Registrar as hereinafter provided. The aggregate number of shares represented by each Global Preferred Share may from time to time be increased or decreased by adjustments made on the records of the Registrar and the Depositary or its nominee as hereinafter provided.
This Section 20(a) shall apply only to a Global Preferred Share deposited with or on behalf of the Depositary. The Corporation shall execute and the Registrar shall, in accordance with this Section 20(a), countersign and deliver any Global Preferred Shares that (i) shall be registered in the name of Cede & Co. or other nominee of the Depositary and (ii) shall be delivered by the Registrar to Cede & Co. or pursuant to instructions received from Cede & Co. or held by the Registrar as custodian for the Depositary pursuant to an agreement between the Depositary and the Registrar. Members of, or participants in, the Depositary (Agent Members) shall have no rights under this Certificate of Designations with respect to any Global Preferred Share held on their behalf by the Depositary or by the Registrar as the custodian of the Depositary, or under such Global Preferred Share, and the Depositary may be treated by the Corporation, the Registrar and any agent of the Corporation or the Registrar as the absolute owner of such Global Preferred Share for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Corporation, the Registrar or any agent of the Corporation or the Registrar from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of the Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Preferred Share. The Holder of the Global Preferred Shares may grant proxies or otherwise authorize any Person to take any action that a Holder is entitled to take pursuant to the Global Preferred Shares, this Certificate of Designations or the Charter.
Owners of beneficial interests in Global Preferred Shares shall not be entitled to receive physical delivery of certificated shares of Mandatory Convertible Preferred Stock, unless (x) the Depositary notifies the Corporation that it is unwilling or unable to continue as Depositary for the Global Preferred Shares and the Corporation does not appoint a qualified replacement for the Depositary within 90 days or (y) the Depositary ceases to be a clearing agency registered under the Exchange Act and the Corporation does not appoint a qualified replacement for the Depositary within 90 days. In any such case, the Global Preferred Shares shall be exchanged in whole for definitive stock certificates that are not issued in global form, with the same terms and of an equal aggregate Liquidation Preference, and such definitive stock certificates shall be registered in the name or names of the Person or Persons specified by the Depositary in a written instrument to the Registrar.
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(b) Signature. [Two] authorized Officers shall sign each Global Preferred Share for the Corporation, in accordance with the Corporations By-Laws and applicable law, by manual or facsimile signature. If an Officer whose signature is on a Global Preferred Share no longer holds that office at the time the Registrar countersigned such Global Preferred Share, such Global Preferred Share shall be valid nevertheless. A Global Preferred Share shall not be valid until an authorized signatory of the Registrar manually countersigns such Global Preferred Share. Each Global Preferred Share shall be dated the date of its countersignature. The foregoing paragraph shall likewise apply to any certificate representing shares of Mandatory Convertible Preferred Stock.
Section 21. Listing. The Corporation hereby covenants and agrees that, if its listing application for the Mandatory Convertible Preferred Stock is approved by NYSE, upon such listing, the Corporation shall use its commercially reasonable efforts to keep the Mandatory Convertible Preferred Stock listed on NYSE.
If the Global Preferred Share or Global Preferred Shares, as the case may be, or the Mandatory Convertible Preferred Stock represented thereby shall be listed on NYSE or any other stock exchange, the Depositary may, with the written approval of the Corporation, appoint a registrar (acceptable to the Corporation) for registration of such Global Preferred Share or Global Preferred Shares, as the case may be, or the Mandatory Convertible Preferred Stock represented thereby in accordance with the requirements of such exchange. Such registrar (which may be the Registrar if so permitted by the requirements of such exchange) may be removed and a substitute registrar appointed by the Registrar upon the request or with the written approval of the Corporation. If the Global Preferred Share or Global Preferred Shares, as the case may be, or the Mandatory Convertible Preferred Stock represented thereby, are listed on one or more other stock exchanges, the Registrar will, at the request and expense of the Corporation, arrange such facilities for the delivery, transfer, surrender and exchange of such Global Preferred Share or Global Preferred Shares, as the case may be, or the Mandatory Convertible Preferred Stock represented thereby as may be required by law or applicable stock exchange regulations.
Section 22. Stock Certificates.
(a) Shares of Mandatory Convertible Preferred Stock may be represented by stock certificates substantially in the form set forth as Exhibit A hereto.
(b) Stock certificates representing shares of the Mandatory Convertible Preferred Stock shall be signed by any [two] authorized Officers of the Corporation, in accordance with the By-Laws and applicable Delaware law, by manual or facsimile signature.
(c) A stock certificate representing shares of the Mandatory Convertible Preferred Stock shall not be valid until manually countersigned by an authorized signatory of the Transfer Agent and Registrar. Each stock certificate representing shares of the Mandatory Convertible Preferred Stock shall be dated the date of its countersignature.
(d) If any Officer of the Corporation who has signed a stock certificate no longer holds that office at the time the Transfer Agent and Registrar countersigns the stock certificate, the stock certificate shall be valid nonetheless.
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Section 23. Replacement Certificates. If any Mandatory Convertible Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall, at the expense of the Holder, issue, in exchange and in substitution for and upon cancellation of the mutilated Mandatory Convertible Preferred Stock certificate, or in lieu of and substitution for the Mandatory Convertible Preferred Stock certificate lost, stolen or destroyed, a new Mandatory Convertible Preferred Stock certificate of like tenor and representing an equivalent Liquidation Preference of shares of Mandatory Convertible Preferred Stock, but only upon receipt of evidence of such loss, theft or destruction of such Mandatory Convertible Preferred Stock certificate and indemnity, if requested, reasonably satisfactory to the Corporation and the Transfer Agent.
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EXHIBIT A
[FORM OF FACE OF [DIVIDEND RATE]% SERIES A MANDATORY CONVERTIBLE
PREFERRED STOCK CERTIFICATE]
[INCLUDE FOR GLOBAL PREFERRED SHARES]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (DTC), TO THE CORPORATION OR THE TRANSFER AGENT NAMED ON THE FACE OF THIS CERTIFICATE, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSORS NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE STATEMENT WITH RESPECT TO SHARES. IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE TRANSFER AGENT NAMED ON THE FACE OF THIS CERTIFICATE SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.
Certificate Number [ ]
[Initial] Number of Shares of Mandatory
Convertible Preferred Stock [ ]
CUSIP [ ]
ISIN [ ]
CLARIOS INTERNATIONAL INC.
[Dividend Rate]% Series A Mandatory Convertible Preferred Stock
(par value $0.01 per share)
(Liquidation Preference as specified below)
Clarios International Inc., a Delaware corporation (the Corporation), hereby certifies that [ ] (the Holder), is the registered owner of [ ] [the number shown on Schedule I hereto of] fully paid and non-assessable shares of the Corporations designated [Dividend Rate]% Series A Mandatory Convertible Preferred Stock, with a par value of $0.01 per share and a Liquidation Preference of $50.00 per share (the Mandatory Convertible Preferred Stock). The shares of Mandatory Convertible Preferred Stock are transferable on the books and records of the Registrar, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designations, rights, privileges, restrictions, preferences and other terms and provisions of Mandatory Convertible Preferred Stock represented hereby are and shall in all respects be subject to the provisions of the Certificate of Designations of [Dividend Rate]% Series A Mandatory Convertible Preferred Stock of Clarios International Inc. dated [Initial Issue Date], 2021 as the same may be amended from time to time (the Certificate of Designations). Capitalized terms used herein but not defined shall have the meaning given them in the Certificate of Designations. The Corporation will provide a copy of the Certificate of Designations to the Holder without charge upon written request to the Corporation at its principal place of business. In the case of any conflict between this Certificate and the Certificate of Designations, the provisions of the Certificate of Designations shall control and govern.
Reference is hereby made to the provisions of Mandatory Convertible Preferred Stock set forth on the reverse hereof and in the Certificate of Designations, which provisions shall for all purposes have the same effect as if set forth at this place.
Upon receipt of this executed certificate, the Holder is bound by the Certificate of Designations and is entitled to the benefits thereunder.
Unless the Transfer Agent and Registrar have properly countersigned, these shares of Mandatory Convertible Preferred Stock shall not be entitled to any benefit under the Certificate of Designations or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, this certificate has been executed on behalf of the Corporation by the below authorized Officers of the Corporation this [ ] of [ ] [ ].
CLARIOS INTERNATIONAL INC. | ||||
By: |
| |||
Name: | ||||
Title: |
||||
By: |
| |||
Name | ||||
Title: |
COUNTERSIGNATURE
These are shares of Mandatory Convertible Preferred Stock referred to in the within-mentioned Certificate of Designations.
Dated: [ ], [ ]
COMPUTERSHARE TRUST COMPANY, N.A., as Registrar and Transfer Agent | ||||
By: |
| |||
Name: | ||||
Title: |
[FORM OF REVERSE OF CERTIFICATE FOR [DIVIDEND RATE]% SERIES
A MANDATORY CONVERTIBLE PREFERRED STOCK]
Cumulative dividends on each share of Mandatory Convertible Preferred Stock shall be payable at the applicable rate provided in the Certificate of Designations when, as and if declared by the Board of Directors.
The shares of Mandatory Convertible Preferred Stock shall be convertible in the manner and in accordance with the terms set forth in the Certificate of Designations.
The Corporation shall furnish without charge to each Holder who so requests the powers, designations, limitations, preferences and relative, participating, optional or other special rights of each class or series of stock of the Corporation and the qualifications, limitations or restrictions of such preferences and/or rights.
NOTICE OF CONVERSION
(To be Executed by the Holder
in order to Convert [Dividend Rate]% Series A Mandatory Convertible Preferred Stock)
The undersigned hereby irrevocably elects to convert (the Conversion) [Dividend Rate]% Series A Mandatory Convertible Preferred Stock (the Mandatory Convertible Preferred Stock), of Clarios International Inc. (hereinafter called the Corporation), represented by stock certificate No(s). [ ] (the Mandatory Convertible Preferred Stock Certificates), into common stock, par value $0.01 per share, of the Corporation (the Common Stock) according to the conditions of the Certificate of Designations of [Dividend Rate]% Series A Mandatory Convertible Preferred Stock (the Certificate of Designations), as of the date written below. Holders that submit shares of Mandatory Convertible Preferred Stock during a Fundamental Change Conversion Period shall be deemed to have exercised their Fundamental Change Conversion Right.
If Common Stock is to be issued in the name of a Person other than the undersigned, the undersigned shall pay all transfer taxes payable with respect thereto, if any. Each Mandatory Convertible Preferred Stock Certificate (or evidence of loss, theft or destruction thereof) is attached hereto.
Capitalized terms used but not defined herein shall have the meanings ascribed thereto in or pursuant to the Certificate of Designations.
Date of Conversion: |
|
|||
Applicable Conversion Rate: |
|
Shares of Mandatory Convertible Preferred Stock to be Converted: |
|
Shares of Common Stock to be Issued:* |
|
Signature: |
|
|||||
Name: |
|
|||||
Address:** |
|
|||||
Fax No.: |
|
* | The Corporation is not required to issue Common Stock until the original Mandatory Convertible Preferred Stock Certificate(s) (or evidence of loss, theft or destruction thereof) to be converted are received by the Corporation or the Conversion and Dividend Disbursing Agent. |
** | Address where Common Stock and any other payments or certificates shall be sent by the Corporation. |
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers the shares of [Dividend Rate]% Series A Mandatory Convertible Preferred Stock evidenced hereby to:
(Insert assignees social security or taxpayer identification number, if any)
(Insert address and zip code of assignee)
and irrevocably appoints:
as agent to transfer the shares of [Dividend Rate]% Series A Mandatory Convertible Preferred Stock evidenced hereby on the books of the Transfer Agent. The agent may substitute another to act for him or her.
Date:
Signature:
(Sign exactly as your name appears on the other side of this Certificate)
Signature Guarantee:
(Signature must be guaranteed by an eligible guarantor institution that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Transfer Agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program (STAMP) or such other signature guarantee program as may be determined by the Transfer Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.)
SCHEDULE I*
Clarios International Inc.
Global Preferred Share
[Dividend Rate]% Series A Mandatory Convertible Preferred Stock
Certificate Number:
The number of shares of Mandatory Convertible Preferred Stock initially represented by this Global Preferred Share shall be [ ]. Thereafter the Transfer Agent and Registrar shall note changes in the number of shares of Mandatory Convertible Preferred Stock evidenced by this Global Preferred Share in the table set forth below:
Amount of Decrease in Number of Shares Represented by this Global Preferred Share |
Amount of Increase in Number of Shares Represented by this Global Preferred Share |
Number of Shares Represented by this Global Preferred Share following Decrease or Increase |
Signature of Authorized Officer of Transfer Agent and Registrar | |||
* | Attach Schedule I only to Global Preferred Shares. |
Exhibit 5.1
+1 212 450 4000 davispolk.com |
Davis Polk & Wardwell LLP 450 Lexington Avenue |
[-], 2021
Clarios International Inc.
5757 N Green Bay Avenue
Florist Tower
Milwaukee, Wisconsin 53209
Ladies and Gentlemen:
Clarios International Inc., a Delaware corporation (the Company), has filed with the Securities and Exchange Commission (i) a Registration Statement on Form S-1 (the Common Stock Registration Statement) and the related prospectus (the Common Stock Prospectus) for the purpose of registering under the Securities Act of 1933, as amended (the Securities Act), [●] shares of its common stock, par value $0.01 per share (the Common Stock), including [●] shares subject to the underwriters over-allotment option, as described in the Common Stock Registration Statement and (ii) a Registration Statement on Form S-1 (the Mandatory Convertible Registration Statement and, together with the Common Stock Registration Statement, the Registration Statements) and related prospectus (the Mandatory Convertible Prospectus and, together with the Common Stock Prospectus, the Prospectuses) for the purpose of registering under the Securities Act [●] shares of Series A mandatory convertible preferred stock, par value $0.01 per share with an initial liquidation preference of $50.00 per share (the Mandatory Convertible Preferred Stock and, together with the Common Stock, the Securities), including [●] shares subject to the underwriters over-allotment option, as described in the Mandatory Convertible Registration Statement.
We, as your counsel, have examined originals or copies of such documents, corporate records, certificates of public officials and other instruments as we have deemed necessary or advisable for the purpose of rendering this opinion.
In rendering the opinion expressed herein, we have, without independent inquiry or investigation, assumed that (i) all documents submitted to us as originals are authentic and complete, (ii) all documents submitted to us as copies conform to authentic, complete originals, (iii) all signatures on all documents that we reviewed are genuine, (iv) all natural persons executing documents had and have the legal capacity to do so, (v) all statements in certificates of public officials and officers of the Company that we reviewed were and are accurate and (vi) all representations made by the Company as to matters of fact in the documents that we reviewed were and are accurate.
Based upon the foregoing, and subject to the additional assumptions and qualifications set forth below, we advise you that, in our opinion, when the prices at which the Securities to be sold has been approved by or on behalf of the Board of Directors of the Company and when the Securities have been issued and delivered against payment therefor in accordance with the terms of the
applicable Underwriting Agreement referred to in the applicable prospectus which is a part of the respective Registration Statement, the Securities will be validly issued, fully paid and non-assessable.
We are members of the Bar of the State of New York and the foregoing opinion is limited to the General Corporation Law of the State of Delaware.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statements and further consent to the reference to our name under the caption Legal Matters in the Prospectuses. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act.
Very truly yours,
Exhibit 10.1
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this Agreement), dated as of [●], 2021, is by and between Clarios International Inc., a Delaware corporation (the Company), Brookfield Capital Partners V GP LLC, a Delaware limited liability company (Brookfield), CDPQ SMA (Carry Vehicle) LP, an Ontario limited partnership (CDPQ SMA), Panther Co-Invest Vehicle LP, an Ontario limited partnership (Panther Co-Invest) and Panther B-Class LP, an Ontario limited partnership (Panther B-Cass LP and, together with CDPQ SMA and Panther Co-Invest, CDPQ and, together with Brookfield, the Sponsor Group and each of Brookfield and CDPQ, a Sponsor). Each Sponsor and any other Person who may become a party hereto pursuant to Sections 8 or 12(c) are referred to individually as a Stockholder and generally as a Holder and collectively as the Stockholders and generally as the Holders.
WHEREAS, on the date hereof, the Company completed an initial public offering (the IPO) of shares of the Companys common stock, par value $0.01 per share (the Common Stock) pursuant to an underwriting agreement dated [●], 2021; and
WHEREAS, each Sponsor desires to have, and the Company desires to grant, certain registration and other rights with respect to the Registrable Securities following the IPO on the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
Section 1. Definitions. As used in this Agreement, the following terms shall have the following meanings, and terms used herein but not otherwise defined herein shall have the meanings assigned to them in the Stockholder Rights Agreement dated [●], 2021.
Adverse Disclosure means public disclosure of material non-public information that the Company has determined in good faith (after consultation with legal counsel): (i) would be required to be made in any Registration Statement filed with the SEC by the Company so that such Registration Statement or report would not be materially misleading; (ii) would not be required to be made at such time but for the filing, effectiveness or continued use of such Registration Statement or report; and (iii) the Company has a bona fide business purpose for not disclosing publicly.
Affiliate shall have the meaning specified in Rule 12b-2 under the Exchange Act.
Agreement shall have the meaning set forth in the Preamble.
Brookfield shall have the meaning set forth in the Preamble.
CDPQ shall have the meaning set forth in the Preamble.
Common Stock shall have the meaning set forth in the Preamble.
Company shall have the meaning set forth in the Preamble.
Demand Notice shall have the meaning set forth in Section 3(a).
Demand Registration shall have the meaning set forth in Section 3(a).
Demand Suspension shall have the meaning set forth in Section 8(q).
Exchange Act shall mean the Securities Exchange Act of 1934, as amended, and any successor statute thereto, and the rules and regulations of the SEC promulgated thereunder.
Holder and Holders shall have the meanings set forth in the Preamble.
Indemnified Party shall have the meaning set forth in Section 10(c).
Indemnifying Party shall have the meaning set forth in Section 10(c).
Initiating Sponsor means the Sponsor who delivers to the Company a Demand Notice, a Shelf Notice or a Take-Down Notice, as applicable.
IPO shall have the meaning set forth in the Preamble.
IPO Lock-up Period means the period ending 180 days after the date of the prospectus relating to the IPO.
Issuer Free Writing Prospectus means an issuer free writing prospectus, as defined in Rule 433 under the Securities Act, relating to an offer of Registrable Securities.
Long-Form Registration shall have the meaning set forth in Section 3(a).
Losses shall have the meaning set forth in Section 10(a).
Marketed Underwritten Offering shall mean a registered Underwritten Offering of Registrable Securities (including any registered underwritten Shelf Offering) that is consummated, withdrawn or abandoned by the applicable Holders following formal participation by the Companys management in a customary road show (including an electronic road show) or other similar marketing effort by the Company over a period of at least 48 hours.
Offering Material means any issuer information filed or required to be filed pursuant to Rule 433(d) under the Securities Act, any written testing-the-waters communication or any road show as defined in Rule 433(h) under the Securities Act.
Offering Persons shall have the meaning set forth in Section 8(o).
Permitted Assignee shall have the meaning set forth in Section 12(c).
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Person shall mean any natural person, corporation, limited partnership, general partnership, limited liability company, joint stock company, joint venture, association, company, estate, trust, bank trust company, land trust, business trust, or other organization, whether or not a legal entity, custodian, trustee-executor, administrator, nominee or entity in a representative capacity and any government or agency or political subdivision thereof.
Piggyback Notice shall have the meaning set forth in Section 6(a).
Piggyback Registration shall have the meaning set forth in Section 6(a).
Piggyback Request shall have the meaning set forth in Section 6(a).
Pro Rata Percentage means, as of any date, with respect to a Holder, a number of Registrable Securities equal to (i) the number of Registrable Securities held by such Holder as of such date multiplied by (ii) the Pro Rata Sponsor Percentage with respect to a Sponsor for the applicable Registration Statement.
Pro Rata Sponsor Percentage means an amount equal to the fraction (expressed as a percentage) determined by dividing (A) the number of Registrable Securities that the applicable Sponsor has requested to be registered on the applicable Registration Statement or included in the applicable Shelf Offering (provided that such number shall be reduced by the number of Registrable Securities, if any, that such Sponsor shall withdraw therefrom in accordance with this Agreement by (B) the total number of Registrable Securities beneficially owned as of the date of such request (or such withdrawal, if applicable) by such Sponsor (and its Affiliates and Permitted Assignees); provided, however, that the applicable Sponsor may freely re-allocate any number of Registrable Securities held by such Sponsor (or any of its Affiliates and Permitted Assignees) to any of its Affiliates (or their Permitted Assignees) for purposes of determining a Pro Rata Sponsor Percentage.
Proceeding shall mean an action, claim, suit, arbitration or proceeding (including an investigation or partial proceeding, such as a deposition), whether commenced or threatened.
Prospectus shall mean the prospectus included in any Registration Statement (including a prospectus that discloses information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A or Rule 430B under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus.
Registrable Securities shall mean, as of any date of determination, any shares of Common Stock that the Stockholders have acquired or have the right to acquire and any other securities issued or issuable with respect to any such shares by way of share
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split, share dividend, distribution, recapitalization, merger, exchange, replacement or similar event or otherwise acquired from time to time. As to any particular Registrable Securities, once issued, such securities shall cease to be Registrable Securities when (i) they are sold pursuant to an effective Registration Statement under the Securities Act, (ii) the Stockholder thereof is able to dispose of all of its, his or her Registrable Securities pursuant to Rule 144 without any volume limitations or manner of sale limitations thereunder, provided that at such time such Registrable Securities are not required to bear any legend restricting the transfer thereof, or (iii) they shall have ceased to be outstanding.
Registration Statement shall mean any registration statement of the Company filed, or to be filed with, the SEC under the Securities Act, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such registration statement, that covers any of the Registrable Securities pursuant to the provisions of this Agreement.
Rule 144 shall mean Rule 144 under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.
SEC shall mean the Securities and Exchange Commission or any successor agency having jurisdiction under the Securities Act.
Securities Act shall mean the Securities Act of 1933, as amended, and any successor statute thereto, and the rules and regulations of the SEC promulgated thereunder.
Shelf Holder shall have the meaning set forth in Section 4(b).
Shelf Offering shall have the meaning set forth in Section 4(d).
Shelf Registration Statement means a Registration Statement of the Company filed with the SEC on Form S-3 (or any successor form or other appropriate form under the Securities Act) for an offering to be made on a continuous basis pursuant to Rule 415 (or any successor provision) under the Securities Act covering all or any portion of the Registrable Securities, as applicable.
Shelf Suspension shall have the meaning set forth in Section 4(c).
Short-Form Registration shall have the meaning set forth in Section 3(a).
Sponsor Group shall have the meaning set forth in the Preamble.
Stockholder and Stockholders shall have the meanings set forth in the Preamble.
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Take-Down Notice shall have the meaning set forth in Section 4(d).
Underwritten Registration and Underwritten Offering shall mean a registration or offering, as the case may be, in which securities of the Company are sold to an underwriter for reoffering to the public.
Well-Known Seasoned Issuer shall have the meaning set forth in Rule 405 (or any successor provision) under the Securities Act.
Section 2. Holders of Registrable Securities. A Person is deemed, and shall only be deemed, to be a Holder of Registrable Securities if such Person owns Registrable Securities or has a right to acquire such Registrable Securities and such Person is a Holder.
Section 3. Demand Registrations.
(a) Requests for Registration. Subject to the following paragraphs of this Section 3, each Sponsor shall have the right, by delivering or causing to be delivered a written notice to the Company (a Demand Notice) from time to time, to require the Company to register pursuant to the terms of this Agreement, under and in accordance with the provisions of the Securities Act, the offer and sale of the number of Registrable Securities requested to be so registered on Form S-3 (which, unless the applicable Sponsor requests otherwise, shall be filed pursuant to Rule 415 under the Securities Act), if the Company is then eligible for such short-form or any similar or successor short-form registration (Short-Form Registration) or, if the Company is not then eligible for Short-Form Registration, on Form S-1 or any similar or successor long-form registration (Long-Form Registration) (any such registration, a Demand Registration); provided that (x) Brookfield shall be entitled to an unlimited number of Demand Registrations and (y) CDPQ shall be entitled to three (3) Demand Registrations; provided further, however, that unless a Sponsor requests to have registered all of its Registrable Securities, a Demand Notice for a Marketed Underwritten Offering may only be made if the sale of the Registrable Securities requested to be registered by such Sponsor is reasonably expected to result in aggregate gross cash proceeds in excess of $75,000,000 (without regard to any underwriting discount or commission). Following receipt of a Demand Notice for a Demand Registration in accordance with this Section 3(a), the Company shall use its reasonable best efforts to (x) file with the SEC a Registration Statement in accordance with such Demand Notice and the provisions of this Agreement as promptly as reasonably practicable and, in any event, within thirty (30) days following receipt of such Demand Notice and (y) cause such Registration Statement to become effective as promptly as practicable thereafter; provided, however, that if a Demand Notice is delivered prior to the expiration of the IPO Lock-up Period and the IPO Lock-Up Period has not been waived by the Underwriters of the IPO, the Company shall not be obligated to file (but shall be obligated to prepare) such Registration Statement prior to the expiration of the IPO Lock-up Period. With respect to any Underwritten Offering to be conducted pursuant to any Demand Registration, the Initiating Sponsor shall select the underwriter(s) for such offering,
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subject to the approval of such underwriter(s) by the board of directors of the Company (the Board).
The Company shall use its reasonable best efforts to keep any Registration Statement with respect to any Demand Registration filed pursuant to this Section 3(a) continuously effective under the Securities Act until the earlier to occur of (x) 180 days after the effective date thereof and (y) consummation of the distribution by the Holders of Registrable Securities included in such Registration Statement.
No Demand Registration shall be deemed to have occurred for purposes of this Section 3, if (x) the Registration Statement relating thereto (and covering all Registrable Securities specified in the applicable Demand Notice for sale in accordance with the intended method or methods of distribution specified in such Demand Notice, subject to any cut-back pursuant to Section 3(c)) (i) does not become effective, or (ii) is not maintained continuously effective for the period required pursuant to this Section 3, (y) the offering of the Registrable Securities pursuant to such Registration Statement is subject to a stop order, injunction, or similar order or requirement of the SEC during such period or (z) the conditions to closing specified in any underwriting agreement, purchase agreement, or similar agreement entered into in connection with the registration relating to such request are not satisfied other than as a result of the Initiating Sponsors actions.
All requests made pursuant to this Section 3 shall: (i) state that it is a notice to initiate a Demand Registration under this Agreement; and (ii) specify the number of Registrable Securities to be registered and the intended method(s) of disposition thereof.
(b) Company Notices. Within five (5) business days after receipt by the Company of a Demand Notice pursuant to this Section 3, the Company shall deliver a written notice of any such Demand Notice to all Holders of Registrable Securities (other than the Initiating Sponsor), which shall offer each such Holder the opportunity to include in the Demand Registration an amount of Registrable Securities up to its Pro Rata Percentage as each such Holder may request in writing. The Company shall, subject to the provisions of Section 3(c), include in such Demand Registration all such Registrable Securities with respect to which the Company has received written requests for inclusion therein within ten (10) business days after the date that such notice has been delivered; provided that the Company shall not include in such Demand Registration Registrable Securities of any Holder in an amount in excess of such Holders Pro Rata Percentage, and provided, further, that such Holders must agree to the method of distribution proposed by the applicable Sponsor and, in connection with any Underwritten Registration, such Sponsor (together with the Company and the other Holders including securities in such Underwritten Registration) must enter into an underwriting agreement in the form reasonably approved by the Company and each Sponsor whose Registrable Securities will be included in such Underwritten Registration.
(c) Priority on Demand Registration. If any of the Registrable Securities registered pursuant to a Demand Registration are to be sold in an Underwritten Offering, and the managing underwriter(s) advise the Initiating Sponsor in writing that in its good faith determination the total number or dollar amount of Registrable Securities proposed
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to be sold in such offering is such as to adversely affect the price, timing or distribution of such offering (including securities proposed to be included by other Holders entitled to include such securities in such Registration Statement pursuant to incidental or piggyback registration rights), then there shall be included in such Underwritten Offering the number or dollar amount of Registrable Securities that in the opinion of such managing underwriter(s) can be sold without adversely affecting such offering, and such number of Registrable Securities shall be allocated as follows: (i) first, any Registrable Securities for which inclusion in such Demand Registration was requested by the Initiating Sponsor; (ii) second, any Registrable Securities requested by the non-Initiating Sponsor; (iii) third, pro-rata among the Holders of Registrable Securities other than the Sponsors that have requested to participate in such Demand Registration on the basis of the percentage of the Registrable Securities requested to be included in such Registration Statement by such Holders; (iv) fourth, pro-rata among any other Holders entitled to include such securities in such Registration Statement pursuant to piggyback registration rights; and (v) fifth, any securities for which inclusion in such Demand Registration was requested by the Company.
No securities excluded from the Underwritten Offering by reason of the managing underwriter(s) marketing limitations shall be included in such offering.
(d) Postponement of Demand Registration. The Company may postpone, for a reasonable period of time on one or more occasions not in excess of 120 days in the aggregate (together with any Shelf Suspensions) in any 12-month period, the filing (but not the preparation) of a Registration Statement if the Board determines in its good faith judgment that such Demand Registration would reasonably be expected to (i) materially interfere with any proposal or plan that is material to the Company related to any financing, acquisition of assets or securities, recapitalization, merger, consolidation, tender offer, reorganization or similar transaction, (ii) require the Company to make an Adverse Disclosure or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act.
If the Company shall so postpone the filing of a Registration Statement, the Initiating Sponsor shall have the right to withdraw the request for registration by giving written notice to the Company and, for the avoidance of doubt, upon such withdrawal, the withdrawn request shall not constitute a Demand Notice; provided that in the event the Initiating Sponsor does not so withdraw the request for registration, the Company shall continue to prepare a Registration Statement during such postponement such that it shall be in a position to and shall, as promptly as practicable following the expiration of the applicable deferral or suspension period, file or update and use its reasonable efforts to cause the effectiveness of the applicable deferred or suspended Registration Statement.
(e) Cancellation of a Demand Registration. The Initiating Sponsor shall have the right to notify the Company that it has determined that the applicable Registration Statement be abandoned or withdrawn by giving written notice of such abandonment or withdrawal to the Company at any time prior to the effective time of such Registration Statement, in which event the Company shall
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abandon or withdraw such Registration Statement; provided that such request shall constitute a Demand Notice under Section 3(a) unless the withdrawal is made pursuant to Section 3(d).
(f) In addition, any Holder that has requested its Registrable Securities be included in a Demand Registration Statement pursuant to Section 3 may withdraw its Registrable Securities from such Demand Registration Statement at any time prior to the effectiveness of such Demand Registration Statement.
Section 4. Shelf Registration.
(a) Request for Shelf Registration. Subject to the following paragraphs of this Section 4, each Sponsor shall have the right, by delivering or causing to be delivered a written notice to the Company and (a Shelf Notice) to require the Company to file pursuant to the terms of this Agreement, under and in accordance with the provisions on the Securities Act, a Shelf Registration Statement for the offer and sale from time to time of the Registrable Securities held by such Sponsor within thirty (30) days of becoming eligible to do so under and in accordance with the provisions of the Securities Act, and shall use commercially reasonable efforts to cause such Shelf Registration Statement to be declared effective as soon as practicable thereafter; provided that the parties acknowledge and agree that the sale of any Registrable Securities registered under such Shelf Registration Statement may be subject to restrictions imposed by lock-up or holdback restrictions and/or applicable securities laws. Such Shelf Registration Statement shall provide for the resale of the Registrable Securities included therein pursuant to any method or combination of methods legally available to, and requested by, any of the Holders named therein. For the avoidance of doubt, the filing of a Shelf Registration Statement under this Section 4(a) shall not constitute a Demand Registration; provided that any request for an Underwritten Offering to be made under such Shelf Registration Statement shall constitute a Demand Registration.
The Company shall use its reasonable best efforts to keep any Shelf Registration Statement filed pursuant to this Section 4(a) continuously effective under the Securities Act in order to permit the Prospectus forming a part thereof to be usable by Shelf Holders until such securities cease to be Registrable Securities.
Any request made pursuant to this Section 4(a) shall state that it is a notice to initiate the filing of a Shelf Registration Statement under this Agreement, and specify the amount of Registrable Securities to be registered and the intended method(s) of distribution thereof.
(b) Company Notices. Within five (5) business days after receipt by the Company of a Shelf Notice pursuant to Section 4, the Company shall deliver a written notice of such Shelf Notice to all Holders of Registrable Securities (other than the Initiating Holder), which shall offer each such Holder the opportunity to include in the Shelf Registration Statement an amount of Registrable Securities up to its Pro Rata Percentage as each such Holder may request in writing (each such Holder delivering such a request, together with the applicable Sponsor, a Shelf Holder). The Company shall
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include in such Shelf Registration all such Registrable Securities with respect to which the Company has received written requests for inclusion therein within five (5) business days after the date that such notice has been delivered; provided that the Company shall not include in such Shelf Registration Registrable Securities of any Holder in an amount in excess of such Holders Pro Rata Percentage.
(c) Suspension of Registration. The Company may postpone the filing or suspend the continued use, for a reasonable period of time on one or more occasions not in excess of 120 days in the aggregate (together with any Demand Suspensions) in any 12-month period, of the Shelf Registration Statement (a Shelf Suspension) if the Board determines in its good faith judgment that such Shelf Registration Statement would reasonably be expected to (i) materially interfere with any proposal or plan that is material to the Company related to any financing, acquisition of assets or securities, recapitalization, merger, consolidation, tender offer, reorganization or similar transaction, (ii) require the Company to make an Adverse Disclosure or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act; provided, however, that such Shelf Suspension shall terminate at such time as such Shelf Registration Statement would no longer reasonably be expected to (i) materially interfere with any proposal or plan that is material to the Company related to any financing, acquisition of assets or securities, recapitalization, merger, consolidation, tender offer, reorganization or similar transaction, (ii) require the Company to make an Adverse Disclosure or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act. In the case of a Shelf Suspension, the Shelf Holders agree to suspend use of the applicable Prospectus and any Issuer Free Writing Prospectus in connection with any sale or purchase of, or offer to sell or purchase, Registrable Securities, upon delivery of notice by the Company. The Company shall promptly notify the Shelf Holders upon the termination of any Shelf Suspension, amend or supplement the Prospectus and any Issuer Free Writing Prospectus, if necessary, so it does not contain any untrue statement or omission and furnish to the Shelf Holders such numbers of copies of the Prospectus and any Issuer Free Writing Prospectus as so amended or supplemented as the Shelf Holders may reasonably request. The Company agrees, if necessary, to supplement or make amendments to the Shelf Registration Statement if required by the registration form used by the Company for the applicable Registration or by the instructions applicable to such registration form or by the Securities Act or the rules or regulations promulgated thereunder, or as may reasonably be requested by each Sponsor.
(d) Shelf Take Downs. An offering or sale of Registrable Securities pursuant to a Shelf Registration Statement (each, a Shelf Offering) may be initiated at any time by either Sponsor. If a Sponsor elects by written request to the Company (each, a Take-Down Notice), a Shelf Offering shall be in the form of an Underwritten Offering, then the Company shall amend or supplement the Shelf Registration Statement as may be necessary in order to enable such Registrable Securities to be offered and sold pursuant to the Shelf Offering in accordance with the provisions of this Agreement. With respect to any Shelf Offering that is an Underwritten Offering, the Initiating Sponsor shall select the underwriter(s) for such offering, subject to the approval of such underwriter(s) by the Board.
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In connection with any Shelf Offering that is a Marketed Underwritten Offering:
(i) the Company shall deliver a written notice to all Shelf Holders other than the Initiating Sponsor, which shall offer each such Shelf Holder the opportunity to include in the Shelf Offering an amount of Registrable Securities up to its Pro Rata Percentage as such Shelf Holder may request in writing within five (5) business days after the date that such notice has been delivered; provided that such Shelf Holder must agree to the method of distribution proposed by such Sponsor and enter into an underwriting agreement in the form reasonably approved by the Company and each Sponsor whose Registrable Securities will be included in such Underwritten Registration; and
(ii) in the event that the managing underwriter(s) of such Shelf Offering advises the Initiating Sponsor in writing that in their good faith determination the total number or dollar amount of Registrable Securities proposed to be sold in such Shelf Offering is such as to adversely affect the price, timing or distribution of such offering, then the managing underwriter(s) may limit the number of Registrable Securities which would otherwise be included in such Shelf Offering in the same manner as described in Section 3(c) with respect to a limitation of Registrable Securities to be included in a Demand Registration.
Section 5. [Intentionally Omitted.]
Section 6. Piggyback Registration.
(a) Right to Piggyback. Except with respect to a Demand Registration or Shelf Registration, the procedures for which are addressed in Sections 3 and 4, respectively, if the Company proposes to file (A) a Shelf Registration Statement or (B) a registration statement under the Securities Act with respect to an offering of securities other than a Shelf Registration Statement, in either case, whether or not for sale for its own account and whether or not an Underwritten Offering or an Underwritten Registration (other than a registration statement (i) on Form S-4, Form S-8 or any successor forms thereto, (ii) filed to effectuate a dividend reinvestment or similar plan or (iii) in which the only common equity being registered is common equity issuable upon conversion of debt securities also being registered), then the Company shall give prompt written notice of such filing no later than five (5) business days prior to the filing date of any such registration statement, including, for the avoidance of doubt, a Shelf Registration Statement, (the Piggyback Notice) to all of the Holders of Registrable Securities. The Piggyback Notice shall offer such Holders the opportunity to include (or cause to be included) in such registration statement the number of applicable Registrable Securities as each such Holder may request (each, a Piggyback Registration). Subject to Section 6(b), the Company shall include in each such Piggyback Registration all applicable Registrable Securities with respect to which the Company has received written requests for inclusion therein (each a Piggyback
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Request) within three (3) business days after notice has been given to the applicable Holder except that the Company shall include in such Piggyback Registration all applicable Registrable Securities with respect to which the Company has received Piggyback Requests within two (2) business days after notice has been given to the applicable Holder in the case of a bought deal, registered direct offering or overnight transaction where no preliminary prospectus is used; provided that the Company shall not include in any Piggyback Registration Registrable Securities of any Holder in an amount in excess of such Holders Pro Rata Percentage. The Company shall not be required to maintain the effectiveness of the Registration Statement for a Piggyback Registration beyond the earlier to occur of (x) 180 days after the effective date thereof and (y) consummation of the distribution by the Holders of the Registrable Securities (other than those making Piggyback Requests) included in such Registration Statement. With respect to any such Underwritten Offering to be conducted by the Company, the underwriter(s) for such offering shall be selected by a vote of the Board, subject to the reasonable satisfaction of the applicable Sponsor in the event that a Sponsor shall request inclusion of Registrable Securities therein.
(b) Priority on Piggyback Registrations. If any of the Registrable Securities to be registered pursuant to the registration giving rise to the rights under this Section 6 are to be sold in an Underwritten Offering, the Company shall use reasonable best efforts to cause the managing underwriter(s) of a proposed Underwritten Offering to permit Holders of Registrable Securities who have timely submitted a Piggyback Request in connection with such offering to include in such offering all Registrable Securities included in each Holders Piggyback Request on the same terms and subject to the same conditions as any other securities, if any, of the Company included in the offering. Notwithstanding the foregoing, if the managing underwriter(s) of such Underwritten Offering advise the Company in writing that it is their good faith determination the total number or dollar amount of securities that such Holders, the Company and any other Persons having rights to participate in such registration, intend to include in such offering is such as to adversely affect the price, timing or distribution of the securities in such offering, then there shall be included in such Underwritten Offering the number or dollar amount of securities that in the opinion of such managing underwriter(s) can be sold without so adversely affecting such offering, and such number of Registrable Securities shall be allocated as follows: (i) first, all securities proposed to be sold by the Company for its own account; (ii) second, all Registrable Securities requested to be included in such registration by the Holders pursuant to this Section 6, pro rata among such Holders on the basis of the percentage of the Registrable Securities requested to be included in such Registration Statement by such Holders; and (iii) third, all other securities requested to be included in such Registration Statement by other Holders of securities entitled to include such securities in such Registration Statement pursuant to piggyback registration rights; provided that any Holder may, prior to the effectiveness of the Registration Statement, withdraw its request to be included in such registration pursuant to this Section 6.
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Section 7. Restrictions on Public Sale by Holders of Registrable Securities.
(a) With respect to any Underwritten Offering of Registrable Securities pursuant to this Agreement (including with respect to a Shelf Offering pursuant to Section 4(c) hereof), the Company will cause each of its executive officers and directors to sign a customary lock-up agreement containing provisions consistent with those contemplated pursuant to this Section 7 and agrees not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, submit or file with the SEC a registration statement under the Securities Act relating to, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or publicly disclose the intention to make any offer, sale, pledge, disposition, submission or filing, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Common Stock or any such other securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, without the prior written consent of the Underwriters of such Underwritten Offering (other than (A) a registration statement on Form S-8 or any successor forms thereto, (B) Common Stock issued upon the exercise of options, (C) the grant by the Company of awards under stock plans and (D) the issuance of Common Stock or other securities in connection with acquisitions, joint ventures or other strategic transactions) for its own account, within ninety (90) days after the date of the Prospectus (or Prospectus supplement if the offering is made pursuant to a Shelf Registration) for such offering except as may otherwise be agreed with the Sponsor Group.
(b) Each Stockholder of Registrable Securities agrees with all other Stockholders of Registrable Securities and the Company in connection with any Underwritten Offering of Registrable Securities made pursuant to a Registration Statement filed pursuant to Section 3 or Section 4, as applicable, if requested in writing by the managing underwriter(s) in such offering, it will not (i) subject to customary exceptions, effect any public sale or distribution of any of the Companys securities (except as part of such Underwritten Offering), including a sale pursuant to Rule 144 or any swap or other economic arrangement that transfers to another Person any of the economic consequences of owning Common Stock, or (ii) give any Demand Notice during the period commencing on the date of the Prospectus pursuant to which such Underwritten Offering may be made and continuing for not more than ninety (90) days after the date of such Prospectus (or Prospectus supplement if the offering is made pursuant to a Shelf Registration). In connection with any Underwritten Offering made pursuant to a Registration Statement filed pursuant to Section 3 or Section 4, the applicable Sponsor shall be responsible for negotiating all lock-up agreements with the underwriters and, in addition to the foregoing provisions of this Section 7, the Stockholders agree to execute the form so negotiated; provided that the form so negotiated is reasonably acceptable to the applicable Sponsor and consistent with the agreement set forth in this Section 7 and that the Companys executive officers and directors shall also have executed a form of agreement substantially similar to the agreement so negotiated, subject to customary exceptions applicable to natural persons.
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Section 8. Registration Procedures. If and whenever the Company is required to effect the registration of any Registrable Securities under the Securities Act as provided in Section 3 or Section 4, the Company shall use its reasonable best efforts to effect such registration to permit the sale of such Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall cooperate in the sale of the securities and shall use its reasonable best efforts, as promptly as practicable to the extent applicable, to:
(a) prepare and file with the SEC a Registration Statement or Registration Statements on such form as shall be available for the sale of the Registrable Securities by the Holders thereof or by the Company in accordance with the intended method or methods of distribution thereof and in accordance with this Agreement, and use its reasonable best efforts to cause such Registration Statement to become effective and to remain effective as provided herein; provided, however, that before filing a Registration Statement or Prospectus or any amendments or supplements thereto (including documents that would be incorporated or deemed to be incorporated therein by reference), the Company shall furnish or otherwise make available to the Holders of the Registrable Securities covered by such Registration Statement, their counsel and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents will be subject to the reasonable review and comment of such counsel, and such other documents reasonably requested by such counsel, including any comment letter from the SEC, and, if requested by such counsel, provide such counsel reasonable opportunity to participate in the preparation of such Registration Statement and each Prospectus included therein and such other opportunities to conduct a reasonable investigation within the meaning of the Securities Act, including reasonable access to the Companys books and records, officers, accountants and other advisors. The Company shall not file any such Registration Statement or Prospectus or any amendments or supplements thereto (including such documents that, upon filing, would be incorporated or deemed to be incorporated by reference therein) with respect to a Demand Registration to which a Sponsor, its counsel, or the managing underwriters, if any, shall reasonably object, in writing, on a timely basis, unless, in the opinion of the Companys counsel, such filing is necessary to comply with applicable law;
(b) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement continuously effective during the period provided herein and comply in all material respects with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement; and cause the related Prospectus to be supplemented by any Prospectus supplement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of the securities covered by such Registration Statement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act;
(c) notify each selling Holder of Registrable Securities, its counsel and the managing underwriters, if any, promptly, and (if requested by any such Person) confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-
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effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if at any time the Company has reason to believe that the representations and warranties of the Company contained in any agreement (including any underwriting agreement) contemplated by Section 8(n) below cease to be true and correct, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, and (vi) if the Company has knowledge of the happening of any event that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading (which notice shall notify the selling Holders only of the occurrence of such an event and shall provide no additional information regarding such event to the extent such information would constitute material non-public information);
(d) prevent the issuance or obtain the withdrawal of any order suspending the effectiveness of a Registration Statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction at the earliest date reasonably practicable;
(e) if requested by the managing underwriters, if any, or a Sponsor in connection with an Underwritten Offering, promptly include in a Prospectus supplement or post-effective amendment such information as the managing underwriters, if any, and a Sponsor may reasonably request in order to permit the intended method of distribution of such securities and make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received such request; provided, however, that the Company shall not be required to take any actions under this Section 8 that are not, in the opinion of counsel for the Company, in compliance with applicable law;
(f) furnish or make available to each selling Holder of Registrable Securities, its counsel and each managing underwriter, if any, without charge, at least one conformed copy of the Registration Statement, the Prospectus and Prospectus supplements, if applicable, and each post-effective amendment thereto, including financial statements (but excluding schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits, unless requested in writing by such Holder, counsel
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or underwriter); provided that the Company may furnish or make available any such documents in electronic format;
(g) deliver to each selling Holder of Registrable Securities, its counsel, and the underwriters, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of Prospectus) and each amendment or supplement thereto as such Persons may reasonably request from time to time in connection with the distribution of the Registrable Securities; provided that the Company may furnish or make available any such documents in electronic format (other than, in the case of an Underwritten Offering, upon the request of the managing underwriters thereof for printed copies of any such Prospectus or Prospectuses); and the Company, subject to the last paragraph of this Section 8, hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Securities and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any such amendment or supplement thereto;
(h) prior to any Underwritten Offering of Registrable Securities, register or qualify or cooperate with the selling Holders of Registrable Securities, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as any seller or underwriter reasonably requests in writing and to keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective pursuant to this Agreement and to take any other action that may be necessary or advisable to enable such Holders of Registrable Securities to consummate the disposition of such Registrable Securities in such jurisdiction; provided, however, that the Company will not be required to (i) qualify generally to do business in any jurisdiction where would not otherwise be required to qualify but for this Agreement or (ii) take any action that would subject it to taxation or general service of process in any such jurisdiction where it would not otherwise be subject but for this Agreement;
(i) cooperate with, and direct the Companys agents to cooperate with, the selling Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely settlement of any offering or sale of Registrable Securities, including the preparation and delivery of certificates (not bearing any legends) or book-entry (not bearing stop transfer instructions) representing Registrable Securities to be sold after receiving written representations from each Holder of such Registrable Securities that the Registrable Securities represented by the certificates so delivered by such Holder will be transferred in accordance with the Registration Statement and, in connection therewith, if reasonably required by the Companys agents, the Company shall promptly after the effectiveness of the registration statement cause an opinion of counsel as to the effectiveness of any Registration Statement to be delivered to and maintained with its agent, together with any other authorizations, certificates and directions required by the agent which authorize and direct the agent to issue such Registrable Securities without restriction upon sale by the Holder of such shares of Registrable Securities under the Registration Statement;
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(j) upon the occurrence of, and its knowledge of, any event contemplated by Section 8(c)(vi) above, prepare a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus (then in effect) or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the Holder of the Registrable Securities being sold thereunder, such that the Registration Statement will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading, and the Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;
(k) prior to the effective date of the Registration Statement relating to the Registrable Securities, provide a CUSIP number for the Registrable Securities;
(l) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such Registration Statement from and after a date not later than the effective date of such Registration Statement;
(m) cause all Registrable Securities covered by such Registration Statement to be listed on a national securities exchange if the particular class of Registrable Securities is at that time listed on such exchange, as the case may be, prior to the effectiveness of such Registration Statement;
(n) enter into such agreements (including underwriting agreements in form, scope and substance as is customary in Underwritten Offerings and such other documents reasonably required under the terms of such underwriting agreements, including obtaining (i) a cold comfort letter from the Companys independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters and (ii) opinions of counsel from the Companys counsel in customary form and covering such matters of the type customarily covered in a public issuance of securities, in each case, in form and substance reasonably satisfactory to the underwriters and addressed to the managing underwriters) and take all such other actions reasonably requested by a Sponsor in connection therewith (including those reasonably requested by the managing underwriters, if any) to expedite or facilitate the disposition of such Registrable Securities;
(o) in connection with a customary due diligence review, make available for inspection by a representative of the selling Holders with Registrable Securities, any underwriter participating in any such disposition of Registrable Securities, if any, and any counsel or accountants retained by such selling Holders or underwriter (collectively, the Offering Persons), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the officers, directors and employees of the Company and its subsidiaries to supply all information and participate in customary due diligence sessions in each case reasonably requested by any such representative, underwriter, counsel or accountant in connection with such Registration Statement, provided, however, that any information that is not generally publicly available at the time of delivery of such information shall be kept confidential by such Offering Persons unless (i) disclosure of such information is required by court or administrative order or in connection with an audit or examination by, or a blanket document request from, a regulatory or self-regulatory authority, bank examiner or auditor, (ii) disclosure of such information, in the reasonable judgment of the Offering Persons, is required by law or applicable legal process (including in connection with the offer and sale of securities
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pursuant to the rules and regulations of the SEC), (iii) such information is or becomes generally available to the public other than as a result of a non-permitted disclosure or failure to safeguard by such Offering Persons in violation of this Agreement or (iv) such information (A) was known to such Offering Persons (prior to its disclosure by the Company) from a source other than the Company when such source, to the knowledge of the Offering Persons, was not bound by any contractual, legal or fiduciary obligation of confidentiality to the Company with respect to such information, (B) becomes available to the Offering Persons from a source other than the Company when such source, to the knowledge of the Offering Persons, is not bound by any contractual, legal or fiduciary obligation of confidentiality to the Company with respect to such information or (C) was developed independently by the Offering Persons or their respective representatives without the use of, or reliance on, information provided by the Company. In the case of a proposed disclosure pursuant to (i) or (ii) above, such Person shall be required to give the Company written notice of the proposed disclosure prior to such disclosure (except in the case of (ii) above when a proposed disclosure was or is to be made in connection with a Registration Statement or Prospectus under this Agreement and except in the case of clause (i) above when a proposed disclosure is in connection with a routine audit or examination by, or a blanket document request from, a regulatory or self-regulatory authority, bank examiner or auditor);
(p) cooperate with each seller of Registrable Securities and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with FINRA, including the use of reasonable best efforts to obtain FINRAs pre-clearance or pre-approval of the Registration Statement and applicable Prospectus upon filing with the SEC; and
(q) in the case of a Underwritten Offering, cause the senior executive officers of the Company to participate in the customary road show presentations that may be reasonably requested by the managing underwriter or underwriters in any such offering and otherwise to facilitate, cooperate with and participate in each proposed offering contemplated herein and customary selling efforts related thereto.
Each Holder of Registrable Securities as to which any registration is being effected shall furnish to the Company in writing such information required in connection with such registration regarding such seller and the distribution of such Registrable Securities as the Company may, from time to time, reasonably request in writing as a condition for any Registrable Securities to be included in the applicable registration
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hereunder. For the avoidance of doubt, failure of any Holder of Registrable Securities to furnish the Company with such information as requested by the Company pursuant to the preceding sentence shall relieve the Company of any obligation hereunder to include the applicable Registrable Securities in the Registration Statement with respect to which such information was requested.
Each Holder of Registrable Securities agrees if such Holder has Registrable Securities covered by such Registration Statement that, upon receipt of any written notice from the Company of the happening of any event of the kind described in Section (c)(ii), (iii), (iv), (v) or (vi) (Demand Suspension), such Holder will forthwith discontinue disposition of such Registrable Securities pursuant to such Registration Statement or Prospectus until such Holders receipt of the copies of the supplemented or amended Prospectus contemplated by Section 8(j), or until it is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus; provided, however, that the time periods under Section 3 with respect to the length of time that the effectiveness of a Registration Statement must be maintained shall automatically be extended by the amount of time the Stockholder is required to discontinue disposition of such securities.
Notwithstanding anything herein to the contrary and subject to applicable law and regulation, the Company may satisfy any obligation hereunder to file a Registration Statement or to have a Registration Statement become effective by a specified date by designating, by notice to the Holders, a registration statement that previously has been filed with the SEC or become effective, as the case may be, as the relevant Registration Statement for purposes of satisfying such obligation, and all references to any such obligation or Registration Statement shall be construed accordingly; provided that such previously filed registration statement may be amended to add the number of Registrable Securities, and, to the extent necessary, to identify as selling securityholders those Holders required to be included in the Registration Statement pursuant to the terms of this Agreement.
Section 9. Registration Expenses. All fees and expenses incurred by the Company and incident to the performance of or compliance with this Agreement by the Company (including without limitation (i) all registration and filing fees (including fees and expenses with respect to (A) all SEC, stock exchange or trading system and FINRA registration, listing, filing and qualification and any other reasonable fees associated with such filings, including with respect to counsel for the underwriters and any qualified independent underwriter in connection with FINRA qualifications, (B) rating agencies and (C) compliance with securities or blue sky laws, including any reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities pursuant to Section 8(h)), (ii) fees and expenses of the financial printer, (iii) messenger, telephone and delivery expenses of the Company, (iv) fees and disbursements of counsel for the Company, (v) fees and disbursements of all independent certified public accountants, including the expenses of any special audits and/or comfort letters required by or incident to such performance
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and compliance) and (vi) all reasonable fees and expenses of one counsel retained by the Holders of Registrable Securities, shall be borne by the Company, whether or not any Registration Statement is filed or becomes effective. All underwriters discounts and selling commissions, in each case related to Registrable Securities registered in accordance with this Agreement, shall be borne by the Holders of Registrable Securities included in such registration pro rata among each other on the basis of the number of Registrable Securities so registered.
In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.
Section 10. Indemnification.
(a) Indemnification by the Company. The Company shall indemnify and hold harmless each Holder of Registrable Securities whose Registrable Securities are covered by a Registration Statement or Prospectus, its Affiliates, directors and officers from and against any and all losses, claims, damages and liabilities (including, without limitation, reasonable legal fees and other reasonable expenses incurred and documented in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred) (collectively, Losses), joint or several, that arise out of, or are based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, not misleading, or (ii) any untrue statement or alleged untrue statement of a material fact contained in any Prospectus, Issuer Free Writing Prospectus or Offering Material, or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Holder furnished to the Company in writing by such Holder expressly for use therein.
(b) Indemnification by Holder of Registrable Securities. Each Holder of Registrable Securities shall indemnify and hold harmless, severally and not jointly, the Company, its directors, its officers and each Person who controls the Company within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act to the same extent as the indemnity set forth in paragraph (a) above, but only with respect to any Losses, joint or several, that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to such Holder furnished to the Company in writing by such Holder expressly for use in any Registration Statement, Prospectus, Issuer Free Writing Prospectus or Offering Material.
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(c) Conduct of Indemnification Proceedings. If any Person shall be entitled to indemnification hereunder (each, an Indemnified Party), such Indemnified Party shall give prompt notice to the party from which such indemnity is sought (each, an Indemnifying Party) of any claim or of the commencement of any Proceeding with respect to which such Indemnified Party seeks indemnification or contribution pursuant hereto; provided, however, that the delay or failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party from any obligation or liability except to the extent that the Indemnifying Party has been materially prejudiced by such delay or failure. The Indemnifying Party shall have the right, exercisable by giving written notice to an Indemnified Party promptly after the receipt of written notice from such Indemnified Party of such claim or Proceeding, to, unless in the Indemnified Partys reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, assume, at the Indemnifying Partys expense, the defense of any such claim or Proceeding, with counsel reasonably satisfactory to such Indemnified Party; provided, however, that an Indemnified Party shall have the right to employ separate counsel in any such claim or Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless: (i) the Indemnifying Party agrees to pay such fees and expenses; (ii) the Indemnifying Party fails to assume the defense of such claim within a reasonable time after receipt of notice of such claim from the Indemnified Party; (iii) in the reasonable judgment of any such Indemnified Party (based upon advice of its counsel) a conflict of interest exists and the Indemnifying Party cannot assume the defense of such claim or Proceeding; or the Indemnifying Party fails to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding, in which case the Indemnified Party shall have the right to employ separate counsel and to assume the defense of such claim or proceeding at the Indemnifying Partys expense; provided, further, however, that the Indemnifying Party shall not, in connection with any one such claim or Proceeding or separate but substantially similar or related claims or Proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one firm of attorneys (together with appropriate local counsel) at any time for all of the Indemnified Parties. Whether or not such defense is assumed by the Indemnifying Party, such Indemnifying Party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). The Indemnifying Party shall not consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release, in form and substance reasonably satisfactory to the Indemnified Party, from all liability in respect of such claim or litigation for which such Indemnified Party would be entitled to indemnification hereunder. All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such proceeding in a manner not inconsistent with this Section 10) shall be paid to the Indemnified Party, as incurred, promptly upon receipt of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder, provided that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that
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such Indemnified Party is not entitled to indemnification under this Section 10).
(d) Contribution. If the indemnification provided for in this Section 10 is unavailable to an Indemnified Party in respect of any Losses (other than in accordance with its terms), then each applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party, on the one hand, and Indemnified Party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made (or omitted) by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission.
The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 11 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 10(d), an Indemnifying Party that is a selling Stockholder of Registrable Securities shall not be required to contribute any amount in excess of the amount that such Indemnifying Party has otherwise been, or would otherwise be, required to pay pursuant to Section 10 by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the Underwritten Offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
Section 11. Rule 144. The Company shall use reasonable best efforts to: (i) file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner, to the extent required from time to time to enable all Holders to sell Registrable Securities without registration under the Securities Act within the limitations of the exemption provided by Rule 144; and (ii) so long as any Registrable Securities are outstanding, furnish Holders thereof upon request (A) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 under the Securities Act, and of the Exchange Act and (B) a copy of the most recent annual or quarterly report of the Company (except to the extent the same is available on the SECs Electronic Data Gathering, Analysis, and Retrieval system).
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Section 12. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the written consent of each Sponsor. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Stockholders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Stockholders of Registrable Securities may be given by Stockholders of at least a majority of the Registrable Securities being sold by such Holders pursuant to such Registration Statement.
(b) Notices. All notices required to be given hereunder shall be in writing and shall be deemed to be duly given if personally delivered, telecopied and confirmed, emailed and confirmed or mailed by certified mail, return receipt requested, or overnight delivery service with proof of receipt maintained, at the following address (or any other address that any such party may designate by written notice to the other parties): if to the Company, to the address of its principal executive offices; if to any Holder, at such Holders address as set forth on the records of the Company or such other address as such Holder notifies the Company in writing. Any such notice shall, if delivered personally, be deemed received upon delivery; shall, if delivered by telecopy or email, be deemed received on the first business day following confirmation; shall, if delivered by overnight delivery service, be deemed received the first business day after being sent; and shall, if delivered by mail, be deemed received upon the earlier of actual receipt thereof or five (5) business days after the date of deposit in the United States mail.
(c) Successors and Assigns; Stockholder Status. Each party may assign all or a portion of its rights hereunder to any Person to which such party Transfers (as defined in the Stockholder Rights Agreement) (each such Person, a Permitted Assignee). Pursuant to the Stockholder Rights Agreement, the Stockholders may not Transfer any shares of Common Stock to any Person identified as a Prohibited Transferee. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties, including subsequent holders of Registrable Securities acquired, directly or indirectly, from the Holders in compliance with any restrictions on transfer or assignment; provided, however, that (x) the Company may not assign this Agreement (in whole or in part) without the prior written consent of the Holders with a majority of the Registrable Securities and (y) such successor or assign shall not be entitled to such rights unless the successor or assign shall have executed and delivered to the Company an Addendum Agreement substantially in the form of Exhibit A hereto (which shall also be executed by the Company) promptly following the acquisition of such Registrable Securities. Except as provided in Section 10 with respect to an Indemnified Party, nothing expressed or mentioned in this Agreement is intended or shall be construed to give any Person other than the parties hereto and their respective successors and permitted assigns any legal or equitable right, remedy or claim under, in or in respect of this Agreement or any provision herein contained.
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(d) Counterparts. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, the Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
(e) Headings; Construction. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Unless the context requires otherwise: (i) pronouns in the masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa; (ii) the term including shall be construed to be expansive rather than limiting in nature and to mean including, without limitation,; (iii) references to sections and paragraphs refer to sections and paragraphs of this Agreement; and (iv) the words this Agreement, herein, hereof, hereby, hereunder and words of similar import refer to this Agreement as a whole, including Exhibit A hereto, and not to any particular subdivision unless expressly so limited.
(f) Governing Law. This Agreement and all claims arising out of or based upon this Agreement or relating to the subject matter hereof shall be governed by and construed in accordance with, the laws of the State of New York.
(g) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
(h) Entire Agreement. This Agreement by and between the Company, Brookfield and CDPQ is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company with respect to Registrable Securities. This Agreement, supersedes all prior agreements and understandings between the parties with respect to such subject matter.
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(i) Securities Held by the Company or its Subsidiaries. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its subsidiaries shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.
(j) Specific Performance; Further Assurances. The parties hereto recognize and agree that money damages may be insufficient to compensate the Holders of any Registrable Securities for breaches by the Company of the terms hereof and, consequently, that the equitable remedy of specific performance of the terms hereof will be available in the event of any such breach. The parties hereto agree that in the event the registrations and sales of Registrable Securities are effected pursuant to the laws of any jurisdiction outside of the United States, such parties shall use their respective reasonable best efforts to give effect as closely as possible to the rights and obligations set forth in this Agreement, taking into account customary practices of such foreign jurisdiction, including executing such documents and taking such further actions as may be reasonably necessary in order to carry out the foregoing.
(k) Term. This Agreement shall terminate with respect to a Holder upon the earlier of (i) the date on which such Holder ceases to hold Registrable Securities and (ii) the first anniversary of the date such Holder is eligible to sell its Registerable Securities pursuant to Rule 144 without limitation as to volume or manner of sale; provided that such Holders rights and obligations pursuant to Section 10, as well as the Companys obligations to pay expenses pursuant to Section 10, shall survive with respect to any registration statement in which any Registrable Securities of such Holders were included. From and after the date of this Agreement, the Company shall not, without the consent of each Sponsor, enter into any agreement with any Person giving, including any Holder or prospective Holder of any securities of the Company, any registration rights (i) the terms of which are more favorable than, senior to or conflict with, the registration rights granted to the Holders hereunder or (ii) permitting such Person to exercise a demand registration right during the period expiring on the second anniversary of the date hereof; provided that, the Company may enter into an agreement granting such rights if such agreement provides the Holders with piggyback rights consistent with those granted to the Holders pursuant to Section 6, and, if such agreement contains any underwriter cutbacks consistent with Section 6(b), then the Holders shall participate with such other Holders on a pro rata basis; and provided, further, that the Company may enter into an agreement granting such demand rights in connection with the issuance of securities of the Company pursuant to (i) a bona fide material acquisition, disposition or other similar transaction involving the Company or any of its subsidiaries, (ii) the terms of any employment agreement or arrangement or employee benefit plan of the Company or any of its subsidiaries, (iii) an exchange of indebtedness of the Company into equity and (iv) a proposed resale of convertible securities of the Company by any Holder thereof, in each case, to the extent that the entering into of such an agreement is customary in a transaction of the type contemplated.
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(l) Consent to Jurisdiction; Waiver of Jury Trial. The parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of the courts of the State of New York located in New York County and the federal courts of the United States of America located in New York County, and appropriate appellate courts therefrom, over any dispute arising out of or relating to this Agreement or any of the transactions contemplated hereby, and each party hereby irrevocably agrees that all claims in respect of such dispute or proceeding may be heard and determined in such courts. The parties hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may now or hereafter have to the laying of venue of any dispute arising out of or relating to this Agreement or any of the transactions contemplated hereby brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each of the parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. This consent to jurisdiction is being given solely for purposes of this Agreement and is not intended to, and shall not, confer consent to jurisdiction with respect to any other dispute in which a party to this Agreement may become involved.
Each of the parties hereto hereby consents to process being served by any party to this Agreement in any suit, action, or proceeding of the nature specified in the paragraph above by the mailing of a copy thereof in the manner specified by the provisions of Section 12(b).
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed as of the date first above written.
BROOKFIELD CAPITAL PARTNERS V GP LLC | ||
By: |
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Name: | ||
Title: | ||
CDPQ SMA (CARRY VEHICLE) LP | ||
By: |
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Name: | ||
Title: | ||
PANTHER CO-INVEST VEHICLE LP | ||
By: |
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Name: | ||
Title: | ||
PANTHER CO-INVEST VEHICLE LP | ||
By: |
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Name: | ||
Title: |
[Signature Page to Registration Rights Agreement]
EXHIBIT A
ADDENDUM AGREEMENT
This Addendum Agreement is made this day of , 20 , by and between (the New Holder) and Clarios International Inc. (the Company), pursuant to a Registration Rights Agreement dated as of [●], 2021 (the Agreement), by and between the Company, Brookfield and CDPQ. Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to them in the Agreement.
W I T N E S S E T H:
WHEREAS, the Company has agreed to provide registration rights with respect to the Registrable Securities as set forth in the Agreement; and
WHEREAS, the New Holder has acquired Registrable Securities directly or indirectly from a Holder; and
WHEREAS, the Company and the Holders have required in the Agreement that all persons desiring registration rights pursuant to the Agreement must enter into an Addendum Agreement binding the New Holder to the Agreement to the same extent as if it were an original party thereto;
NOW, THEREFORE, in consideration of the mutual promises of the parties, the New Holder acknowledges that it has received and read the Agreement and that the New Holder shall be bound by, and shall have the benefit of, all of the terms and conditions set out in the Agreement to the same extent as if it were an original party to the Agreement (or as otherwise provided therein) and shall be deemed to be a Holder thereunder.
New Holder |
Address: |
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Agreed to on behalf of Clarios International Inc. pursuant to Section 13(c) of the Agreement.
CLARIOS INTERNATIONAL INC. |
By: |
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Name: | ||
Title: |
EXHIBIT B
COUNTERPART TO REGISTRATION RIGHTS AGREEMENT
The undersigned hereby absolutely, unconditionally and irrevocably agrees as an Additional Company Party (as defined in the Registration Rights Agreement, dated [], 2021 by and between Clarios International Inc., a Delaware corporation, and [●], a [Delaware limited partnership]) to be bound by the terms and provisions of such Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned has executed this counterpart as of [●], 20 .
[ADDITIONAL COMPANY PARTY] | ||
By: |
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Name: | ||
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Exhibit 10.2
FORM OF
TAX RECEIVABLE AGREEMENT
between
CLARIOS INTERNATIONAL, INC.
AND
THE PERSONS NAMED HEREIN
Dated as of [●], 2021
[●]
TABLE OF CONTENTS
ARTICLE I DEFINITIONS |
1 | |||||
Section 1.1 |
Definitions | 1 | ||||
ARTICLE II DETERMINATION OF REALIZED TAX BENEFIT |
13 | |||||
Section 2.1 |
Basis Schedule | 13 | ||||
Section 2.2 |
Tax Benefit Schedule | 13 | ||||
Section 2.3 |
Procedures, Amendments | 14 | ||||
ARTICLE III TAX BENEFIT PAYMENTS |
15 | |||||
Section 3.1 |
Payments | 15 | ||||
Section 3.2 |
No Duplicative Payments | 16 | ||||
Section 3.3 |
Partial Payment | 16 | ||||
ARTICLE IV TERMINATION |
16 | |||||
Section 4.1 |
Termination, Breach of Agreement | 16 | ||||
Section 4.2 |
Early Termination Schedule | 18 | ||||
Section 4.3 |
Payment upon Early Termination | 19 | ||||
ARTICLE V LATE PAYMENTS, ETC. |
20 | |||||
Section 5.1 |
Late Payments by the Corporation | 20 | ||||
Section 5.2 |
Subordination | 20 | ||||
Section 5.3 |
Compliance with Indebtedness | 20 | ||||
ARTICLE VI TAX MATTERS |
21 | |||||
Section 6.1 |
Corporation Tax Matters | 21 | ||||
ARTICLE VII MISCELLANEOUS |
22 | |||||
Section 7.1 |
Notices | 22 | ||||
Section 7.2 |
Counterparts | 22 | ||||
Section 7.3 |
Entire Agreement; Third Party Beneficiaries | 23 | ||||
Section 7.4 |
Governing Law | 23 | ||||
Section 7.5 |
Severability | 23 | ||||
Section 7.6 |
Successors; Assignment; Amendments; Waivers | 23 | ||||
Section 7.7 |
Resolution of Disputes | 24 | ||||
Section 7.8 |
Reconciliation | 25 | ||||
Section 7.9 |
Withholding | 26 | ||||
Section 7.10 |
Affiliated Corporations; Admission of the Corporation into a Consolidated Group; Transfers of Corporate Assets | 26 | ||||
Section 7.11 |
Confidentiality | 27 | ||||
Section 7.12 |
Headings | 27 | ||||
Section 7.13 |
Appointment of TRA Representative | 28 |
i
This TAX RECEIVABLE AGREEMENT (as amended from time to time, this Agreement), dated as of [], 2021, is hereby entered into by and among Clarios International, Inc., a Delaware corporation (including any successor corporation, the Corporation), each of the undersigned parties, and each of the other Persons from time to time that become a party hereto (each, excluding the Corporation, a TRA Party and together the TRA Parties).
RECITALS
WHEREAS, as of the date hereof, the Corporate Taxpayer has the Covered Tax Attributes (as defined below);
WHEREAS, the liability for Taxes (as defined below) of the Corporate Taxpayer may be impacted by the Covered Tax Attributes and the Imputed Interest (as defined below), if any;
WHEREAS, the parties to this Agreement desire to make certain arrangements related to the Covered Tax Attributes and Imputed Interest;
NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the terms set forth in this Article I shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined).
Additional Interest Amount is defined in Section 3.1(d) of this Agreement.
Affiliate means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person.
Agreed Principles: For each Taxable Year: (i) Section 250 of the Code does not apply to the Corporate Taxpayer, (ii) the Corporate Taxpayer is subject to U.S. state and local taxes at a rate equal to the Assumed State Tax Rate, (iii) there does not occur an ownership change within the meaning of Section 382 of the Code with respect to any Corporate Taxpayer after the IPO Date, (iv) the section 382 limitation with respect to any ownership change arising as a result of the Restructuring Transactions is increased for any taxable year (and not solely the recognition period) by the recognized built-in gains for such taxable year (all within the meaning of Section 382(h) of the Code), (v) each Corporate Taxpayer will be assumed to utilize the 338 approach set forth in IRS Notice 2003-65, 2003-2 C.B. 747 (in connection with any ownership change), (vi) there are no Disregarded Tax Attributes, (vii) the Corporate Taxpayer does not recognize any gains or losses arising from the sale or exchange of non-amortizable and non-depreciable capital assets for U.S. federal income tax
purposes (other than assets that have Covered Tax Basis), (viii) the Corporate Taxpayer does not have any Code Section 163(j) interest expense carryforwards as of the close of the IPO Date (other than, for the avoidance of doubt, the Covered Tax Basis in a Reference Asset attributable to any basis adjustment to such asset resulting from the application of Section 732 of the Code that (A) is attributable to excess business interest expense described in Section 163(j)(4)(B) of the Code and (B) arises as a result of the Restructuring Transactions) and (ix) no income or gain was recognized by the Corporate Taxpayer in the Restructuring Transactions or in any assets transferred to the Corporate Taxpayer in the Restructuring Transactions.
Agreed Rate means LIBOR plus 100 basis points.
Agreement is defined in the preamble of this Agreement.
Alternative Basis means, with respect to any Reference Asset, zero.
Amended Schedule is defined in Section 2.3(b) of this Agreement.
Applicable Date means the date of the Restructuring Transactions.
Assumed Actual Tax Liability means, with respect to any Taxable Year, the sum of (i) the liability for U.S. federal income taxes of the Corporate Taxpayer (determined in accordance with the Agreed Principles) and (ii) the product of the amount of the U.S. federal taxable income of the Corporate Taxpayer for such Taxable Year (determined in accordance with the Agreed Principles (but calculated assuming that state and local income and franchise Taxes are not deductible)) and the Assumed State Tax Rate.
Assumed State Tax Rate means 4.32% (prior to taking any federal benefit).
Basis Schedule is defined in Section 2.1 of this Agreement.
Board means the board of directors of the Corporation.
Brookfield means Brookfield Business Partners, L.P and its affiliates (including the funds, partnerships or other co-investment vehicles managed, advised or controlled by Brookfield Business Partners, L.P. or its affiliates).
Business Day means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States of America or the State of New York shall not be regarded as a Business Day.
CDPQ means Caisse de dépôt et placement du Québec and its affiliates (including the funds, partnerships or other co-investment vehicles managed, advised or controlled by Caisse de dépôt et placement du Québec or its affiliates).
Change of Control means:
(i) a merger, reorganization, consolidation or similar form of business transaction directly involving the Corporation or indirectly involving the Corporation through one or more intermediaries unless, immediately following such transaction, more than 50% of the voting power of the then outstanding voting stock or other equity interests of the Corporation resulting from consummation of such transaction (including, any parent or ultimate parent corporation of such Person that as a result of such transaction owns directly or indirectly the Corporation and all or
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substantially all of the Corporations assets) is held by Brookfield, CDPQ, or their Affiliates; or
(ii) a transaction in which the Corporation, directly or indirectly, sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to another Person other than an Affiliate; or
(iii) a transaction in which there is an acquisition of control of the Corporation by a Person or group of Persons acting in concert (other than entities controlled by Brookfield, CDPQ, or their Affiliates). For purposes of this definition, the term control shall mean the possession, directly or indirectly, of the power to either (i) vote more than 50% of the securities having ordinary voting power for the election of directors (or comparable positions in the case of partnerships and limited liability companies), or (ii) direct or cause the direction of the management and policies of such Corporation whether by contract or otherwise (for the avoidance of doubt, consent rights do not constitute control for the purpose of this definition);
(iv) the liquidation or dissolution of the Corporation;
(v) a change of control or similar defined term in the Term Loan Credit Agreement; or
(vi) the sale or other disposition, directly or indirectly, by the Corporation of all or substantially all of the U.S.-based assets of the Corporation and its Subsidiaries to another Person other than an Affiliate.
For the avoidance of doubt, sales, transfers or other dispositions of shares by the Corporations stockholders (a) which are not related to a merger, reorganization, consolidation or similar form of business transaction to which the Corporation is a party and (b) not resulting in the effects described in clause (i) of this definition, shall not be deemed to be a Change of Control under this Agreement.
Code means the Internal Revenue Code of 1986, as amended.
Control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
Corporate Taxpayer means the Corporation and any domestic corporation (as defined for U.S. federal income tax purposes) that is a member of any group filing a federal consolidated tax return of which the Corporation is a member.
Corporation is defined in the preamble of this Agreement, along with any other domestic corporation that acquires the assets of the Corporation pursuant to an acquisition described in Section 381(a) of the Code.
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Covered Tax Attributes means the Covered NOLs and the Covered Tax Basis.
Covered NOLs means collectively and without duplication (i) the net operating loss carryovers for U.S. federal income tax purposes to which the Corporation succeeds under Section 381 of the Code as a result of the Restructuring Transactions, and (ii) the net operating loss carryovers for U.S. federal income tax purposes of any Corporate Taxpayer (other than the Corporation) that the Corporation directly or indirectly acquires as a result of the Restructuring Transactions. Schedule [] sets forth the balance of the amounts described in clauses (i) and (ii) hereof both as of January 1, 2021 and an estimate of the balance of such amounts as of the Applicable Date.
Covered Tax Basis means the tax basis for U.S. federal income tax purposes of any Corporate Taxpayer in a Reference Asset at the time such Reference Asset is directly or indirectly acquired by the Corporation in the Restructuring Transactions as reflected on the Basis Schedule. For the avoidance of doubt, the Covered Tax Basis in a Reference Asset shall include any basis adjustment to such asset resulting from the application of Section 732 of the Code that (i) is attributable to excess business interest expense described in Section 163(j)(4)(B) of the Code and (ii) arises as a result of the Restructuring Transactions. Schedule [] sets forth the estimated balance of the amounts described in this definition as of the Applicable Date. For the purposes of this Agreement (and without duplication), a Corporate Taxpayer shall be deemed to own its proportionate share of any assets owned by any entity classified as a partnership for U.S. federal income tax purposes the equity of which such Corporate Taxpayer owns directly or indirectly through any pass-through entity (and, for the avoidance of doubt, the calculations in this Agreement will take into account the Corporate Taxpayers allocable share of all Tax items of any such entity treated as a partnership for U.S. federal income tax purposes).
Credit Event means the occurrence of any of the following events:
(a) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Corporation or any of its Significant Subsidiaries or its debts, or of a substantial part of its assets, under any federal, state or non-U.S. bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Corporation or any of its Significant Subsidiaries or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed or unstayed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered, which order or decree has not been dismissed or stayed;
(b) the Corporation or any of its Significant Subsidiaries shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or non-U.S. bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (a) above,
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(iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Corporation or any Significant Subsidiary of the Corporation or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; or
(c) the Corporation or any of its Significant Subsidiaries engages in any other action or fails to take any action that constitutes an event of default (after the expiration of all grace periods and cure rights) under any indebtedness for borrowed money having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the greater of $350 million and 22% of Consolidated EBITDA (determined in accordance with the Term Loan Credit Agreement most recently in effect) if such event of default (i) entitles the relevant creditors to immediately accelerate such indebtedness and (ii) is not waived by the applicable creditors or cured by the Corporation within 30 days of an officer of the Corporation obtaining actual knowledge thereof.
Credit Event Notice is defined in Section 4.1(c) of this Agreement.
Cumulative Net Realized Tax Benefit for a Taxable Year means the cumulative amount of Realized Tax Benefits for all Taxable Years of the Corporate Taxpayer up to and including such Taxable Year, net of the cumulative amount of Realized Tax Detriment for the same period (excluding, for the avoidance of doubt, the Taxable Years of any corporation for U.S. federal income tax purposes that ends on or before the date such corporation becomes a Corporate Taxpayer as a result of the Restructuring Transactions). The Realized Tax Benefit and Realized Tax Detriment for each Taxable Year shall be determined based on the most recent Tax Benefit Schedules or Amended Schedules, if any, in existence at the time of such calculation; provided, that, for the avoidance of doubt, the computation of the Cumulative Net Realized Tax Benefit shall be adjusted to reflect any applicable Determination with respect to any Realized Tax Benefits and/or Realized Tax Detriments.
Default Rate means LIBOR plus 700 basis points.
Determination shall have the meaning ascribed to such term in Section 1313(a) of the Code, or any other event (including the execution of a Form 870-AD) that finally and conclusively establishes the amount of any liability for Tax.
Disregarded Tax Attributes means (i) any net operating losses or other tax attributes to which any Corporate Taxpayer or any entity in which it holds a direct or indirect equity interest become entitled as a result of a transaction after the IPO Date to the extent such net operating losses and other tax attributes are subject to a tax receivable agreement (or comparable agreement) entered into by a Corporate Taxpayer or any of its Affiliates pursuant to which any Corporate Taxpayer is obligated to pay over amounts
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with respect to tax benefits resulting from such net operating losses or other tax attributes; (ii) any net operating losses (including carryovers and carrybacks), capital losses, charitable deductions, alternative minimum tax credit carryforwards, Section 163(j) interest expense carryforwards, federal and state tax credits, and any other attributes (including any tax basis and amortization or depreciation deductions arising therefrom) attributable to acquisitions (and the associated operations of such acquired assets and businesses) by a Corporate Taxpayer or any of its Affiliates following the IPO Date (other than transactions described in clause (iii) below); provided (X) that the Corporate Taxpayer may acquire up to $50,000,000 of such attributes on an annual basis without such attributes constituting Disregarded Tax Attributes (and for purposes of the calculation of the threshold amounts the acquisition of an amount of tax credits will equal the acquisition of an amount of tax attributes equal to the quotient obtained by dividing the amount of the tax credit by the maximum U.S. federal corporate income tax rate in effect for the applicable Taxable Year), (Y) the amount included in any given year in the calculation of Disregarded Tax Attributes pursuant to this clause (ii) will be reduced (not below zero) by the amount of additional U.S. taxable income that the Corporate Taxpayer demonstrates that it recognizes in such year as a direct result of such associated acquisition, and (Z) an attribute that is a Disregarded Tax Attribute as a result of the application of this clause (ii) will cease to be a Disregarded Tax Attribute in a subsequent Taxable Year to the extent the amount of attributes acquired by the Corporate Taxpayer as a result of acquisitions in such subsequent Taxable Year is less than $50,000,000 (e.g., if Corporate Taxpayer acquires 100% of the equity of a domestic corporation with $75,000,000 of net operating losses in Year 1 and 100% of the equity of a separate domestic corporation with $45,000,000 of net operating losses in Year 2, none of such losses in either year is described in clause (i) of this definition, Corporate Taxpayer engages in no other transactions for each such year and Corporate Taxpayer has no additional U.S. taxable income described in clause (ii)(Y) of this definition, only $25,000,000 of such net operating losses in Year 1 will be included in the calculation of Disregarded Tax Attributes, and, at the end of Year 2, the aggregate amount of Disregarded Tax Attributes is reduced to $20,000,000); and (iii), without duplication of amounts described in clause (ii), amortization and depreciation deductions attributable to capex or real estate expenditures after the date hereof (that are not attributable to Covered Tax Attributes or the acquisitions of a type described in clause (ii) herein) in excess of $150,000,000 in each Taxable Year.
Divestiture means (a) the sale or transfer of the equity interests of any Corporate Taxpayer with Covered Tax Attributes and (b) the transfer in a non-recognition transaction for U.S. federal income tax purposes by any Person the income of which is, in whole or in part, included in the income of any Corporate Taxpayer of one or more assets (other than equity interests of any Corporate Taxpayer) with Covered Tax Basis to any Person that is not a Corporate Taxpayer, in each case, other than any such sale or transfer that is, or is part of, a Change of Control.
Divestiture Acceleration Payment is defined in Section 4.3(b) of this Agreement.
Early Complete Termination is defined in Section 4.1(d) of this Agreement.
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Early Termination Date means (i) in the event of a breach of this Agreement to which Section 4.1(a) applies, the date of such breach, (ii) in the event of a Divestiture, the effective date of such Divestiture, (iii) in the event of an Early Complete Termination, the date of the Early Termination Notice, (iv) in the event of a Credit Event Acceleration pursuant to Section 4.1(b), the date of the applicable Credit Event that resulted in the Credit Event Acceleration, (v) in the event of a Change of Control pursuant to which the Corporation makes an election under Section 4.1(d)(1), the date of the applicable Early Termination Option Notice, (vi) in the event of the TRA Representative exercising its Early Payment Right pursuant to Section 4.1(f), the date of the applicable Early Payment Right Notice or (vii) such other date as may be agreed to by the TRA Representative and the Corporation.
Early Termination Event means (i) a breach of this Agreement to which Section 4.1(a) applies, (ii) an Early Complete Termination, or (iii) the TRA Representative Early Termination.
Early Termination Option Notice is defined in Section 4.1(d) of this Agreement.
Early Termination Notice is defined in Section 4.1(e) of this Agreement.
Early Termination Payment is defined in Section 4.3(b) of this Agreement.
Early Termination Rate means the lesser of 6.5% per annum, compounded annually, or LIBOR plus 100 basis points.
Early Termination Schedule is defined in Section 4.2 of this Agreement.
Estimated Tax Benefit Payment is defined in Section 3.1(a) of this Agreement.
Estimated Tax Benefit Schedule is defined in Section 2.2(a) of this Agreement.
Expert is defined in Section 7.8 of this Agreement.
Final Tax Benefit Schedule is defined in Section 2.2(b) of this Agreement.
Final Tax Benefit Payment is defined in Section 3.1(b) of this Agreement.
Hypothetical Tax Liability means, with respect to any Taxable Year, the sum of (i) the liability for U.S. federal income taxes of the Corporate Taxpayer (determined in accordance with the Agreed Principles) and (ii) the product of the amount of the U.S. federal taxable income of the Corporate Taxpayer for such Taxable Year (determined in accordance with the Agreed Principles but calculated assuming that state and local income and franchise Taxes are not deductible) and the Assumed State Tax Rate, except that, in determining the amount in clause (i) or (ii), above, (a) Covered NOLs shall not be taken into account, (b) the Alternative Basis shall be used and (c) any deduction attributable to Imputed Interest shall be excluded. For the avoidance of doubt: Hypothetical Tax Liability shall be determined without taking into account the carryover or carryback of any Tax item (or portions thereof) that is attributable to a Covered Tax Attribute as applicable. For the avoidance of doubt, the basis of the Reference Assets in the aggregate for purposes of determining the Hypothetical Tax Liability can never be less than zero.
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Imputed Interest shall mean any interest imputed, using the applicable federal rate, under Section 1272, 1274 or 483 of the Code with respect to the Corporations payment obligations under this Agreement.
Interest Amount is defined in Section 3.1(d) of this Agreement.
IPO Date means the date of the initial public offering of common stock of the Corporation on Form S-1 (File No. 333[]) of the Corporation.
LIBOR means for each month (or portion thereof) during any period, an interest rate per annum equal to the rate per annum reported, on the date two days prior to the first day of such month, on the Reuters Screen which displays the London interbank offered rate administered by the ICE Benchmark Administration Limited (such page currently being the LIBOR01 page) or by any other publicly available source of such market rate) for London interbank offered rates for U.S. dollar deposits for such month (or portion thereof); provided that the Corporation shall make in good faith a determination (such determination to be conclusive absent manifest error) when (i) LIBOR is no longer a widely recognized benchmark rate for newly originated syndicated loans in U.S. dollars in the U.S. syndicated loan market or (ii) adequate and reasonable means do not exist for ascertaining LIBOR, in which case LIBOR shall be replaced for all purposes under this Agreement by the rate that replaces the LIBOR with respect to U.S. dollar borrowings under one of the Corporation and its Subsidiaries principal third party credit agreements as in effect as of the date of such determination as the Corporation may elect, as it may be amended from time to time; provided, further, that if no such replacement has been agreed or determined for purposes of such credit agreement, the Corporation and the TRA Representative shall, within one month of any such determination by the Corporation, mutually agree, acting in good faith, on a replacement interest rate (any replacement rate pursuant to this definition, the Replacement Rate), in which case, the Replacement Rate shall replace LIBOR for all purposes under this Agreement; provided, further, that in either case, the Corporation and the TRA Representation may effect conforming changes to this Agreement to the extent reasonably necessary to implement any such Replacement Rate. If the Corporation and the TRA Representative are unable to mutually agree on the Replacement Rate in the circumstances contemplated by this definition, the Corporation and the TRA Representative shall employ the reconciliation procedures described in Section 7.8 of this Agreement.
Material Objection Notice has the meaning set forth in Section 4.2.
Net Tax Benefit has the meaning set forth in Section 3.1(b).
Objection Notice has the meaning set forth in Section 2.3(a).
Ownership Percentage means, in the case of any TRA Party, the percentage adjacent to the name of such TRA Party on schedule [X], provided that (for
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the avoidance of doubt) the aggregate Ownership Percentages for all of the TRA Parties shall not exceed 100%.
Payment Date means any date on which a payment is required to be made pursuant to this Agreement.
Person means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity.
Realized Tax Benefit means, for a Taxable Year, the excess, if any, of the Hypothetical Tax Liability over the Assumed Actual Tax Liability. If all or a portion of the Assumed Actual Tax Liability for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination.
Realized Tax Detriment means, for a Taxable Year, the excess, if any, of the Assumed Actual Tax Liability over the Hypothetical Tax Liability. If all or a portion of the Assumed Actual Tax Liability for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Detriment unless and until there has been a Determination.
Reconciliation Dispute has the meaning set forth in Section 7.8 of this Agreement.
Reconciliation Procedures shall mean those procedures set forth in Section 7.9(a) of this Agreement.
Reference Asset means an asset (x) that (A) is amortizable under Section 197 of the Code or (B) is depreciable real property and (y) acquired directly by the Corporation in the Restructuring Transactions or indirectly through the acquisition of a Corporate Taxpayer in the Restructuring Transactions (including by way of the Corporation acquiring, directly or indirectly, the equity interests of any entity that is a partnership for U.S. federal income tax purposes and any applicable asset of any such entity that a Corporate Taxpayer is treated as receiving for U.S. federal income tax purposes in connection with a liquidation (for U.S. federal income tax purposes) of such entity). For the avoidance of doubt, Covered Tax Basis does not include any tax basis in an asset held by a foreign corporation the stock of which is acquired by the Corporation in the Restructuring Transactions. A Reference Asset also includes any asset that is substituted basis property under Section 7701(a)(42) of the Code with respect to a Reference Asset.
Restructuring Transactions means the transactions set forth on Schedule [ ], including the transactions pursuant to which the Corporation acquired one or more domestic corporations for U.S. federal income tax purposes owning 100% of the equity interests in Clarios International LP and issued this Agreement.
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Schedule means any Tax Benefit Schedule and any Early Termination Schedule.
Significant Subsidiary has the meaning assigned to such term in the Term Loan Credit Agreement (or any equivalent provision of any refinancing, replacement or substitution thereof).
Subject Taxable Year means, with respect to any Estimated Tax Benefit Schedule or Final Tax Benefit Schedule, the federal Taxable Year ending on December 31 of the year preceding the Schedule Delivery Date, together with the state or foreign Taxable Years ending in the same calendar year as such federal Taxable Year.
Subsidiaries means, with respect to any Person, as of any date of determination, any other Person as to which such Person, owns, directly or indirectly, or otherwise controls more than 50% of the voting power or other similar interests or the sole general partner interest or managing member or similar interest of such Person.
Tax Benefit Payment is defined in Section 3.1(b) of this Agreement.
Tax Benefit Schedule means the Estimated Tax Benefit Schedule or Final Tax Benefit Schedule, as applicable.
Tax Return means any return, declaration, report or similar statement filed or required to be filed with respect to Taxes (including any attached schedules), including, without limitation, any information return, claim for refund, amended return and declaration of estimated Tax.
Taxable Year means a taxable year as defined in Section 441(b) of the Code (and, therefore, for the avoidance of doubt, may include a period of less than 12 months for which a Tax Return is made) ending on or after the date of the Restructuring Transactions; provided that each applicable Taxable Year of each Corporate Taxpayer will be deemed to end on December 31 unless (a) the Corporation notifies the TRA Representative that a Corporate Taxpayer intends to elect to change its taxable year (as defined in Section 441(b) of the Code) and (b) the TRA Representative and the Corporation agree to amend this Agreement as necessary to reflect such change in taxable year in a manner that does not materially delay any Tax Benefit Payment otherwise payable pursuant to this Agreement.
Taxes means any and all U.S. federal, state, local and foreign taxes, assessments or similar charges measured with respect to net income, gross receipts or profits and any interest related to such Tax.
Taxing Authority shall mean any domestic, foreign, federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising any taxing authority or any other authority exercising tax regulatory authority.
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Term Loan Credit Agreement shall mean (i) that certain First Lien Credit Agreement, dated as of April 30, 2019, among Clarios International LP, a limited partnership organized under the laws of the Province of Ontario, Clarios US Finance Company, Inc., a corporation organized under the laws of the State of Delaware, the other Loan Parties party thereto, the Lenders and Issuing Banks from time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, and any amendment thereof or (ii) any other substitute or replacement first lien credit agreement whereby the Company or any of its Subsidiaries borrows additional funds after the IPO Date (any such first lien credit agreement, along with the first lien credit agreement described in clause (i) hereof, a First Lien Credit Agreement); provided that if, following the IPO Date, the Company and its Subsidiaries cease to be subject to any First Lien Credit Agreement, then references herein to the Term Loan Credit Agreement will be deemed to refer to the last First Lien Credit Agreement then in effect prior to the Company and its Subsidiaries ceasing to have any First Lien Credit Agreement.
TRA Model means that certain excel spreadsheet that is on file with the Corporation and the TRA Representative, and which the Corporation and the TRA Representative reasonably agree in writing is the TRA Model.
TRA Party has the meaning set forth in the recitals.
TRA Payment means any Tax Benefit Payment, Early Termination Payment, or Divestiture Acceleration Payment required to be made by the Corporation to the TRA Parties under this Agreement.
TRA Representative means, initially, [], and thereafter such other party designated by the TRA Parties; provided, however, that the TRA Parties may not designate any party listed on Schedule [ ] as the TRA Representative without the prior written consent of the Corporation.
Transferred Tax Attributes means, in the event of a Divestiture, the Covered Tax Attributes described in clause (a) of the definition of Divestiture or the Covered Tax Basis described in clause (b) thereof, in each case to the extent such Covered Tax Attributes or Covered Tax Basis, as the case may be, do not remain under applicable Tax law with the Corporate Taxpayer (other than a Corporate Taxpayer that is sold in such Divestiture).
Treasury Regulations means the final, temporary and proposed regulations under the Code promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period.
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Valuation Assumptions shall mean, as of an Early Termination Date, the assumptions that (i) the Corporate Taxpayer will have taxable income sufficient to fully utilize (a) the deductions arising from the Covered Tax Attributes during each Taxable Year ending on or after such Early Termination Date in which such deductions would become available and (b) any loss carryovers that are Covered Tax Attributes available as of such Early Termination Date, (ii) the utilization of the Covered Tax Attributes and Imputed Interest for each Taxable Year ending on or after such Early Termination Date will be determined based on the Tax laws in effect on the Early Termination Date, (iii) the federal income tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code in effect on the Early Termination Date, and the Assumed State Tax Rate will be applied (or, with respect to any Taxable Year for which such federal income tax rates are not specified by the Code as in effect on the Early Termination Date, such federal income tax rates that are in effect on the Early Termination Date), (iv) any payment obligations pursuant to this Agreement will be satisfied on May 15th of the year following applicable Taxable Year and (vi) the Agreed Principles apply. For the avoidance of doubt, in the event of a Change of Control or Divestiture, such assumptions shall not take into account any changes in the relevant Corporate Taxpayers standalone tax position that might result from the transaction giving rise to the Change of Control or Divestiture.
Section 1.2. Terms Generally. In this Agreement, unless otherwise specified or where the context otherwise requires:
(a) the headings of particular provisions of this Agreement are inserted for convenience only and will not be construed as a part of this Agreement or serve as a limitation or expansion on the scope of any term or provision of this Agreement;
(b) words importing any gender shall include other genders;
(c) words importing the singular only shall include the plural and vice versa;
(d) the words include, includes or including shall be deemed to be followed by the words without limitation;
(e) the words hereof, herein and herewith and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement;
(f) references to Articles, Exhibits, Sections or Schedules shall be to Articles, Exhibits, Sections or Schedules of or to this Agreement;
(g) references to any Person include the successors and permitted assigns of such Person;
(h) references to any agreement, contract or schedule, unless otherwise stated, are to such agreement, contract or schedule as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof;
(i) references to any law (including the Code and the Treasury Regulations) shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such law;
(j) for purposes of calculating any payments due hereunder (including with respect to the Additional Interest Amount), compounding will be done on an annual basis; and
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(k) the parties hereto have participated collectively in the negotiation and drafting of this Agreement; accordingly, in the event an ambiguity or question of intent or interpretation arises, it is the intention of the parties that this Agreement shall be construed as if drafted collectively by the parties hereto, and that no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of the authorship of any provisions of this Agreement.
ARTICLE II
DETERMINATION OF REALIZED TAX BENEFIT
Section 2.1 Basis Schedule. Within one hundred twenty (120) calendar days after the filing of the U.S. federal income tax return of the Corporate Taxpayer for any federal Taxable Year (or, if later, the due date for such tax return determined after taking into account all available extensions), the Corporation shall provide to the TRA Representative a schedule (the Basis Schedule) that shows, in reasonable detail with respect to each Reference Asset as of the last day of such Taxable Year, (i) the Covered Tax Basis of such Reference Asset and (ii) the period (or periods) over which such Reference Asset is amortizable and/or depreciable. In addition, the Corporate Taxpayer shall provide a good faith estimate of the Basis Schedule along with any Estimated Tax Benefit Schedule provided pursuant to Section 2.2(a).
Section 2.2 Tax Benefit Schedule.
(a) With respect to each Subject Taxable Year, the Corporation shall, on or before April 14 following the end of the Subject Taxable Year (the Schedule Delivery Date), provide to the TRA Representative a schedule showing in reasonable detail, the Corporations good faith estimate of (i) the calculation of the Realized Tax Benefit (or the Realized Tax Detriment) for the Subject Taxable Year, (ii) the calculation of any payment to be made to the TRA Parties pursuant to Article III with respect to the Subject Taxable Year, and (iii) for the Taxable Year including the Applicable Date, a statement of the initial Covered Tax Attributes, and for each Taxable Year thereafter, a statement of the remaining Covered Tax Attributes as updated to the extent necessary to reflect utilization, depreciation and amortization, and any other events subsequent to the Applicable Date that would impact the Covered Tax Attributes (collectively an Estimated Tax Benefit Schedule). Concurrently the Corporation shall also deliver to the TRA Representative all supporting information (including work papers) reasonably necessary to support the calculation of such payment.
(b) Within one hundred twenty (120) calendar days after the filing of the U.S. federal income tax return of the Corporate Taxpayer for any Subject Taxable Year, the Corporation shall provide to the TRA Representative an updated Tax Benefit Schedule containing the information described in Section 2.2(a) (the Final Tax Benefit Schedule) along with all supporting information (including workpapers) reasonably necessary to support the calculation of any payment to be made to the TRA Parties with respect to the Subject Taxable Year.
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(c) Each of the Estimated Tax Benefit Schedule and Final Tax Benefit Schedule will become final as provided in Section 2.3(a) and may be amended as provided in Section 2.3(b) (subject to the procedures set forth in Section 2.3(a)).
(d) Subject to Article IV and the assumptions prescribed herein for making such calculation, the Realized Tax Benefit (or the Realized Tax Detriment) for each Taxable Year is intended to measure the decrease (or increase) in the liability for Taxes of the Corporation for such Taxable Year attributable to the Covered Tax Attributes, determined using a with and without methodology and the Agreed Principles. Carryovers or carrybacks of any Tax item attributable to any of the Covered Tax Attributes shall be considered to be subject to the rules of the Code and the Treasury Regulations or the appropriate provisions of U.S. state and local income and franchise Tax law, as applicable, governing the use, limitation and expiration of carryovers or carrybacks of the relevant type. If a carryover or carryback of any Tax item includes a portion that is attributable to any Covered Tax Attribute and another portion that is not, such portions shall be considered to be used in accordance with the with and without methodology. The parties also acknowledge and agree that this Agreement shall be interpreted and applied in a manner consistent with the TRA Model.
Section 2.3 Procedures, Amendments.
(a) Procedure. Whenever the Corporation delivers to the TRA Representative an applicable Schedule under this Agreement, including any Amended Schedule delivered pursuant to Section 2.3(b), and including any Early Termination Schedule or amended Early Termination Schedule, the Corporation shall also (x) deliver to the TRA Representative schedules and work papers providing reasonable detail regarding the preparation of the Schedule related to such Schedule (the cost and expense of which shall be paid by the Corporation) and (y) allow the TRA Representative reasonable access at no cost to the representatives at the Corporation in connection with a review of such Schedule. The applicable Schedule shall become final and binding on all parties unless the TRA Representative, within twenty-eight (28) calendar days after receiving any Schedule or amendment thereto, provides the Corporation with notice of a material objection to such Schedule (Objection Notice) made in good faith. If the parties, for any reason, are unable to successfully resolve the issues raised in any notice within thirty calendar days of receipt by the Corporation of such notice, the Corporation and the TRA Representative shall employ the reconciliation procedures described in Section 7.8 of this Agreement (the Reconciliation Procedures).
(b) Amended Schedule. The applicable Schedule for any Taxable Year shall, except as otherwise approved by the TRA Representative, be amended from time to time by the Corporation (i) in connection with a Determination affecting such Schedule, (ii) to correct inaccuracies in the Schedule identified as a result of the receipt of additional factual information relating to a Taxable Year after the date the Schedule was provided to the TRA Representative, (iii) to comply with the Experts determination under the Reconciliation Procedures, or (iv) to reflect a material change (relative to the amounts in the original Schedule) in the Realized Tax Benefit for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year, in each case with
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respect to any Corporate Taxpayer (such amended Schedule, an Amended Schedule); provided, however, that such a change under clause (i) attributable to an audit of a Tax Return by an applicable Taxing Authority shall not be taken into account on an Amended Schedule unless and until there has been a Determination with respect to such change. The Corporation shall provide any Amended Schedule to the TRA Representative within thirty calendar days of the occurrence of an event referred to in clauses (i) through (iv) of the preceding sentence, and any such Amended Schedule shall be subject to the approval procedures described in Section 2.3(a).
ARTICLE III
TAX BENEFIT PAYMENTS
Section 3.1 Payments.
(a) Estimated Tax Benefit Payment. Within three (3) calendar days after an Estimated Tax Benefit Schedule delivered to the TRA Representative becomes final in accordance with Section 2.3(a) and 7.8, if applicable, the Corporation shall pay to each TRA Party for such Taxable Year its good faith estimate of the Tax Benefit Payment, as set forth on the applicable Estimated Tax Benefit Schedule with respect to the applicable Taxable Year (the Estimated Tax Benefit Payment) in respect of each TRA Party determined pursuant to Section 3.1(b) in accordance with each relevant TRA Partys Ownership Percentage. Each such Estimated Tax Benefit Payment shall be made by wire transfer of immediately available funds to the bank account previously designated by such TRA Party to the Corporation or as otherwise agreed by the Corporation and such TRA Party. The parties acknowledge and agree that, if no Objection Notice is delivered with respect to the relevant Estimated Tax Benefit Schedule, the Corporation shall pay the Estimated Tax Benefit Payment on May 15 of the calendar year following the Subject Taxable Year (or, if May 15 is not a business day, the following business day).
(b) Final Tax Benefit Payment. Within three (3) calendar days after a Final Tax Benefit Schedule for any Subject Tax Year delivered to the TRA Representative becomes final in accordance with Section 2.3(a) and 7.8, if applicable, the Corporation shall pay to each TRA Party the amount, if any, by which the Tax Benefit Payment as reflected on the Final Tax Benefit Schedule exceeds the Estimated Tax Benefit Payment with respect to such Subject Tax Year (the Final Tax Benefit Payment).
(c) Carryforward of Tax Benefit Overpayments. The amount, if any, by which the Estimated Tax Benefit Payment exceeds the Tax Benefit Payment as reflected on the Final Tax Benefit Schedule for any Subject Tax Year shall reduce the Estimated Tax Benefit Payment to be made by the Corporation in the following Subject Tax Year (and shall carry forward to future Subject Tax Years until such excess amount has been reduced to zero).
(d) A Tax Benefit Payment in respect of a TRA Party for a Taxable Year means an amount equal to the sum of (i) the product of the Net Tax Benefit for such Taxable Year and such TRA Partys Ownership Percentage, (ii) the Interest Amount with
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respect thereto and (iii) the Additional Interest Amount with respect thereto. Subject to Section 3.3, the Net Tax Benefit for a Taxable Year shall be an amount equal to the excess, if any, of 85% of the Cumulative Net Realized Tax Benefit as of the end of such Taxable Year, over the total amount of payments previously made under the first sentence of Section 3.1(a) and Section 3.1(b) (excluding payments attributable to any Additional Interest Amounts with respect to the calculation of the applicable Estimate Tax Benefit Payment); provided, for the avoidance of doubt, that no such recipient shall be required to return any portion of any previously made Tax Benefit Payment. The Interest Amount shall equal the interest on the Net Tax Benefit, calculated at the Agreed Rate from the due date (without extensions) for filing IRS Form 1120 (or any successor form) of the Corporation with respect to Taxes for such Taxable Year until the May 15th following the close of the applicable Taxable Year. The Additional Interest Amount shall equal the interest on the sum of the Net Tax Benefit and the Interest Amount, calculated at a 10% rate, from May 15th following the close of the applicable Taxable Year through and including the date of payment of the Final Tax Benefit Payment for the applicable Taxable Year.
Section 3.2 No Duplicative Payments. It is intended that the provisions of this Agreement will not result in duplicative payment of any amount (including interest) required under this Agreement. It is also intended that the provisions of this Agreement provide that 85% of the Cumulative Net Realized Tax Benefit (in addition to the Interest Amounts) for all Subject Taxable Years be paid to the TRA Parties pursuant to this Agreement. The provisions of this Agreement shall be construed in the appropriate manner so that such intentions are realized.
Section 3.3 Partial Payment. If for any reason the Corporation does not fully satisfy its payment obligations to make all Tax Benefit Payments due under this Agreement in respect of a particular Taxable Year, then Tax Benefit Payments for such Taxable Year shall be made to all TRA Parties eligible to receive Tax Benefit Payments under this Agreement in such Taxable Year in proportion to their Ownership Percentages. For the avoidance of doubt, the withholding of any amount pursuant to Section 7.9 shall not be considered a failure by the Corporation to fully satisfy its payment obligations.
ARTICLE IV
TERMINATION
Section 4.1 Termination, Breach of Agreement.
(a) Acceleration Upon Breach of Agreement. In the event that the Corporation materially breaches any of its material obligations under this Agreement, whether as a result of failure to make any payment when due (subject to the last sentence of this Section 4.1(a) and Section 5.3, failure to honor any other material obligation required hereunder or by operation of law as a result of the rejection of this Agreement in
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a case commenced under the Bankruptcy Code or otherwise, then all obligations hereunder shall be accelerated and the Corporation shall pay to the TRA Parties (1) the Early Termination Payment, (2) any Tax Benefit Payment agreed to by the Corporation and the TRA Parties as due and payable but unpaid as of the Early Termination Date and (ii) any Tax Benefit Payment due for the Taxable Year ending prior to, with or including the date of a breach (except to the extent that such amount is included in the Early Termination Payment). Notwithstanding the foregoing, in the event that the Corporation breaches this Agreement, the TRA Parties shall be entitled to elect to receive the amounts set forth in (1), (2) and (3) above or to seek specific performance of the terms hereof. In the event of a breach of a material obligation under this Agreement by the Corporation, the Early Termination Payment shall be calculated utilizing the Valuation Assumptions. Subject to Section 5.3, the parties agree that the failure to make any payment due pursuant to this Agreement within three months of the date such payment is due shall be deemed to be a breach of a material obligation under this Agreement for all purposes of this Agreement, and that it will not be considered to be a breach of a material obligation under this Agreement to make a payment due pursuant to this Agreement within three months of the date such payment is due.
(b) Acceleration Upon a Credit Event. In the event that either party becomes aware that the circumstances described in clause (c) in the definition of Credit Event exist and are continuing, such party shall provide written notice to the other party (the Credit Event Notice). In the event that any such Credit Event is continuing thirty days after delivery of such Credit Event Notice, or upon the occurrence of an event described in clauses (a) and (b) in the definition of Credit Event, all obligations hereunder shall be accelerated (a Credit Event Acceleration) and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of the Credit Event and shall include, (i) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the date of the Credit Event; (ii) any Tax Benefit Payment agreed to by the Corporation and the TRA Party Representative as due and payable but unpaid as of such date; and (iii) any Tax Benefit Payment due for the Taxable Year ending prior to, with or including such date (except to the extent that such amount is included in the Early Termination Payment).
(c) Divestiture Acceleration Payment. In the event of a Divestiture, the Corporation shall promptly pay to the TRA Parties the Divestiture Acceleration Payment in respect of such Divestiture, which shall be calculated utilizing the Valuation Assumptions.
(d) Change of Control. In connection with a Change of Control, at the election of the Corporation, either (1) all obligations hereunder with respect to each TRA Party shall be accelerated or (2) each TRA Partys rights to payments hereunder will be converted to an unsecured debt obligation with terms [to be agreed to by the parties], which will (x) provide for payments to the TRA Parties equivalent to what would result under Section 3.1 (calculated by utilizing the Valuation Assumptions and substituting in each case the term the closing date of a Change of Control for an Early Termination Date) and (y) be documented in a manner similar to unsecured debt and with information and other rights customary to those provided to debt holders, all in a manner
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approved by the TRA Representative (such approval not to be unreasonably withheld, conditioned or delayed). The Corporation hereby agrees to provide twenty days prior written notice to each TRA Party of a Change of Control (an Early Termination Option Notice). If the Corporation elects to terminate the Agreement, then all obligations hereunder with respect to such TRA Party shall be accelerated and such obligations with respect to a TRA Party shall be calculated as if an Early Termination Notice had been delivered on the date of delivery of such written notice and shall include, the TRA Partys Ownership Percentage multiplied by the sum of (i) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the date of receipt of the Early Termination Option Notice; (ii) any Tax Benefit Payment agreed to by the Corporation and the TRA Party Representative as due and payable but unpaid as of such date; and (iii) any Tax Benefit Payment due for the Taxable Year ending prior to, with or including such date (except to the extent that such amount is included in the Early Termination Payment).
(e) Early Complete Termination. The Corporation may elect to terminate this Agreement (an Early Complete Termination) by (i) delivering to the TRA Representative notice of its intention to exercise such right (Early Termination Notice) and (ii) paying to the TRA Parties (1) the Early Termination Payment, (2) any Tax Benefit Payment agreed to by the Corporation and the TRA Parties as due and payable but unpaid as of the Early Termination Date and (3) any Tax Benefit Payment due for the Taxable Year ending prior to, with or including the date of the Early Termination Notice (except to the extent that such amount is included in the Early Termination Payment). In the event of an Early Complete Termination, the Early Termination Payment shall be calculated utilizing the Valuation Assumptions (substituting references to the date of such Early Termination Notice for references to the Early Termination Date in the definition of Valuation Assumptions).
(f) Early Payment Right. On or after the fifteenth anniversary of the IPO, the TRA Representative has the right (the Early Payment Right) to terminate this Agreement with respect to each TRA Party by providing written notice to the Corporation (the Early Payment Right Notice). If the TRA Representative elects to exercise its Early Payment Right, then all obligations hereunder with respect to each TRA Party shall be accelerated and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date that is thirty-one days after the delivery of the Early Payment Right Notice (and the Corporation had elected an Early Complete Termination) and shall include, each TRA Partys Ownership Percentage multiplied by the sum of (i) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the date that is thirty-one days after the delivery of receipt of the Early Payment Right Notice; (ii) any Tax Benefit Payment agreed to by the Corporation and the TRA Party Representative as due and payable but unpaid as of such date; and (iii) any Tax Benefit Payment due for the Taxable Year ending prior to, with or including such date (except to the extent that such amount is included in the Early Termination Payment).
Section 4.2 Early Termination Schedule. In the event of an Early Determination Date resulting from the application of Section 4.1, the Corporation shall
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deliver to the TRA Representative as soon as reasonably practicable (and no later than ninety (90) days after the event described in Section 4.1) a schedule (the Early Termination Schedule) showing in reasonable detail the information required pursuant to the penultimate sentence of Section 2.2(a) and the calculation of the Early Termination Payment or the Divestiture Acceleration Payment or any other amount payable pursuant to or described in Section 4.1, respectively (including the projections of the Corporate Taxpayers taxable income under clause (i) of the Valuation Assumptions). The Early Termination Schedule shall become final and binding on all parties unless the TRA Representative, within thirty (30) calendar days after receiving the Early Termination Schedule provides the Corporation with notice of a material objection to such Schedule made in good faith (Material Objection Notice). If the parties for any reason are unable to successfully resolve the issues raised in such notice within fifteen (15) calendar days after receipt by the Corporation of the Material Objection Notice, the Corporation and the TRA Representative shall employ the Reconciliation Procedures as described in Section 7.8 of this Agreement.
Section 4.3 Payment upon Early Termination.
(a) Except as provided in Section 5.3, no later than three (3) calendar days after the date the Early Termination Schedule is finalized pursuant to Section 4.2, the Corporation shall pay to each TRA Party, its share (based on such TRA Partys Ownership Percentage) of an amount equal to the Early Termination Payment or Divestiture Acceleration Payment and any other payment required to be made pursuant to Sections 4.1 or Section 4.2. Such payment shall be made by wire transfer of immediately available funds to a bank account designated by the applicable TRA Parties or as otherwise agreed by the Corporation and the TRA Party.
(b) The Early Termination Payment as of the Early Termination Date (other than an Early Termination Date arising under clause (ii) of the definition thereof) shall equal with respect to the TRA Parties the present value, discounted at the Early Termination Rate as of such date, of all Tax Benefit Payments that would be required to be paid by the Corporation to the TRA Parties beginning from the Early Termination Date assuming the Valuation Assumptions are applied; provided, that in the event that the TRA Representative exercises an Early Payment Right, the Early Termination Rate shall be LIBOR plus 350 basis points if the TRA Model reflects aggregate Tax Benefit Payments (on a non-discounted basis) to be paid after the delivery of the Early Payment Right Notice pursuant to Section 4.1(g) that equal or exceed 97% of the Early Termination Payment (assuming that the Early Termination Rate is zero and disregarding any change in applicable Tax rate following the IPO Date), and in all other cases, the Early Termination Rate where the TRA Representative exercises an Early Payment Right shall be the lesser of 6.5% per annum, compounded annually, or LIBOR plus 100 basis points. For purposes of calculating the present value pursuant to this Section 4.3(b) of all Tax Benefit Payments that would be required to be paid, it shall be assumed that (i) absent the Early Termination Event all Tax Benefit Payments would be paid on May 15th of the year following the applicable Taxable Year. The computation of the Early Termination Payment is subject to the Reconciliation Procedures as described in Section 7.8 of this Agreement.
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(c) The Divestiture Acceleration Payment as of the date of any Divestiture shall equal with respect to the TRA Parties the present value, discounted at the Early Termination Rate as of such date, of the Tax Benefit Payments resulting solely from the Transferred Tax Attributes that would be required to be paid by the Corporation to the TRA Parties beginning from the date of such Divestiture assuming the Valuation Assumptions are applied, provided that the Divestiture Acceleration Payment shall be calculated without giving effect to any limitation on the use of the Transferred Tax Attributes resulting from the Divesture. For purposes of calculating the present value pursuant to this Section 4.3(c) of all Tax Benefit Payments that would be required to be paid, it shall be assumed that (i) absent the Divestiture all Tax Benefit Payments would be paid on May 15th of the year following the applicable Taxable Year. The computation of the Divestiture Acceleration Payment is subject to the Reconciliation Procedures as described in Section 7.8 of this Agreement.
ARTICLE V
LATE PAYMENTS, ETC.
Section 5.1 Late Payments by the Corporation. Other than with respect to payments pursuant to Section 3.1, the amount of all or any portion of any TRA Payment not made to the TRA Parties when due under the terms of this Agreement shall be payable together with any interest thereon, computed at the Default Rate and commencing from the date on which such TRA Payment was due and payable.
Section 5.2 Subordination. Notwithstanding any other provision of this Agreement to the contrary, any Tax Benefit Payment required to be made by the Corporation under this Agreement shall rank subordinate and junior in right of payment to any principal, interest or other amounts due and payable in respect of any obligations in respect of indebtedness for borrowed money of the Corporation and its Subsidiaries (Senior Obligations) and shall rank pari passu in right of payment with all current or future unsecured obligations of the Corporation that are not Senior Obligations.
Section 5.3 Compliance with Indebtedness. The parties acknowledge, and the Corporation represents, that the Corporation has provided information to the TRA Representative as of the date of this Agreement regarding the capacity of the Corporate Taxpayer and its U.S. subsidiaries to fund dividends, and represents that such information is true, correct and complete in all material respects. Notwithstanding anything to the contrary provided herein, if, at the time any amounts becomes due and payable hereunder, (a) the Corporation is not permitted, pursuant to the terms of its or its Subsidiaries outstanding indebtedness, to pay such amounts, (b) in the good faith determination of the Corporation, the payment of such amounts would be reasonably likely to result in a breach of any covenant set forth in any agreement governing indebtedness of the Corporation or its subsidiaries or (c) (i) the Corporation does not have the cash on hand to pay such amounts, and (ii) no Subsidiary of the Corporation is able and permitted, pursuant to the terms of its outstanding indebtedness, to pay directly or through a series of dividends, sufficient amount to the Corporation to enable it to pay such amounts, then, in each case, the Corporation shall, by notice to the TRA Representative, be permitted to defer the payment of such amounts until the condition described in clause (a), (b) or (c) is no longer applicable, in which case such amounts (together
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with accrued and unpaid interest thereon as described in the immediately following sentence) shall become due and payable immediately, and such deferral shall not constitute a breach of a material obligation under Section 4.1(a) (other than any Early Termination Payment payable in connection with a Change of Control); provided, however, and notwithstanding anything in this Agreement to the contrary, if the Corporation fails to make any Tax Benefit Payment when due, the Corporate Taxpayer shall use reasonable best efforts to obtain funds to make such payment (including by causing its Subsidiaries to distribute or lend funds to facilitate such payment, and by accessing any revolving credit facilities or other sources of available credit to fund any such amounts), and such failure to make a Tax Benefit Payment shall be a material breach of a material obligation under this Agreement upon the one-year anniversary of the initial due date (i.e., if there was no deferral) of the applicable payment that will be treated as if the Corporation elected there to be an Early Complete Termination and delivered an Early Termination Notice on such one-year anniversary. If the Corporation defers the payment of any such amounts pursuant to the foregoing sentence, such amounts shall accrue interest at the Default Rate per annum, from the date that such amounts originally became due and owing pursuant to the terms hereof to the date that such amounts were paid. To the extent the Corporation or its Subsidiaries incur, create, assume or permit to exist any indebtedness after the date hereof, the Corporation shall, and shall cause its Subsidiaries to, use commercially reasonable efforts to ensure that such indebtedness permits any amounts payable hereunder to be paid. For the avoidance of doubt, nothing in the previous sentence shall prevent the Corporation from deferring payments or determining that the holders are not entitled to payments pursuant to this Section 5.3.
ARTICLE VI
TAX MATTERS
Section 6.1 Corporation Tax Matters. Except as otherwise provided herein, the Corporation shall have full responsibility for, and sole discretion over, all Tax matters concerning any Corporate Taxpayer including without limitation the preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to Taxes. Notwithstanding the foregoing, the Corporation shall notify the TRA Representative of, and keep the TRA Representative reasonably informed with respect to, the portion of any audit of any Corporate Taxpayer by a Taxing Authority the outcome of which is reasonably expected to affect any TRA Partys rights and obligations under this Agreement. To the extent permitted by law, the Corporation shall file a consolidated federal income Tax Return for each Taxable Year with respect to any domestic corporation (for U.S. federal income tax purposes) that is a member of the Corporations affiliated group within the meaning of Section 1504 of the Code.
Section 6.2 Cooperation. The Corporate Taxpayer shall not, and shall cause each of its Subsidiaries to not, without the prior written consent of the TRA Representative, take any action that has the principal purpose of avoiding the use of or reducing utilization of Covered Tax Attributes available to it. The Corporation will promptly provide the TRA Representative upon request reasonably detailed information regarding the Corporate Taxpayers good faith projections of the Corporate Taxpayers taxable income and payments to be made pursuant to this Agreement; provided that (i) the TRA Representative shall not provide any such information to any third-party without
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such third-party first executing a customary non-disclosure agreement and (ii) the Corporate Taxpayer shall have no separate obligation to retain external advisors in connection with providing such information. The Corporate Taxpayer will also disclose to the TRA Representative on an annual basis all material intercompany agreements entered into (or amended) after the IPO Date if such agreement results in a payment being made that results in a deduction to the Corporate Taxpayer where the payee is Affiliate of the Corporation and is not a Corporate Taxpayer.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed duly given and received (a) on the date of delivery if delivered personally, or email upon confirmation of transmission (via delivery receipt requested) if sent on a Business Day (or otherwise on the next Business Day) or (b) on the first Business Day following the date of dispatch if delivered by a recognized next-day courier service. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:
If to the Corporation, to:
[]
Attention: []
Email: [email address]
with a copy to (which shall not constitute notice):
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Attention: []
If to the TRA Representative, to:
[]
Attention: []
Email: [email address]
with a copy to (which shall not constitute notice):
Any party may change its address, fax number or email by giving the other party written notice of its new address, fax number or email in the manner set forth above.
Section 7.2 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall
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become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.
Section 7.3 Entire Agreement; Third Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their respective successors and permitted assigns. Other than as provided in the preceding sentence, nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 7.4 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York.
Section 7.5 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.
Section 7.6 Successors; Assignment; Amendments; Waivers.
(a) Each TRA Party may assign, sell, pledge or otherwise alienate or transfer all or any portion of its rights under this Agreement without the prior written consent of the Corporation, but such assignment, sale, pledge or other alienation or transfer shall require the prior written consent of the TRA Representative; provided however a TRA Party may not assign, sell, pledge or otherwise alienate or transfer all or any portion of its rights under this Agreement to the parties listed on Schedule [ ] without the prior written consent of the Corporation. In the case of any such assignment, sale, pledge or other alienation or transfer to any Person, such person shall execute and deliver a Joinder, substantially in the form of Exhibit A, agreeing to succeed to the applicable portion of such TRA Partys interest in this Agreement and to become a Party for all purposes of this Agreement, except as otherwise provided in such Joinder.
(b) No provision of this Agreement or any schedule or exhibit with respect thereto (other than to reflect any assignment, sale, pledge or otherwise alienation or transfer effected pursuant to Section 7.6(a)) may be amended unless such amendment
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is approved in writing by the Corporation and the TRA Representative. No provision of this Agreement may be waived unless such waiver is in writing and signed by the party against whom the waiver is to be effective.
(c) All of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. The Corporation shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place.
Section 7.7 Resolution of Disputes.
(a) Except as provided in Section 7.8, any and all disputes which cannot be settled amicably, including any ancillary claims of any party, arising out of, relating to or in connection with the validity, negotiation, execution, interpretation, performance or non-performance of this Agreement (including the validity, scope and enforceability of this arbitration provision) shall be finally settled by arbitration conducted by a single arbitrator in New York in accordance with the then-existing Rules of Arbitration of the International Chambers of Commerce. If the parties to the dispute fail to agree on the selection of an arbitrator within thirty (30) calendar days of the receipt of the request for arbitration, the International Chambers of Commerce shall make the appointment. The arbitrator shall be a lawyer and shall conduct the proceedings in the English language. Performance under this Agreement shall continue if reasonably possible during any arbitration proceedings.
(b) Notwithstanding the provisions of paragraph (a), the Corporation and any TRA Party (through the TRA Representative) may bring an action or special proceeding in any court of competent jurisdiction for the purpose of compelling a party to arbitrate, seeking temporary or preliminary relief in aid of an arbitration hereunder, and/or enforcing an arbitration award and, for the purposes of this paragraph (b), the Corporation and each TRA Party (through the TRA Representative) (i) expressly consents to the application of paragraph (c) of this Section 7.7 to any such action or proceeding, and (ii) agrees that proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate. Each TRA Party irrevocably appoints the TRA Representative as its agent for service of process in connection with any such action or proceeding and agrees that service of process upon such agent shall be deemed in every respect effective service of process upon such TRA Party in any such action or proceeding.
(c) (i) THE CORPORATION AND EACH TRA PARTY (THROUGH THE TRA REPRESENTATIVE) HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF COURTS LOCATED IN NEW YORK, NEW YORK FOR THE PURPOSE OF ANY JUDICIAL PROCEEDING BROUGHT IN
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ACCORDANCE WITH THE PROVISIONS OF PARAGRAPH (B) OF THIS SECTION 7.7, OR ANY JUDICIAL PROCEEDING ANCILLARY TO AN ARBITRATION OR CONTEMPLATED ARBITRATION ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT. Such ancillary judicial proceedings include any suit, action or proceeding to compel arbitration, to obtain temporary or preliminary judicial relief in aid of arbitration, or to confirm an arbitration award. The parties acknowledge that the fora designated by this paragraph (c) have a reasonable relation to this Agreement, and to the parties relationship with one another.
(ii) The parties hereby waive, to the fullest extent permitted by applicable law, any objection which they now or hereafter may have to personal jurisdiction or to the laying of venue of any such ancillary suit, action or proceeding brought in any court referred to in paragraph (c)(i) of this Section 7.7 and such parties agree not to plead or claim the same.
Section 7.8 Reconciliation. In the event that the Corporation and the TRA Representative are unable to resolve a disagreement with respect to any tax matter or calculation required under this Agreement, including the matters governed by Sections 2.3 or 4.2, within the relevant period designated in this Agreement (or the amount of an Early Termination Payment to which Section 4.1 applies) (Reconciliation Dispute), the Reconciliation Dispute shall be submitted for determination to a nationally recognized expert (the Expert) in the particular area of disagreement mutually acceptable to both parties. The Expert shall be a partner or principal in a nationally recognized accounting firm or a law firm, and the Expert shall not, and the firm that employs the Expert shall not, have any material relationship with the Corporation or any of the TRA Parties or other actual or potential conflict of interest. The Expert shall resolve any matter relating to the Early Termination Schedule or an amendment thereto within thirty (30) calendar days and shall resolve any matter relating to a Tax Benefit Schedule or an amendment thereto within fifteen (15) calendar days or as soon thereafter as is reasonably practicable, in each case after the matter has been submitted to the Expert for resolution. Notwithstanding the preceding sentence, if the matter is not resolved before any payment that is the subject of a disagreement is due or any Tax Return reflecting the subject of a disagreement is due, (i) the undisputed amount shall be paid on the date prescribed by this Agreement and (ii) such Tax Return may be filed as prepared by the relevant Corporate Taxpayer, subject, in the cause of sub-clauses (i) and (ii), to adjustment or amendment upon resolution. The costs and expenses relating to the engagement of such Expert shall be borne equally by the Corporation, on the one hand, and by the TRA Representative, on the other hand, except as provided in the next sentence. Each of the Corporation and the TRA Representative shall bear their own costs and expenses relating to the determination of the Reconciliation Dispute, unless (i) the Expert substantially adopts the TRA Representatives position, in which case the Corporation shall reimburse the TRA Representative for any reasonable out-of-pocket costs and expenses in such proceeding, or (ii) the Expert substantially adopts the Corporations position, in which case the TRA Representative shall reimburse the Corporation for any reasonable out-of-pocket costs and expenses in such proceeding; provided that, for the avoidance of doubt, the Corporation shall bear all costs and expenses related to the tax compliance costs of any Corporate Taxpayer, including the
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costs of amending any Tax Return. Any dispute as to whether a dispute is a Reconciliation Dispute within the meaning of this Section 7.8 shall be decided by the Expert. The Expert shall finally determine any Reconciliation Dispute and the determinations of the Expert pursuant to this Section 7.8 shall be binding on the Corporation and the TRA Parties and may be entered and enforced in any court having jurisdiction.
Section 7.9 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER OR RELATE TO THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BREACH OR VALIDITY OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ACTION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.9.
Section 7.10 Withholding. Notwithstanding any other provision of this Agreement, the Corporation shall be entitled to deduct and withhold from any payment payable pursuant to this Agreement such amounts as the Corporation is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law; provided that the Corporation (i) gives 10 days advance written notice of its intention to make such withholding to the TRA Representative, (ii) identifies the legal basis requiring such withholding and (iii) gives the TRA Representative an opportunity to establish that such withholding is not legally required. Except upon an applicable change in law, no U.S. federal income Taxes will be required to be withheld in respect of any payment under this Agreement to any Person that is a United States Person within the meaning of Section 7701(a)(30) of the Code that timely delivers to the Corporation a properly completed IRS Form W-9. To the extent that amounts are properly so withheld and paid over to the appropriate Taxing Authority by the Corporation, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the TRA Party in respect of whom the withholding was made. The Corporation shall provide evidence of such payment to the TRA Parties (through the TRA Representative) to the extent that such evidence is available. To the extent that any payment pursuant to this Agreement is not reduced by such deductions or withholdings, the recipient shall indemnify the applicable withholding agent for any amounts imposed by any Taxing Authority together with any costs and expenses related thereto. Each TRA Party shall promptly provide the Corporation or other applicable withholding agent with any applicable Tax forms and certifications (including IRS Form W-9) reasonably requested in connection with determining whether any such deductions and withholdings are required under the Code or any provision of U.S. state, local or foreign Tax law.
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Section 7.11 Affiliated Corporations; Admission of the Corporation into a Consolidated Group; Transfers of Corporate Assets. If the Corporate Taxpayer is or becomes a member of an affiliated or consolidated group of corporations that files a consolidated income tax return pursuant to Sections 1501 et seq. of the Code, then: (i) the provisions of this Agreement shall be applied with respect to the group as a whole; and (ii) Tax Benefit Payments shall be computed with reference to the consolidated taxable income of the group as a whole. If any Person the income of which is included in the income of the Corporations affiliated or consolidated group transfers one or more assets to a corporation with which such Person does not file a consolidated Tax Return pursuant to Section 1501 of the Code, for purposes of calculating the amount of any Tax Benefit Payment (e.g., calculating the gross income of the Corporations affiliated or consolidated group and determining the Realized Tax Benefit) due hereunder, such Person shall be treated as having disposed of such asset in a fully taxable transaction on the date of such transfer. The consideration deemed to be received by such entity shall be equal to the greater of (1) tax basis of such transferred asset and (2) the fair market value of such transferred asset, plus (i) the amount of debt to which such asset is subject, in the case of a transfer of an encumbered asset, or (ii) the amount of debt allocated to such asset, in the case of a transfer of a partnership interest.
Section 7.12 Confidentiality. (a) Each TRA Party, through the TRA Representative, and each of its assignees acknowledges and agrees that the information of the Corporation is confidential and, except in the course of performing any duties as necessary for the Corporation and its Affiliates, as required by law or legal process or to enforce the terms of this Agreement, shall keep and retain in the strictest confidence and not disclose to any Person all confidential matters of the Corporation or the TRA Parties acquired pursuant to this Agreement, in each case other than the information provided pursuant to the second sentence of Section 6.2 herein (provided that the TRA Representative shall not provide any such information to any third-party without such third-party first executing a customary non-disclosure agreement as described in Section 6.2). This Section 7.12 shall not apply to (i) any information that has been made publicly available by the Corporation or any of its Affiliates, becomes public knowledge (except as a result of an act of any TRA Party in violation of this Agreement) or is generally known to the business community; and (ii) the disclosure of information to the extent necessary for any TRA Party to prepare and file its Tax returns, to respond to any inquiries regarding the same from any Taxing Authority or to prosecute or defend any action, proceeding or audit by any taxing authority with respect to such returns. Notwithstanding anything to the contrary herein, each TRA Party (and each employee, representative or other agent of such TRA Party) may disclose to any and all Persons, without limitation of any kind, the tax treatment and tax structure of (x) any Corporate Taxpayer, (y) any of its transactions and (z) this
27
Agreement, and all materials of any kind (including opinions or other tax analyses) that are provided to such TRA Party relating to such tax treatment and tax structure.
(b) If the TRA Representative, any TRA Party or any of their respective assignees commits a breach, or threatens to commit a breach, of any of the provisions of this Section 7.12, the Corporation shall have the right and remedy to have the provisions of this Section 7.12 specifically enforced by injunctive relief or otherwise by any court of competent jurisdiction without the need to post any bond or other security, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to the Corporation or any of its Subsidiaries and the accounts and funds managed by the Corporation and that money damages alone shall not provide an adequate remedy to such Persons. Such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available at law or in equity.
Section 7.13 Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
Section 7.14 Appointment of TRA Representative.
(a) Appointment. Without further action of any of the Corporation, the TRA Representative or any TRA Party, and as partial consideration of the benefits conferred by this Agreement, the TRA Representative is hereby irrevocably constituted and appointed, with full power of substitution, to act in the name, place and stead of each TRA Party with respect to the taking by the TRA Representative of any and all actions and the making of any decisions required or permitted to be taken by the TRA Representative under this Agreement (and any potential agreement with the Corporation to terminate this Agreement earlier than such time as is provided in Section 4.1 provided that (for the absence of doubt any payment made by the Corporation upon such an early termination shall be paid to each TRA Party based on such TRA Partys Ownership Percentage), including but not limited to: (i) execution of the documents and certificates required pursuant to this Agreement; (ii) except to the extent specifically provided in this Agreement receipt and forwarding of notices and communications pursuant to this Agreement; (iii) administration of the provisions of this Agreement; (iv) any and all consents, waivers, amendments or modifications deemed by the TRA Representative, in its sole and absolute discretion, to be necessary or appropriate under this Agreement and the execution or delivery of any documents that may be necessary or appropriate in connection therewith; (v) amending this Agreement or any of the instruments to be delivered to the Corporation pursuant to this Agreement; (vi) taking actions the TRA Representative is expressly authorized to take pursuant to the other provisions of this Agreement; (vii) negotiating and compromising, on behalf of such TRA Parties, any dispute that may arise under, and exercising or refraining from exercising any remedies available under, this Agreement or any other agreement contemplated hereby and executing, on behalf of such TRA Parties, any settlement agreement, release or other document with respect to such dispute or remedy; and (viii) engaging attorneys, accountants, agents or consultants on behalf of such TRA Parties in connection with this Agreement or any other agreement contemplated hereby and paying any fees related thereto. The power of attorney granted herein is coupled with an interest and is
28
irrevocable and may be delegated by the TRA Representative. No bond shall be required of the TRA Representative, and the TRA Representative shall receive no compensation for its services.
(b) Expenses. The Corporation shall reimburse the TRA Representative for up to $100,000 annually of all reasonable, documented out-of-pocket costs and expenses incurred by the TRA Representative in its capacity as such upon invoice and reasonable support therefor by the TRA Representative; provided that the Corporation shall reduce any future payments due to the TRA Parties hereunder pro rata (based on their respective ownership percentage in the Corporation) by the amount of any amounts it pays to the TRA Representative pursuant to this Section 7.14(b); provided further that the Corporation shall not be required to reimburse the TRA Representative for any expenses incurred in connection with the prosecution or defense of a dispute brought by the TRA Party under Section 7.7 or Section 7.8 of this Agreement. In connection with the performance of its rights and obligations under this Agreement and the taking of any and all actions in connection therewith, the TRA Representative shall not be required to expend any of its own funds (though, for the avoidance of doubt, it may do so at any time and from time to time in its sole discretion).
(c) Limitation on Liability. The TRA Representative shall not be liable to any TRA Party for any act of the TRA Representative arising out of or in connection with the acceptance or administration of its duties under this Agreement, except to the extent any liability, loss, damage, penalty, fine, cost or expense is actually incurred by such TRA Party as a proximate result of the gross negligence, bad faith or willful misconduct of the TRA Representative (it being understood that any act done or omitted pursuant to the advice of legal counsel shall be conclusive evidence of such good faith and reasonable judgment). The TRA Representative shall not be liable for, and shall be indemnified by the TRA Parties (on a several but not joint basis) for, any liability, loss, damage, penalty or fine incurred by the TRA Representative (and any cost or expense incurred by the TRA Representative in connection therewith and herewith and not previously reimbursed pursuant to subsection (b) above) arising out of or in connection with the acceptance or administration of its duties under this Agreement, except to the extent that any such liability, loss, damage, penalty, fine, cost or expense is the proximate result of the gross negligence, bad faith or willful misconduct of the TRA Representative (it being understood that any act done or omitted pursuant to the advice of legal counsel shall be conclusive evidence of such good faith and reasonable judgment); provided, however, in no event shall any TRA Party be obligated to indemnify the TRA Representative hereunder for any liability, loss, damage, penalty, fine, cost or expense to the extent (and only to the extent) that the aggregate amount of all liabilities, losses, damages, penalties, fines, costs and expenses indemnified by such TRA Party hereunder is or would be in excess of the aggregate payments under this Agreement actually remitted to such TRA Party. Each TRA Partys receipt of any and all benefits to which such TRA Party is entitled under this Agreement, if any, is conditioned upon and subject to such TRA Partys acceptance of all obligations, including the obligations of this Section 7.14(c), applicable to such TRA Party under this Agreement.
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(d) Actions of the TRA Representative. Any decision, act, consent or instruction of the TRA Representative shall constitute a decision of all TRA Parties and shall be final, binding and conclusive upon each TRA Party, and the Corporation may rely upon any decision, act, consent or instruction of the TRA Representative as being the decision, act, consent or instruction of each TRA Party. The Corporation is hereby relieved from any liability to any person for any acts done by the Corporation in accordance with any such decision, act, consent or instruction of the TRA Representative.
[Signatures pages follow]
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IN WITNESS WHEREOF, the Corporation and each TRA Party have duly executed this Agreement as of the date first written above.
CLARIOS INTERNATIONAL, INC. | ||
By: | ||
Name: | ||
Title: | ||
TRA Parties | ||
By: | ||
Name: Title: | ||
TRA Representative | ||
By: | ||
Name: Title: |
Exhibit A
Form of Joinder
This JOINDER (this Joinder) to the Tax Receivable Agreement (as defined below), is by and among Clarios International, Inc., a Delaware corporation (including any successor corporation, the Corporation), ______________________ (Transferor) and ______________________ (Permitted Transferee).
WHEREAS, on ______________________, Permitted Transferee shall acquire ______________________ percent of the Transferors right to receive payments that may become due and payable under the Tax Receivable Agreement (as defined below) (the Acquired Interests) from Transferor (the Acquisition); and
WHEREAS, Transferor, in connection with the Acquisition, has required Permitted Transferee to execute and deliver this Joinder pursuant to Section 7.6(a) of the Tax Receivable Agreement, dated as of [], 2021, between the Corporation and the TRA Parties (as defined therein) (the Tax Receivable Agreement).
NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:
Section 1.1 Definitions. To the extent capitalized words used in this Joinder are not defined in this Joinder, such words shall have the respective meanings set forth in the Tax Receivable Agreement.
Section 1.2 Acquisition. For good and valuable consideration, the sufficiency of which is hereby acknowledged by the Transferor and the Permitted Transferee, the Transferor hereby transfers and assigns absolutely to the Permitted Transferee all of the Acquired Interests.
Section 1.3 Joinder. Permitted Transferee hereby acknowledges and agrees (i) that it has received and read the Tax Receivable Agreement, (ii) that the Permitted Transferee is acquiring the Acquired Interests in accordance with and subject to the terms and conditions of the Tax Receivable Agreement and (iii) to become a TRA Party (as defined in the Tax Receivable Agreement) for all purposes of the Tax Receivable Agreement.
Section 1.4 Notice. Any notice, request, consent, claim, demand, approval, waiver or other communication hereunder to Permitted Transferee shall be delivered or sent to Permitted Transferee at the address set forth on the signature page hereto in accordance with Section 7.1 of the Tax Receivable Agreement.
Section 1.5 Governing Law. This Joinder shall be governed by and construed in accordance with the law of the State of New York.
IN WITNESS WHEREOF, this Joinder has been duly executed and delivered by Permitted Transferee as of the date first above written.
CLARIOS INTERNATIONAL, INC. | ||
By: | ||
Name: | ||
Title: | ||
[TRANSFEROR] | ||
By: | ||
Name: | ||
Title: | ||
[PERMITTED TRANSFEREE] | ||
By: | ||
Name: | ||
Title: | ||
Address for notices: |
Exhibit 10.3
STOCKHOLDER RIGHTS AGREEMENT
by and between
CLARIOS INTERNATIONAL INC.
and
[●]
Dated as of July [●], 2021
TABLE OF CONTENTS
PAGE | ||||||
ARTICLE 1 |
| |||||
GOVERNANCE | ||||||
Section 1.01. |
Board of Directors | 1 | ||||
Section 1.02. |
Certain Actions by the Company | 5 | ||||
ARTICLE 2 |
| |||||
REPRESENTATIONS AND WARRANTIES | ||||||
Section 2.01. |
Representations and Warranties of the Sponsor Group | 6 | ||||
Section 2.02. |
Representations and Warranties of the Company | 7 | ||||
ARTICLE 3 |
| |||||
DEFINITIONS | ||||||
Section 3.01. |
Defined Terms | 7 | ||||
Section 3.02. |
Terms Generally | 10 | ||||
ARTICLE 4 |
| |||||
MISCELLANEOUS | ||||||
Section 4.01. |
Term | 10 | ||||
Section 4.02. |
Amendments and Waivers | 11 | ||||
Section 4.03. |
Successors and Assigns | 11 | ||||
Section 4.04. |
Confidentiality | 11 | ||||
Section 4.05. |
Severability | 11 | ||||
Section 4.06. |
Counterparts | 12 | ||||
Section 4.07. |
Entire Agreement | 12 | ||||
Section 4.08. |
Governing Law; Jurisdiction | 12 | ||||
Section 4.09. |
WAIVER OF JURY TRIAL | 12 | ||||
Section 4.10. |
Specific Performance | 12 | ||||
Section 4.11. |
No Third-Party Beneficiaries | 13 | ||||
Section 4.12. |
Notices | 13 |
i
STOCKHOLDER RIGHTS AGREEMENT, dated as of July [●], 2021 (as amended from time to time, this Agreement), by and among Clarios International Inc., a Delaware corporation (the Company) and the entities constituting the Sponsor Group (as defined herein).
W I T N E S E T H:
WHEREAS, on July [●], 2021, the Company executed an underwriting agreement dated July [●], 2021 (the Underwriting Agreement) related to the Companys IPO;
WHEREAS, simultaneously with the execution and delivery of this Agreement by the parties hereto, the Company and the Sponsor Group have entered into a Registration Rights Agreement, dated as of the date hereof (as amended from time to time, the Registration Rights Agreement), pursuant to which, among other things, the Company grants the Sponsor Group certain registration and other rights with respect to the Common Stock;
WHEREAS, the parties hereto wish to provide for certain governance rights and other matters, and to set forth the rights and obligations of the Sponsor Group following the IPO; and
NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
GOVERNANCE
Section 1.01. Board of Directors.
(a) Prior to the IPO Closing, the Sponsor Group and the Company shall take all Necessary Action to cause the total number of directors constituting the board of directors of the Company (the Board) to be fixed at eleven directors as of the IPO Closing, (i) six of whom shall be Designated Directors (as defined below), (ii) four of whom shall each satisfy the requirements to qualify as an Independent Director and (iii) one of whom shall be the Chief Executive Officer of the Company.
At the IPO Closing, the Designated Directors shall be John Barkhouse, Steve Girsky, Ron Bloom, Mark Weinberg, Justin Shaw and Bertrand Villon; the Chief Executive Officer director shall be Mark Wallace; and the Independent Directors shall be Diarmuid OConnell, Cathy Clegg, Michel Norona and Maryrose Sylvestor. The initial Chair of the Board (the Chair) shall be Diarmuid OConnell. In connection with the IPO Closing, the foregoing directors shall be divided into three classes of directors, each of whose
members, following the initial classification of the Board, shall be elected for staggered three-year terms as follows:
(1) the Class I directors shall consist of Steve Girsky, Cathy Clegg, Ron Bloom and Diarmuid OConnell;
(2) the Class II directors shall consist of John Barkhouse, Justin Shaw, Mark Wallace and Michael Norona; and
(3) the Class III directors shall consist of Bertrand Villon, Mark Weinberg, and Maryrose Sylvestor.
The initial term of the Class I directors shall expire at the Companys 2022 annual meeting of stockholders at which directors are elected. The initial term of the Class II directors shall expire at the Companys 2023 annual meeting of stockholders at which directors are elected. The initial term of the Class III directors shall expire at the Companys 2024 annual meeting at which directors are elected.
(b) At the IPO Closing, the Board shall establish the following committees of the Board with such responsibilities as the Board shall determine, in each case subject to compliance with NYSE rules (or the rules of the principal market on which the Common Stock is then listed) and U.S. Securities and Exchange Commission rules and regulations regarding qualification and independence:
(1) an Executive Oversight Committee, which shall initially be comprised of John Barkhouse (chair), Diarmuid OConnell and Mark Wallace;
(2) an Audit Committee, which shall initially be comprised of Michael Norona (chair), Maryrose Sylvestor and Cathy Clegg;
(3) a Governance and Compensation Committee, which shall initially be comprised of John Barkhouse (chair), Bertrand Villon, Maryrose Sylvestor and Cathy Clegg; and
(4) an ESG and Risk Management Committee, which shall initially be comprised of Steve Girsky (chair), Ron Bloom, Justin Shaw and Cathy Clegg.
(c) For so long as the Percentage Ownership of the Sponsor Group is (1) at least twenty-five percent (25%), the Sponsor Group shall have the right, but not the obligation, to designate (x) a majority of the Board and (y) the Chair or (2) at least fifteen percent (15%) but less than twenty-five percent (25%), the Sponsor Group shall have the
2
right, but not the obligation, to designate the greater of (x) three Designated Directors and (y) twenty-five (25%) of the Board, and shall have no right to designate the Chair. The Designated Directors shall be apportioned as evenly as possible across classes.
(d) For so long as the Sponsor Group has the right to designate directors for nomination pursuant to Section 1.01(c), the Board shall recommend such number of designees be included in the slate of nominees in the class to be elected or appointed to the Board at the next (and each applicable subsequent) annual or special meeting of stockholders in order to give effect to Section 1.01(c), subject in each case to such designees satisfaction of all applicable requirements regarding service as a director of the Company under the Companys Amended and Restated By-Laws, Applicable Law and NYSE rules (or the rules of the principal market on which the Common Stock is then listed) regarding service as a director and such other criteria and qualifications for service as a director applicable to all directors of the Company as in effect on the date thereof.
(e) For so long as the Sponsor Group has the right to designate directors for nomination pursuant to Section 1.01(c):
(i) the Company or the Board shall (1) to the extent necessary to comply with the designation rights of the Sponsor Group in this Section 1.01, cause the total number of directors constituting the Board to be fixed at a number sufficient to permit such persons to be added as members of the Board (or such higher number of directors as the Sponsor Group may determine in the Sponsor Groups sole discretion that is otherwise in compliance with the Companys Amended and Restated Certificate of Incorporation, the Companys Amended and Restated By-laws, Applicable Law and NYSE rules (or the rules of the principal market on which the Common Stock is then listed)), (2) nominate any such persons designated by the Sponsor Group pursuant to Section 1.01(c) for election to the Board and (3) recommend that the Companys stockholders vote in favor of the persons designated for nomination by the Sponsor Group in all subsequent stockholder meetings. In the event of the death, disability, resignation or removal of any person designated by the Sponsor Group as a member of the Board, subject to the continuing satisfaction of the applicable threshold set forth in Section 1.01(c), the Sponsor Group may designate a person satisfying the criteria and qualifications set forth in Section 1.01(d) to replace such person and the Company shall cause such newly designated person to fill such resulting vacancy. So long as any person designated by the Sponsor Group as a member of the Board is eligible to be so designated in accordance with this Section 1.01, the Company shall not take any action to remove such person as such a director without cause without the prior written consent of the Sponsor Group;
(ii) the Board shall take any Necessary Action to cause the election of the Chair as designated by the Sponsor Group;
(iii) the Board shall appoint (w) to the executive oversight committee, one Independent Director and up to two Designated Directors (at the discretion of the Sponsor Group), (x) to the audit committee (and any committee formed to
3
review or approve of transactions or matters involving conflicts of interest with the Sponsor Group), three Independent Directors (beginning no later than ninety days following the IPO), (y) to the governance and compensation committee, at least two Independent Directors and up to two Designated Directors (at the discretion of the Sponsor Group) and (z) to the risk management committee, at least one Independent Directors and up to three Designated Directors (at the discretion of the Sponsor Group), in the case of each of clauses (w) to (z), subject to compliance with NYSE rules (or the rules of the principal market on which the Common Stock is then listed) and U.S. Securities and Exchange Commission rules and regulations regarding qualification and independence;
(iv) for any committee of the Board (other than the committees referenced in Section 1.01(e)(iii)), the Board shall appoint up to two (2) Designated Directors (in the discretion of the Sponsor Group) as a member of each committee of the Board, with one Designated Director acting as the chair of such committee (in the discretion of the Sponsor Group), in each case subject to compliance with NYSE rules (or the rules of the principal market on which the Common Stock is then listed) and U.S. Securities and Exchange Commission rules and regulations regarding qualification and independence;
(v) the Company or the Board shall not delegate the general powers of the Board to any committee or sub-committee in a manner that is inconsistent with the provisions of this Section 1.01(e);
(vi) each Designated Director shall be entitled to compensation in an amount consistent with the compensation received by other members of the Board, including any fees and equity awards (provided that non-Independent Directors shall be paid in all cash), and reimbursement for reasonable, out-of-pocket and documented expenses incurred in attending meetings of the Board and its committees, unless the Sponsor Group determines that the compensation received by an individual Designated Director should be paid directly to a member of the Sponsor Group, in which case the Company shall make such payment as directed by the Sponsor Group;
(vii) in the event that a Designated Director is not paid compensation directly, then any minimum share or share equivalent ownership requirements will not apply to such Designated Director; and
(viii) the Company shall provide each Designated Director with the same rights to exculpation, indemnification and advancement of expenses that it provides to the other members of the Board.
(f) Within one (1) year (or any shorter period that may be required by Applicable Law, regulations or stock exchange listing rules and regulations) after the Company ceases to qualify as a controlled company as defined by NYSE rules (or the rules of the principal market on which the Common Stock is then listed), the Sponsor Group shall take all Necessary Action to ensure that a sufficient number of the directors
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qualify as independent directors as defined by NYSE rules (or the rules of the principal market on which the Common Stock is then listed) to ensure that the Company and its Board complies with NYSE rules (or the rules of the principal market on which the Common Stock is then listed) regarding director independence.
(g) For so long as the Percentage Ownership of the Sponsor Group is at least fifteen percent (15%), the Sponsor Group shall have the right, but not the obligation, to have a reasonable number of observers attend any Board or committee meeting. Each Person shall be entitled to reimbursement for reasonable, out-of-pocket and documented expenses incurred in attending any meeting of the Board or any committee thereof and, for the avoidance of doubt, shall not have any rights to participate in any vote at such meeting. Each such Person shall be subject to the confidentiality obligations set forth in Section 4.04.
Section 1.02. Certain Actions by the Company. For so long as the Percentage Ownership of the Sponsor Group is at least twenty-five percent (25%), the Company shall not (and shall cause each of the Companys subsidiaries not to), in each case, without the prior written consent of the Sponsor Group:
(a) adopt or propose any amendment, modification or restatement of or supplement to the Companys Amended and Restated Certificate of Incorporation that would reasonably be expected to be adverse to the Sponsor Group or any of their respective Affiliates;
(b) adopt or propose any amendment, modification or restatement of or supplement to the Companys Amended and Restated By-laws that would reasonably be expected to be adverse to the Sponsor Group or any of their respective Affiliates;
(c) commence a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or similar law or of any other case or proceeding to be adjudicated as bankrupt or insolvent, or consent to the entry of a decree or order for relief or in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it or them, or the file a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or consent to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or its subsidiaries or of any substantial part of its or their property, or make an assignment for the benefit of creditors, or admit in writing of its or their inability to pay its or their debts generally as they become due, or take any action in furtherance of any such action;
(d) change the size of the Board, except as required by Applicable Law, NYSE rules (or the rules of the principal market on which the Common Stock is then listed) or pursuant to the terms of this Agreement;
(e) agree to or consummate any Change-in-Control Transaction;
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(f) agree to or consummate any acquisition, whether by purchase, contribution, merger, consolidation or otherwise, of any property, assets or equity interests for consideration with a Fair Market Value, as determined in good faith by the Board, of greater than $[] in any single transaction or series of related transactions;
(g) terminate, replace or appoint the Chief Executive Officer or Chief Financial Officer of the Company;
(h) material changes to the nature, strategy and scope of the business of the Company;
(i) issue any Equity-based Security of the Company or any of its subsidiaries in excess of $[] in any single transaction or series of related transactions, other than (x) any issuance of equity securities of the Company to service providers, employees or directors pursuant to any employee benefit plan or compensatory plan or arrangement of the Company or any of its subsidiaries or (y) by any subsidiary of the Company to the Company or another subsidiary of the Company; or
(j) create, incur or assume any Indebtedness that would result in aggregate Indebtedness of the Company and its subsidiaries exceeding $[●], other than any intercompany borrowings.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.01. Representations and Warranties of the Sponsor Group. The Sponsor Group hereby represents and warrants to the Company as follows:
(a) Each entity comprising the Sponsor Group has been duly formed, is validly existing and is in good standing under the laws of its jurisdiction of organization. The Sponsor Group has all requisite power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement.
(b) The execution and delivery by the Sponsor Group of this Agreement and the performance by the Sponsor Group of its obligations under this Agreement does not and will not conflict with, violate any provision of, or require the consent or approval of any Person under, Applicable Law, the organizational documents of any entity in the Sponsor Group, or any material Contract to which any entity in the Sponsor Group is a party or to which any of its material assets are subject.
(c) The execution, delivery and performance of this Agreement by the Sponsor Group has been duly authorized by all necessary corporate (or similar) action on the part of the Sponsor Group. This Agreement has been duly executed and delivered by the Sponsor Group and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of the Sponsor Group, enforceable against the Sponsor Group in accordance with its terms, subject to
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bankruptcy, insolvency and other laws of general applicability relating to or affecting creditors rights and to general principles of equity.
Section 2.02. Representations and Warranties of the Company. The Company hereby represents and warrants to the Sponsor Group as of the date hereof as follows:
(a) The Company is a duly incorporated and validly existing corporation in good standing under the laws of the State of Delaware. The Company has all requisite power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement.
(b) The execution and delivery by the Company of this Agreement and the performance of the obligations of the Company under this Agreement do not and will not conflict with, violate any provision of, or require any consent or approval of any Person under, (i) Applicable Law, (ii) the organizational documents of the Company, or (iii) any Contract to which the Company is a party or to which any assets of the Company and its subsidiaries are subject, in case of clauses (i) and (iii), except as would not be reasonably expected to have a material adverse effect on the business, properties, management, financial position, stockholders equity, results of operations or prospects of the Company and its subsidiaries, taken as a whole or on the performance by the Company of its obligations under this Agreement.
(c) The execution, delivery and performance of this Agreement by the Company has been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the Sponsor Group, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency and other laws of general applicability relating to or affecting creditors rights and to general principles of equity.
ARTICLE 3
DEFINITIONS
Section 3.01. Defined Terms. Capitalized terms when used in this Agreement have the following meanings:
Affiliate of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, control, as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. For purposes of this definition, the terms controlling, controlled by and under common control with have correlative meanings. For purposes of this Agreement, none of the Sponsor Group and nor their Affiliates shall be deemed to be Affiliates of the Company or any of its subsidiaries.
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Agreement has the meaning set forth in the Preamble.
Applicable Law means all applicable provisions of (i) constitutions, statutes, laws, rules, regulations, ordinances, codes or orders of any Governmental Entity, and (ii) any orders, decisions, injunctions, judgments, awards or decrees of any Governmental Entity.
Board has the meaning set forth in Section 1.01(a).
Chair has the meaning set forth in Section 1.01(a).
Change-in-Control Transaction means (a) any transaction or series of related transactions in which any Person or group of Persons, other than the Sponsor Group or their Affiliates, shall (i) directly or indirectly, acquire, whether by purchase, exchange, tender offer, merger, consolidation, recapitalization or otherwise, control of the Company, or (ii) otherwise be the owner of (as a result of a redemption of Common Stock or otherwise) Common Stock or other equity in a successor entity of the Company (by merger, consolidation or otherwise), such that following such transaction or transactions, such Person or group and their respective Affiliates control the Company, or (b) the sale, transfer or other disposition of all or substantially all of the Companys and its subsidiaries assets, taken as a whole, in one or a series of related transactions.
Common Stock means the common stock, par value $0.01 of the Company.
Company has the meaning set forth in the Preamble.
Confidential Information means any and all confidential or proprietary information pertaining to (i) the Company or its Affiliates, or the respective businesses and operations thereof, furnished or made available by the Company to the Sponsor Group; provided, that Confidential Information shall not include information that (A) is, at the time of disclosure, already in the Sponsor Groups possession (provided, that such information is not known by the Sponsor Group to be subject to an obligation of confidentiality owed to the Company or any other Person), (B) is or becomes generally available to the public other than as a result of a disclosure by the Sponsor Group or any of their Representatives in violation of this Agreement or any applicable confidentiality or non-disclosure agreement, (C) becomes available to the Sponsor Group on a non-confidential basis from a source other than the Company or its Representatives (provided, that such source is not known by the Sponsor Group to be bound by an obligation of confidentiality owed to the Company or any other Person) or (D) the Sponsor Group can demonstrate was independently developed by the Sponsor Group or any of their Affiliates without reference to, incorporation of or other use of any Confidential Information or information from any source that is known by the Sponsor Group to be bound by an obligation of confidentiality owed to the Company or any other Person.
Contract means any contract, agreement, obligation, note, bond, mortgage, indenture, guarantee, agreement, subcontract, lease or undertaking (whether written or oral and whether express or implied).
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Credit Agreement means the [●].
Designated Director means each director designee of the Sponsor Group who need not satisfy the requirements to qualify as an Independent Director.
Equity-based Security means capital stock (including a new class of common stock of the Company other than Common Stock), any preferred stock or any other equity-like or hybrid securities (including debt securities with equity components), including options, warrants, convertibles, exchangeable or exercisable securities, stock appreciation rights or any other security or arrangement whose economic value is derived from the value of the equity of the Company or any of its subsidiaries.
Exchange Act means the U.S. Securities Exchange Act of 1934, as amended and in effect from time to time, and any successor statute, and the applicable rules and regulations promulgated thereunder.
Fair Market Value means the fair market value that a willing buyer would pay a willing seller for such property, assets or equity interests, as applicable, with neither such buyer nor such seller under any compulsion to transact, using an appropriate and generally accepted valuation method.
Governmental Entity means any foreign, federal or local government, or regulatory or enforcement authority of any such government or any court, administrative agency or commission or other authority or instrumentality of any such government.
Indebtedness has the meaning given to Indebtedness or the equivalent term as set forth in the Credit Agreement.
Independent Director means a director that satisfies both (a) the requirements to qualify as an independent director under the stock exchange rules of the stock exchange on which the Common Stock are then-currently listed and (b) the independence criteria set forth in Rule 10A-3 under the Exchange Act, as amended from time to time.
IPO means the Companys initial public offering of Common Stock.
IPO Closing means the closing of the IPO.
Law means any applicable federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, order, edict, decree, rule, regulation, ruling or other legally binding requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity.
Necessary Action means, with respect to a specified result, all actions, to the fullest extent permitted by applicable law, necessary to cause such result, including, (i) voting or providing a written consent or proxy with respect to the Common Stock, (ii) causing the adoption of any necessary resolutions or amendments to organizational documents of the Company, (iii) executing agreements and instruments and (iv) making,
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or causing to be made, with any Governmental Entity, all filings, registrations or similar actions that are required to achieve such result.
NYSE means the New York Stock Exchange.
Percentage Ownership means, as to the Sponsor Group and as of any date, the percentage equal to (i) the aggregate number of shares of Common Stock held or controlled by the Sponsor Group on a fully diluted as-converted basis divided by (ii) the total number of outstanding shares of Common Stock of the Company on a fully diluted as-converted basis.
Person means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or other entity, whether acting in an individual, fiduciary or other capacity.
Registration Rights Agreement has the meaning set forth in the Recitals.
Representative means, with respect to any Person, any director, officer, employee, Affiliate, advisor (including any financial advisor, legal counsel, accountant or consultant), agent or other representative of such Person.
Sponsor Group means, collectively, Current Aggregator 1 LP, an Ontario limited partnership, Current Aggregator 2 LP, an Ontario limited partnership, [Panther Sub-Holdings (Bermuda IX) Limited], a [●], [New Bermuda Holdco], a [●], BCP V AIV II LLC, a [Delaware limited liability company] and [BCP V AIV I LLC], a [a Delaware limited liability company].
Section 3.02. Terms Generally. The words hereby, herein, hereof, hereunder and words of similar import refer to this Agreement as a whole and not merely to the specific section, paragraph or clause in which such word appears. All references herein to Articles and Sections shall be deemed references to Articles and Sections of this Agreement unless the context shall otherwise require. The words include, includes and including shall be deemed to be followed by the phrase without limitation. References to $ or dollars means United States dollars. The term or is not exclusive. The definitions given for terms in this Article 3 and elsewhere in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. References herein to any agreement or letter shall be deemed references to such agreement or letter as it may be amended, restated or otherwise revised from time to time.
ARTICLE 4
MISCELLANEOUS
Section 4.01. Term. This Agreement will be effective as of the date hereof and, except as otherwise set forth herein shall terminate automatically (without any action by
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any party hereto) as to the Sponsor Group when the Sponsor Group ceases to hold any Common Stock.
Section 4.02. Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may be amended or waived only upon the prior written consent of the Company and the Sponsor Group. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by Applicable Law.
Section 4.03. Successors and Assigns. Except as otherwise provided below, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto, in whole or in part (whether by operation of law or otherwise), without the prior written consent of the Company and the Sponsor Group. Notwithstanding the foregoing, this Agreement may be assigned (x) by operation of law by the Company and (y) by any entity in the Sponsor Group to an Affiliate of such entity. This Agreement will be binding upon, inure to the benefit of, and be enforceable by the parties and their respective permitted successors and assigns. Any attempted assignment in violation of this Section 4.03 shall be void.
Section 4.04. Confidentiality. The parties recognize that, in connection with the performance of this Agreement, the Company may provide the Sponsor Group with access to, or otherwise furnish the Sponsor Group with, certain Confidential Information. The Sponsor Group shall keep all Confidential Information strictly confidential and not disclose any such Confidential Information to any other Person, except as may be required by Applicable Law, or at the request of any applicable Governmental Entity; provided, that the Sponsor Group may disclose such Confidential Information to its Representatives who need to know such Confidential Information for purposes of the Sponsor Groups investment in the Company and who agree to be bound by the terms of this Section 4.04. Furthermore, the Sponsor Group shall not, and shall cause its Representatives not to, use any Confidential Information for any purpose whatsoever other than to evaluate its investment in the Company or any purpose related to this Agreement. The Sponsor Group shall take precautions that are reasonable, necessary and appropriate to guard the confidentiality of the Confidential Information and shall treat such Confidential Information with at least the same degree of care which it applies to its own confidential and proprietary information. In the event that the Sponsor Group (or any Affiliates thereof) is required by Applicable Law, or at the request of any applicable Governmental Entity, to disclose any Confidential Information, it shall, to the extent permitted by Applicable Law, provide prompt written notice to the Company to enable the Company to seek an appropriate protective order or remedy. For the avoidance of doubt, the terms of this Section 4.04 shall survive the termination of this Agreement.
Section 4.05. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any
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respect under any Applicable Law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
Section 4.06. Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood that each party need not sign the same counterpart.
Section 4.07. Entire Agreement. This Agreement (including the documents and the instruments referred to in this Agreement) constitutes the entire agreement among the parties or to which they are subject and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter of the transactions contemplated hereby and thereby.
Section 4.08. Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware (excluding choice-of-law principles of the laws of such State that would permit the application of the laws of a jurisdiction other than such State), without regard to any applicable conflicts-of-law principles. The parties hereto agree that any suit, action or proceeding brought by any party to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought exclusively in the Court of Chancery of the State of Delaware or, if such court lacks subject matter jurisdiction, the state or federal courts in the State of Delaware. Each of the parties hereto submits to the exclusive jurisdiction of any such court in any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of, or in connection with, this Agreement or the transactions contemplated hereby and hereby irrevocably waives the benefit of jurisdiction derived from present or future domicile or otherwise in such action or proceeding. Each party hereto irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
Section 4.09. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 4.10. Specific Performance. The parties hereto agree that irreparable damage may occur if any provision of this Agreement is not performed in accordance with the terms hereof and that the parties shall be entitled to seek an injunction or
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injunctions or other equitable relief to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any court set forth in Section 4.08, in addition to any other remedy to which they are entitled at law or in equity.
Section 4.11. No Third-Party Beneficiaries. Nothing in this Agreement shall confer any rights upon any Person other than the parties hereto and each such partys respective permitted successors and assigns.
Section 4.12. Notices. All notices and other communications in connection with this Agreement shall be in writing and shall be deemed given if delivered personally, sent by electronic mail, mailed by registered or certified mail (return receipt requested) or delivered by an express courier (with confirmation) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
If to the Company, to:
Clarios International Inc.
c/o Brookfield Capital Partners LLC
250 Vesey Street, 15th Floor,
Brookfield Place
New York, New York 10281
Attn: |
Claudio Morfe | |
E-mail: |
claudio.morfe@clarios.com |
with a copy (which shall not constitute notice) to:
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
Attn: |
Leonard Kreynin | |
|
Derek Dostal | |
E-mail: |
leonard.kreynin@davispolk.com | |
|
derek.dostal@davispolk.com |
If to the Sponsor Group, to:
c/o Brookfield Capital Partners LLC
250 Vesey Street, 15th Floor,
Brookfield Place
New York, New York 10281
Attn: |
Luke Ricci | |
E-mail: |
luke.ricci@brookfield.com |
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with a copy (which shall not constitute notice) to:
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
Attn: |
Leonard Kreynin | |
|
Derek Dostal | |
E-mail: |
leonard.kreynin@davispolk.com | |
|
derek.dostal@davispolk.com |
[Signature pages follow]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement by their authorized representatives as of the date first above written.
CLARIOS INTERNATIONAL INC. |
By: |
| |
Name: | ||
Title: |
[] By its General Partner, [], |
|
Name: |
Title: |
[] By its General Partner, [], |
|
Name: |
Title: |
[] By its General Partner, [], |
|
Name: |
Title: |
Exhibit 10.9
Execution Version
FIRST SUPPLEMENTAL INDENTURE
First Supplemental Indenture (this Supplemental Indenture), dated as of April 30, 2019, between Johnson Controls Luxembourg Global Holding S.à r.l. (the Guaranteeing Subsidiary), a private limited liability company (société à responsabilité limitée), incorporated and existing under the laws of the Grand Duchy of Luxembourg, with its registered office at 4, rue Jean Monnet, L-2180 Luxembourg and registered with the Luxembourg Trade and Companies Register under number B 190936, and a subsidiary of Panther BF Aggregator 2 LP, an Ontario limited partnership (the Issuer), and Citibank, N.A., a national banking association, as trustee (the Trustee) and Notes Collateral Agent.
W I T N E S S E T H
WHEREAS, the Issuer, Panther Finance Company, Inc. (the Co-Issuer), Clarios Power Solutions Holdings LP (f/k/a Panther BF Aggregator 1 LP) (Holdings) and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture (the Indenture), dated as of April 1, 2019, providing for (i) the issuance of $1,000,000,000 aggregate principal amount of 6.250% Senior Secured Notes due 2026 (the Dollar Notes) and (ii) the issuance of 700,000,000 aggregate principal amount of 4.375% Senior Secured Notes due 2026 (the Euro Notes and together with the Dollar Notes, the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee and the Notes Collateral Agent are authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
(1) Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
(2) Agreement to Guarantee. The Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.
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(3) Execution and Delivery. The Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
(4) Limitations to Guarantee.
(a) | Notwithstanding the foregoing, and any other provision of this Supplemental Indenture to the contrary, the payment obligations of the Guaranteeing Subsidiary for the obligations of the Issuer or Co-Issuer shall be limited at any time, to an aggregate amount not exceeding ninety-five (95) percent of the greater of: |
i. | the Guaranteeing Subsidiarys own funds (capitaux propres), its subordinated debt and the debt owed by the Guaranteeing Subsidiary to any of its direct or indirect shareholders and to any member of its group of companies, as determined by Annex 1 of the Grand-Ducal Regulation of 19 December 2015 in relation to, inter alia, article 34 of the Luxembourg law of 19 December 2002 on the Register of Commerce and Companies, on accounting and on annual accounts of the companies (the 2002 Law), and the subordinated debt dettes subordonnées, as determined in the general accounting plan (Account 191) of the Guaranteeing Subsidiary, owed by the Guaranteeing Subsidiary to its direct shareholder and any subordinated debt dettes subordonnées owed and incurred by the Guaranteeing Subsidiary (the Luxembourg Subordinated Debt) as reflected in the Guaranteeing Subsidiarys last annual accounts available as at the date of this Supplemental Indenture; |
ii. | the Guaranteeing Subsidiarys own funds (capitaux propres) as determined by 2002 Law and the Luxembourg Subordinated Debt as reflected in its last annual accounts available as at the date the guarantee under this Supplemental Indenture is called. |
(b) | The obligations of the Guaranteeing Subsidiary under the Notes, the Indenture and this Supplemental Indenture shall not include any obligation to guarantee, indemnify or otherwise provide assistance in connection with financing the acquisition of shares (actions or parts sociales, as applicable) in the Guaranteeing Subsidiary, without prejudice to the situation where the Guaranteeing Subsidiary is a société anonyme (public limited liability company) and where the conditions set out in article 430-19 of the Luxembourg law dated 10 August 1915 on commercial companies, as amended, have been satisfied. |
(c) | The above limitation shall not apply to any amounts owed under the Notes, the Indenture and this Supplemental Indenture and in each case made available, in any form whatsoever, to the Guaranteeing Subsidiary or any of its Subsidiaries. |
(5) Luxembourg terms. Without prejudice to the generality of any provision of this Supplemental Indenture, where this Supplemental Indenture relates to any Guaranteeing Subsidiary or any company incorporated in Luxembourg, a reference to:
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(a) | a winding-up, administration or dissolution includes, without limitation, bankruptcy (faillite), insolvency, liquidation, composition with creditors (concordat préventif de la faillite), moratorium or suspension of payments (sursis de paiement), controlled management (gestion contrôlée), general settlement with creditors, reorganization or similar laws affecting the rights of creditors generally; |
(b) | a receiver, administrative receiver, administrator, trustee, custodian, sequestrator, conservator or similar officer includes, without limitation, a juge délégué, commissaire, juge-commissaire, mandataire ad hoc, administrateur provisoire, liquidateur or curateur; |
(c) | a lien or security interest includes any hypothèque, nantissement, gage, privilège, sûreté réelle, droit de rétention, and any type of security in rem (sûreté réelle) or agreement or arrangement having a similar effect and any transfer of title by way of security; |
(d) | guarantee includes any garantie which is independent from the debt to which it relates and excludes any suretyship (cautionnement) within the meaning of Articles 2011 et seq. of the Luxembourg Civil Code; and |
(e) | constitutional documents includes its up-to-date (restated) articles of association (statuts consolidés). |
(6) No Recourse Against Others. No past, present or future director, manager, officer, employee, incorporator, member, partner or direct or indirect equityholder of the Issuer, Holdings or the Guaranteeing Subsidiary shall have any liability for any obligations of the Issuer or the Guarantors (including the Guaranteeing Subsidiary) under the Notes, any Guarantees, the Security Documents, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
(7) Governing Law. THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(8) Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
(9) Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
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(10) The Trustee and the Notes Collateral Agent. The Trustee and the Notes Collateral Agent shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary.
(11) Benefits Acknowledged. The Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. The Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
(12) Successors. All agreements of the Guaranteeing Subsidiary in this Supplemental Indenture shall bind its successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
(13) Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder shall be bound hereby.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
Johnson Controls Luxembourg Global Holding S.à r.l., as a Guaranteeing Subsidiary | ||
By: | /s/ Johann-Friedrich Dempwolff | |
Name: Johann-Friedrich Dempwolff | ||
Title: Managing Director |
[Signature Page to First Secured Supplemental Indenture (Luxembourg)]
CITIBANK, N.A., as Trustee and Notes Collateral Agent | ||
By: | /s/ Karen Abarca | |
Name: Karen Abarca | ||
Title: Senior Trust Officer |
[Signature Page to First Secured Supplemental Indenture (Luxembourg)]
Exhibit 10.10
Execution Version
FIRST SUPPLEMENTAL INDENTURE
First Supplemental Indenture (this Supplemental Indenture), dated as of April 30, 2019, between Johnson Controls Luxembourg Global Holding S.à r.l. (the Guaranteeing Subsidiary), a private limited liability company (société à responsabilité limitée), incorporated and existing under the laws of the Grand Duchy of Luxembourg, with its registered office at 4, rue Jean Monnet, L-2180 Luxembourg and registered with the Luxembourg Trade and Companies Register under number B 190936, and a subsidiary of Panther BF Aggregator 2 LP, an Ontario limited partnership (the Issuer), and Citibank, N.A., a national banking association, as trustee (the Trustee).
W I T N E S S E T H
WHEREAS, the Issuer, Panther Finance Company, Inc. (the Co-Issuer), Clarios Power Solutions Holdings LP (f/k/a Panther BF Aggregator 1 LP) (Holdings) and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture (the Indenture), dated as of April 1, 2019, providing for the issuance of $1,950,000,000 aggregate principal amount of 8.500% Senior Notes due 2027 (the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
(1) Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
(2) Agreement to Guarantee. The Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.
(3) Execution and Delivery. The Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
(4) Limitations to Guarantee.
(a) | Notwithstanding the foregoing, and any other provision of this Supplemental Indenture to the contrary, the payment obligations of the Guaranteeing Subsidiary for the obligations of the Issuer or the Co-Issuer shall be limited at any time, to an aggregate amount not exceeding ninety-five (95) percent of the greater of: |
i | the Guaranteeing Subsidiarys own funds (capitaux propres), its subordinated debt and the debt owed by the Guaranteeing Subsidiary to any of its direct or indirect shareholders and to any member of its group of companies, as determined by Annex 1 of the Grand-Ducal Regulation of 19 December 2015 in relation to, inter alia, article 34 of the Luxembourg law of 19 December 2002 on the Register of Commerce and Companies, on accounting and on annual accounts of the companies (the 2002 Law), and the subordinated debt dettes subordonnées, as determined in the general accounting plan (Account 191) of the Guaranteeing Subsidiary, owed by the Guaranteeing Subsidiary to its direct shareholder and any subordinated debt dettes subordonnées owed and incurred by the Guaranteeing Subsidiary (the Luxembourg Subordinated Debt) as reflected in the Guaranteeing Subsidiarys last annual accounts available as at the date of this Supplemental Indenture; |
ii | the Guaranteeing Subsidiarys own funds (capitaux propres) as determined by 2002 Law and the Luxembourg Subordinated Debt as reflected in its last annual accounts available as at the date the guarantee under this Supplemental Indenture is called. |
(b) | The obligations of the Guaranteeing Subsidiary under the Notes, the Indenture and this Supplemental Indenture shall not include any obligation to guarantee, indemnify or otherwise provide assistance in connection with financing the acquisition of shares (actions or parts sociales, as applicable) in the Guaranteeing Subsidiary, without prejudice to the situation where the Guaranteeing Subsidiary is a société anonyme (public limited liability company) and where the conditions set out in article 430-19 of the Luxembourg law dated 10 August 1915 on commercial companies, as amended, have been satisfied. |
(c) | The above limitation shall not apply to any amounts owed under the Notes, the Indenture and this Supplemental Indenture and in each case made available, in any form whatsoever, to the Guaranteeing Subsidiary or any of its Subsidiaries. |
(5) Luxembourg terms. Without prejudice to the generality of any provision of this Supplemental Indenture, where this Supplemental Indenture relates to any Guaranteeing Subsidiary or any company incorporated in Luxembourg, a reference to:
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(a) | a winding-up, administration or dissolution includes, without limitation, bankruptcy (faillite), insolvency, liquidation, composition with creditors (concordat préventif de la faillite), moratorium or suspension of payments (sursis de paiement), controlled management (gestion contrôlée), general settlement with creditors, reorganization or similar laws affecting the rights of creditors generally; |
(b) | a receiver, administrative receiver, administrator, trustee, custodian, sequestrator, conservator or similar officer includes, without limitation, a juge délégué, commissaire, juge-commissaire, mandataire ad hoc, administrateur provisoire, liquidateur or curateur; |
(c) | guarantee includes any garantie which is independent from the debt to which it relates and excludes any suretyship (cautionnement) within the meaning of Articles 2011 et seq. of the Luxembourg Civil Code; and |
(d) | constitutional documents includes its up-to-date (restated) articles of association (statuts consolidés). |
(6) No Recourse Against Others. No past, present or future director, manager, officer, employee, incorporator, member, partner or direct or indirect equityholder of the Issuer, Holdings or the Guaranteeing Subsidiary shall have any liability for any obligations of the Issuer or the Guarantors (including the Guaranteeing Subsidiary) under the Notes, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
(7) Governing Law. THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(8) Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
(9) Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
(10) The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of
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the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary.
(11) Benefits Acknowledged. The Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. The Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
(12) Successors. All agreements of the Guaranteeing Subsidiary in this Supplemental Indenture shall bind its successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
(13) Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder shall be bound hereby.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties here to have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
Johnson Controls Luxembourg Global Holding S.à r.l., as a Guaranteeing Subsidiary | ||
By: | /s/ Johann-Friedrich Dempwolff | |
Name: Johann-Friedrich Dempwolff | ||
Title: Managing Director |
[Signature Page to First Unsecured Supplemental Indenture (Luxembourg)]
CITIBANK, N.A., as Trustee | ||
By: | /s/ Karen Abarca | |
Name: Karen Abarca | ||
Title: Senior Trust Officer |
[Signature Page to First Unsecured Supplemental Indenture (Luxembourg)]
Exhibit 10.11
Execution Version
SECOND SUPPLEMENTAL INDENTURE
Second Supplemental Indenture (this Supplemental Indenture), dated as of April 30, 2019, among Johnson Controls Enterprises México, S. de. R.L. de C.V., Panther BF BidCo México, S. de R.L. de C.V. and Servicios Corporativos LTH México, S. de R.L. de C.V. (each a Guaranteeing Subsidiary and, collectively, the Guaranteeing Subsidiaries), each a sociedad de responsabilidad limitada de capital variable and a subsidiary of Panther BF Aggregator 2 LP, an Ontario limited partnership (the Issuer), and Citibank, N.A., a national banking association, as trustee (the Trustee) and Notes Collateral Agent.
W I T N E S S E T H
WHEREAS, the Issuer, Panther Finance Company, Inc. (the Co-Issuer), Clarios Power Solutions Holdings LP (f/k/a Panther BF Aggregator 1 LP) (Holdings) and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture (the Indenture), dated as of April 1, 2019, providing for (i) the issuance of $1,000,000,000 aggregate principal amount of 6.250% Senior Secured Notes due 2026 (the Dollar Notes) and (ii) the issuance of 700,000,000 aggregate principal amount of 4.375% Senior Secured Notes due 2026 (the Euro Notes and together with the Dollar Notes, the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee and the Notes Collateral Agent are authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
(1) Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
(2) Agreement to Guarantee. Each Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. Each Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.
(3) Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
(4) Limitations to Guarantee. To the extent applicable and without limiting the generality of any other provision of the Notes, the Indenture and this Supplemental Indenture, each Guaranteeing Subsidiary hereby irrevocably and unconditionally waives, to the fullest extent permitted by applicable law:
(a) any right to require any Guaranteed Party or the Trustee or Notes Collateral Agent to first proceed against, initiate any actions before a court or any other judge or authority, or enforce any other rights or security or claim payment from the Issuers or any other Person, before claiming any amounts due from any Guaranteeing Subsidiary under the Notes, the Indenture and this Supplemental Indenture;
(b) any right to which it may be entitled to have the assets of each Issuer or any other Person first be used, applied or depleted as payment of each Issuers obligations hereunder, prior to any amount being claimed from or paid by each Guaranteeing Subsidiary under the Notes, the Indenture and this Supplemental Indenture;
(c) any right to which it may be entitled to have claims against it, or assets to be used or applied as payment, be divided among the guarantors; and
(d) any right or benefit of orden, excusión, división, quita and espera and any other rights specified in, but not limited to, Articles 2813, 2814, 2815, 2817, 2818, 2819, 2820, 2821, 2822, 2823, 2826, 2837, 2839, 2840, 2845, 2846, 2847, 2848, 2849 and any other related or applicable Articles of the Federal Civil Code (Código Civil Federal) and the corresponding provisions of the Civil Codes of the states of Mexico and the City of Mexico (or any successor provisions), which are not reproduced herein given that each Guaranteeing Subsidiary hereby represents that it knows the contents of such articles.
(5) No Recourse Against Others. No past, present or future director, manager, officer, employee, incorporator, member, partner or direct or indirect equityholder of the Issuer, Holdings or the Guaranteeing Subsidiaries shall have any liability for any obligations of the Issuer or the Guarantors (including each Guaranteeing Subsidiary) under the Notes, any Guarantees, the Security Documents, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
(6) Governing Law. THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(7) Submission to Jurisdiction. Notwithstanding Section 13.08 (Waiver of Jury Trial) of the Indenture, with respect to any action or proceeding arising out of or relating to this Supplemental Indenture, the Indenture, the Notes and the Guarantees involving the Guaranteeing
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Subsidiary, each of the parties hereby irrevocably agree to submit to the exclusive jurisdiction of any United States Federal or State Court located in the Borough of Manhattan, in the City of New York in any action or proceeding arising out of or relating to this Supplemental Indenture, the Notes, the Guarantees and the Indenture and hereby expressly and irrevocably waive to the fullest extent permitted by applicable law, any right to any other jurisdiction to which it may be entitled by reason of its present or future domicile or otherwise.
(8) Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
(9) Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
(10) Appointment. For the purposes of any of the Mexican Security Documents, in addition to the other provisions set forth herein and in any other provision of any Secured Notes Documents, each Notes Secured Party (other than the Notes Collateral Agent) hereby irrevocably appoints and designates the Notes Collateral Agent, to act on behalf and for the benefit of itself and the other Notes Secured Parties, and consequently grants a comisión mercantil con representación pursuant to Articles 273, 274 and any other applicable Articles of the Mexican Federal Commerce Code (Código de Comercio) for purposes of the Mexican Security Documents and authorizes the Notes Collateral Agent to enter into the Mexican Security Documents and to hold the Liens granted to it in the Mexican Security Documents for the benefit of itself and on behalf of the Notes Secured Parties (other than the Notes Collateral Agent) and irrevocably authorizes the Notes Collateral Agent to take such actions, on its behalf, under the provisions of the Mexican Security Documents, and to exercise such powers and perform such duties as are set forth in the Mexican Security Documents in accordance with this Supplemental Indenture and any other Secured Notes Document. Furthermore, each of the Notes Secured Parties hereby authorizes the Notes Collateral Agent to delegate the abovementioned comisión mercantil con representación pursuant to Article 280 and any other applicable Articles of the Mexican Federal Commerce Code (Código de Comercio). Each of the parties hereto agrees that the Notes Collateral Agent shall have only those duties, obligations and responsibilities expressly specified in the Notes, the Indenture, this Supplemental Indenture or in the Mexican Security Documents and no other duties, obligations or responsibilities shall be implied, without any responsibility to any Guaranteeing Subsidiary should the Collateral Agent not have the ability to take action as a result of the foregoing.
(11) The Trustee and the Notes Collateral Agent. The Trustee and the Notes Collateral Agent shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by each Guaranteeing Subsidiary. The Notes Collateral Agent shall have received on the execution date of this Supplemental Indenture (i) a letter from the
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Johnson Controls Battery Group, LLC (the Process Agent) indicating its consent to its appointment as process agent for each Guaranteeing Subsidiary and accepting its appointment as process agent for each Guaranteeing Subsidiary in connection with the transactions contemplated by the Notes, the Indenture and this Supplemental Indenture to which it is a party, and (ii) a certified copy of the irrevocable special powers-of-attorney, granted before a Mexican notary public by each Guaranteeing Subsidiary, in favor of the Process Agent.
(12) Benefits Acknowledged. Each Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
(13) Successors. All agreements of each Guaranteeing Subsidiary in this Supplemental Indenture shall bind its respective successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
(14) Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder shall be bound hereby.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
Johnson Controls Enterprises México, S. de. R.L. de C.V., as a Guaranteeing Subsidiary | ||
By: | /s/ Ismael Salinas Rendon | |
Name: Ismael Salinas Rendon | ||
Title: VP & GM Mexico |
[Signature Page to Second Secured Supplemental Indenture (Mexico)]
Panther BF BidCo México, S. de R.L. de C.V., as a Guaranteeing Subsidiary | ||
By: | /s/ Craig Laurie | |
Name: Craig Laurie | ||
Title: Attorney-in-fact |
[Signature Page to Second Secured Supplemental Indenture (Mexico)]
Servicios Corporativos LTH México, S. de R.L. de C.V., as a Guaranteeing Subsidiary | ||
By: | /s/ Sandra Lina Rodriguez Suriano | |
Name: Sandra Lina Rodriguez Suriano | ||
Title: Attorney-in-fact |
[Signature Page to Second Secured Supplemental Indenture (Mexico)]
CITIBANK, N.A., as Trustee and Notes Collateral Agent | ||
By: | /s/ Karen Abarca | |
Name: Karen Abarca | ||
Title: Senior Trust Officer |
[Signature Page to Second Secured Supplemental Indenture (Mexico)]
Exhibit 10.12
Execution Version
SECOND SUPPLEMENTAL INDENTURE
Second Supplemental Indenture (this Supplemental Indenture), dated as of April 30, 2019, among Johnson Controls Enterprises México, S. de. R.L. de C.V., Panther BF BidCo México, S. de R.L. de C.V. and Servicios Corporativos LTH México, S. de R.L. de C.V. (each a Guaranteeing Subsidiary and, collectively, the Guaranteeing Subsidiaries), each a sociedad de responsabilidad limitada de capital variable and a subsidiary of Panther BF Aggregator 2 LP, an Ontario limited partnership (the Issuer), and Citibank, N.A., a national banking association, as trustee (the Trustee).
W I T N E S S E T H
WHEREAS, the Issuer, Panther Finance Company, Inc. (the Co-Issuer), Clarios Power Solutions Holdings LP (f/k/a Panther BF Aggregator 1 LP) (Holdings) and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture (the Indenture), dated as of April 1, 2019, providing for the issuance of $1,950,000,000 aggregate principal amount of 8.500% Senior Notes due 2027 (the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. Each Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. Each Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.
3. Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
4. Limitations to Guarantee. To the extent applicable and without limiting the generality of any other provision of the Notes, the Indenture and this Supplemental Indenture, each Guaranteeing Subsidiary hereby irrevocably and unconditionally waives, to the fullest extent permitted by applicable law:
(a) any right to require the Trustee to first proceed against, initiate any actions before a court or any other judge or authority, or enforce any other rights or security or claim payment from the Issuers or any other Person, before claiming any amounts due from any Guaranteeing Subsidiary under the Notes, the Indenture and this Supplemental Indenture;
(b) any right to which it may be entitled to have the assets of each Issuer or any other Person first be used, applied or depleted as payment of each Issuers obligations hereunder, prior to any amount being claimed from or paid by each Guaranteeing Subsidiary under the Notes, the Indenture and this Supplemental Indenture;
(c) any right to which it may be entitled to have claims against it, or assets to be used or applied as payment, be divided among the guarantors; and
(d) any right or benefit of orden, excusión, división, quita and espera and any other rights specified in, but not limited to, Articles 2813, 2814, 2815, 2817, 2818, 2819, 2820, 2821, 2822, 2823, 2826, 2837, 2839, 2840, 2845, 2846, 2847, 2848, 2849 and any other related or applicable Articles of the Federal Civil Code (Código Civil Federal) and the corresponding provisions of the Civil Codes of the states of Mexico and the City of Mexico (or any successor provisions), which are not reproduced herein given that each Guaranteeing Subsidiary hereby represents that it knows the contents of such articles.
5. No Recourse Against Others. No past, present or future director, manager, officer, employee, incorporator, member, partner or direct or indirect equityholder of the Issuer, Holdings or the Guaranteeing Subsidiaries shall have any liability for any obligations of the Issuer or the Guarantors (including each Guaranteeing Subsidiary) under the Notes, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
6. Governing Law. THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
7. Submission to Jurisdiction. Notwithstanding Section 13.08 (Waiver of Jury Trial) of the Indenture, with respect to any action or proceeding arising out of or
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relating to this Supplemental Indenture, the Indenture, the Notes and the Guarantees involving the Guaranteeing Subsidiary, each of the parties hereby irrevocably agree to submit to the exclusive jurisdiction of any United States Federal or State Court located in the Borough of Manhattan, in the City of New York in any action or proceeding arising out of or relating to this Supplemental Indenture, the Notes, the Guarantees and the Indenture and hereby expressly and irrevocably waive to the fullest extent permitted by applicable law, any right to any other jurisdiction to which it may be entitled by reason of its present or future domicile or otherwise.
8. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
10. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by each Guaranteeing Subsidiary. The Trustee shall have received on the execution date of this Supplemental Indenture (i) a letter from the Johnson Controls Battery Group, LLC (the Process Agent) indicating its consent to its appointment as process agent for each Guaranteeing Subsidiary and accepting its appointment as process agent for each Guaranteeing Subsidiary in connection with the transactions contemplated by the Notes, the Indenture and this Supplemental Indenture to which it is a party, and (ii) a certified copy of the irrevocable special powers-of-attorney, granted before a Mexican notary public by each Guaranteeing Subsidiary, in favor of the Process Agent.
11. Benefits Acknowledged. Each Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
12. Successors. All agreements of each Guaranteeing Subsidiary in this Supplemental Indenture shall bind its respective successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
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13. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder shall be bound hereby.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
Johnson Controls Enterprises Mexico, S. de. R.L. de C.V., as a Guaranteeing Subsidiary | ||
By: | /s/ Ismafl Salinas Rendon | |
Name: Ismafl Salinas Rendon | ||
Title: VP & GM Mexico |
[Signature Page to Second Unsecured Supplemental Indenture (Mexico)]
Panther BF BidCo México, S. de R.L. de C.V., as a Guaranteeing Subsidiary | ||
By: | /s/ Craig Laurie | |
Name: Craig Laurie | ||
Title: Attorney-in-fact |
[Signature Page to Second Unsecured Supplemental Indenture (Mexico)]
Servicios Corporativos LTH México, S. de R.L. de C.V., as a Guaranteeing Subsidiary | ||
By: | /s/ Sandra Lina Rodrigues Suriano | |
Name: Sandra Lina Rodrigues Suriano | ||
Title: Attorney-in-fact |
[Signature Page to Second Unsecured Supplemental Indenture (Mexico)]
CITIBANK, N.A. as Trustee | ||
By: | /s/ Karen Abarca | |
Name: Karen Abarca | ||
Title: Senior Trust Officer |
[Signature Page to Second Unsecured Supplemental Indenture (Mexico)]
Exhibit 10.13
Execution Version
THIRD SUPPLEMENTAL INDENTURE
Third Supplemental Indenture (this Supplemental Indenture), dated as of April 30, 2019, among JC Autobatterie Holding GmbH, Johnson Controls Recycling GmbH and Panther Germany GmbH (each a Guaranteeing Subsidiary and, collectively, the Guaranteeing Subsidiaries), each a limited liability company (Gesellschaft mit beschränkter Haftung, GmbH) organized under the laws of Germany and each a subsidiary of Panther BF Aggregator 2 LP, an Ontario limited partnership (the Issuer), and Citibank, N.A., a national banking association, as trustee (the Trustee) and Notes Collateral Agent.
W I T N E S S E T H
WHEREAS, the Issuer, Panther Finance Company, Inc. (the Co-Issuer), Clarios Power Solutions Holdings LP (f/k/a Panther BF Aggregator 1 LP) (Holdings) and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture (the Indenture), dated as of April 1, 2019, providing for (i) the issuance of $1,000,000,000 aggregate principal amount of 6.250% Senior Secured Notes due 2026 (the Dollar Notes) and (ii) the issuance of 700,000,000 aggregate principal amount of 4.375% Senior Secured Notes due 2026 (the Euro Notes and together with the Dollar Notes, the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee and the Notes Collateral Agent are authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
(1) Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
(2) Agreement to Guarantee. Each Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. Each Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.
(3) Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
(4) General Limitations to Guarantee. For the purposes of any of the German Security Documents, in addition to the other provisions set forth herein and in any other Secured Notes Document and notwithstanding the provisions of the ABL Intercreditor Agreement, the Trustee hereby appoints the Notes Collateral Agent (and agrees that each of the Notes Collateral Agent and/or the ABL Collateral Agent will under the ABL Intercreditor Agreement act as such agent with respect to the relevant security under German Security Documents constituting Single Lien Collateral) as its agent, attorney (Stellvertreter) and trustee (Treuhänder) under or in connection with any German Security Document, including but not limited to, for the purposes of accepting and administering any German Security Document. The Notes Collateral Agent hereby accepts its appointment on the terms and subject to the conditions set out in this Supplemental Indenture. Without limiting any other authorization granted hereunder or under any other provision set out in any Secured Notes Document or otherwise, the Notes Collateral Agent and/or the ABL Collateral Agent shall, in particular, be entitled to enter into any German law governed pledge agreement (including with respect to Single Lien Collateral) in its own name as well as in the name of each other Notes Secured Party. For such purposes, the Trustee releases the Notes Collateral Agent and/or the ABL Collateral Agent from the restrictions imposed by §181 of the German Civil Code (Bürgerliches Gesetzbuch) and any corresponding restriction set forth in other applicable jurisdictions, in each case, to the extent legally possible. If the Trustee is barred by its organizational documents from granting such relief it shall notify the Notes Collateral Agent and/or the ABL Collateral Agent accordingly.
(5) Limitations relating to a GmbH Guarantor. (a) To the extent that (x) the Subject Guarantee is granted by a GmbH Guarantor and (y) the Subject Guarantee secures liabilities which are owed by direct or indirect shareholders of that GmbH Guarantor or Subsidiaries of such shareholders (such Subsidiaries not to include the GmbH Guarantor and the Subsidiaries which are also Subsidiaries of that GmbH Guarantor), each of the Guaranteed Parties agrees not to enforce the Subject Guarantee in respect of such amount:
(i) as is required to ensure that the amount of the relevant GmbH Guarantors net assets, calculated as the sum of the balance sheet positions shown under section 266 sub-section (2) (A), (B), (C), (D) and (E) of the HGB less the sum of the amounts shown under balance sheet positions shown under section 266 (3) (B), (C), (D) and (E) of the HGB and any amounts not available for distribution to its shareholders in accordance with section § 253 sub-section (6), section 268 sub-section (8) and section 272 sub-section (5) of the HGB, does not fall below the amount of its registered share capital (Stammkapital); or
(ii) where the amount of the relevant GmbH Guarantors net assets already is below the amount of its registered share capital, as is required as to ensure that such amount is not further reduced.
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(b) the limitations in paragraph (5)(a) above will not apply (or, as the case may be, shall cease to apply):
(i) to any amounts which correspond to proceeds under the Secured Notes Documents and have been on-lent to, or otherwise been passed on to, the relevant GmbH Guarantor or any of its Subsidiaries from time to time to the extent that any such on-lent or passed-on amount is still outstanding at the Guarantee Demand Date or other financial accommodation made available to such GmbH Guarantor or a Subsidiary of such GmbH Guarantor under a Secured Notes Document and provided that, if this first sentence of this paragraph (i) applies, the Trustee waives with binding effect on the Guaranteed Parties the restrictions set out in Article 10 of this Indenture in respect of the GmbH Guarantors (and any other restrictions contained in any Secured Notes Document in respect of the GmbH Guarantors right to set off its) recourse claim (if any) arising as a result of the enforcement of the Subject Guarantee so that the GmbH Guarantor may exercise its rights to set off its recourse claim (if any) against the loan obligation in respect of the amounts on-lent to it. For the avoidance of doubt, the Trustee may elect not to waive such restrictions provided that if the Trustee so elects the limitations in paragraph (a) apply in relation to any amounts which correspond to proceeds under a Secured Notes Document and have been on-lent to, or otherwise been passed on to, the relevant GmbH Guarantor or any of its Subsidiaries;
(ii) if following the Guarantee Demand Date the relevant GmbH Guarantor does not provide financial statements in accordance with paragraphs (d) and (e) below;
(iii) if and to the extent for any other reason (including, without limitation, as a result of a change in the relevant rules of law) the deficit (Unterbilanz) referred to under paragraphs (a)(i) and (a)(ii) above does not constitute a breach of the GmbH Guarantors obligations to maintain its registered share capital pursuant to sections 30 et seq. GmbHG or does not result in a personal liability of the managing directors (Geschäftsführer) of the GmbH Guarantor pursuant to section 43 GmbHG, each as amended, supplemented and/or replaced from time to time;
(iv) if on the Guarantee Demand Date the relevant GmbH Guarantor (as dominated entity) is party to a domination and/or profit and loss transfer agreement (Beherrschungs-und/oder Gewinnabführungsvertrag) other than where despite the existence of such domination and/or profit and loss transfer agreement (Beherrschungs-und/oder Gewinnabführungsvertrag) there would be a violation of sections 30 or 31 GmbHG; or
(v) if and to the extent the relevant GmbH Guarantor holds on the Guarantee Demand Date a fully recoverable indemnity claim or claim for refund (vollwertiger Gegenleistungs- oder Rückgewähranspruch)
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against its shareholder or against the entity whose obligations are guaranteed under the Subject Guarantee that is capable of being accounted for in the balance sheet of the relevant GmbH Guarantor at full value (vollwertig).
(c) For the purpose of the calculation of the net assets of the relevant GmbH Guarantor, the liabilities resulting from the following shall be disregarded as the relevant balance sheet items:
(i) the amount of any increase of the relevant GmbH Guarantors registered share capital after the date of this Indenture (x) if and to the extent it has been effected without the prior written consent of the Trustee or (y) if and to the extent that it is not fully paid up provided that the corresponding claim against the shareholders is not accounted for as an asset in the balance sheet of the GmbH Guarantor at the Guarantee Demand Date;
(ii) loans provided to the relevant GmbH Guarantor that are subordinated in an insolvency proceeding over its assets pursuant to section 39 sub section 1 no. 5 of the German Insolvency Code; and
(iii) indebtedness incurred in grossly negligent or willful violation of the provisions of this Indenture.
(d) The relevant GmbH Guarantor shall deliver (within 20 Business Days following the Guarantee Demand Date) to the Trustee a notification stating that and to which extent the amount payable in respect of its Guarantee Obligations shall be limited in accordance with paragraphs (a)(i) and (a)(ii) above and taking into account the adjustments in paragraph (c) above, such notification to be supported by evidence reasonably satisfactory to the Trustee, i.e. interim financial statements (Stichtagsbilanz) showing the balance sheet positions mentioned in paragraph (a)(i) above (taking into account the adjustments in paragraph (c) above) (the Management Determination).
(e) Following the Trustees receipt of the Management Determination, upon the Trustees reasonable request (the Trustees Request), the relevant GmbH Guarantor will deliver (within 25 Business Days following receipt of the Trustees Request) to the Trustee an up-to-date balance sheet drawn-up by its auditors together with a determination of the net assets. Such balance sheet and determination of net assets shall be prepared in accordance with accounting principles pursuant to the HGB, be based on the same principles that were applied when establishing the previous years balance sheet and take into account the adjustments in paragraph (c) above (the Auditors Determination).
(f) The Trustee shall be entitled to demand payment under the Subject Guarantee in an amount which would, in accordance with the Management Determination or, if applicable and taking into account any previous enforcement in accordance with the Management Determination, the Auditors Determination, not cause the relevant GmbH Guarantors net assets to be reduced below the registered share capital of the relevant GmbH Guarantor or further reduced if already below such registered share capital. If (i) and to the extent the net
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assets as determined by the Auditors Determination are lower than the amount enforced in accordance with the Management Determination or (ii) the Guarantee Obligations have been enforced without regard to the limitations set out in paragraphs (a)(i) and (a)(ii) above because (x) the Management Determination was not delivered within the relevant period or (y) the Auditors Determination was not delivered within the relevant period but has been delivered within 20 Business Days following the applicable due date for the delivery of the Auditors Determination, the Trustee shall without undue delay repay any amounts received by it under this Section (5)(f) to the relevant GmbH Guarantor upon written demand of the relevant GmbH Guarantor any amount (if and to the extent already paid to the Guaranteed Parties (or any of them)) in the case of (i) equal to the difference between the amount paid and the amount payable resulting from the Auditors Determination, and in the case of (ii) above, which the Trustee would not have been entitled to enforce had the Management Determination and the Auditors Determination been delivered within the relevant applicable period provided such demand for repayment is made to the Trustee within 6 months (Ausschlussfrist) from the date the Subject Guarantee is enforced. The Trustee may withhold any amount received pursuant to an enforcement of this Subject Guarantee until final determination of the amount of the net assets pursuant to the Auditors Determination.
(g) If pursuant to the Auditors Determination the amount of the available net assets is higher than that set out in the Management Determination, the relevant GmbH Guarantor shall pay such amount to the Guaranteed Parties within five Business Days after receipt of the Auditors Determination.
(h) In a situation where the relevant GmbH Guarantor does not have sufficient net assets to maintain its registered share capital it shall within three months after a written request by the Trustee, to the extent commercially justifiable, dispose of all assets which are not necessary for its business (nicht betriebsnotwendig) where the relevant assets are shown in the balance sheet of the relevant GmbH Guarantor with a book value which (in the reasonable opinion of the Trustee) is significantly lower than the market value of such assets. After the expiry of such three months period the relevant GmbH Guarantor shall, within three Business Days, notify the Trustee of the amount of the net proceeds from the sale and submit a statement with a new calculation of the amount of the net assets of the relevant GmbH Guarantor taking into account such proceeds. Such calculation shall, upon the Trustees request (acting reasonably), be confirmed by one of the auditors of the relevant GmbH Guarantor within a period of 20 Business Days following the request.
(i) The limitations in paragraphs (a)(i) and (a)(ii) above do not affect the rights of the Guaranteed Parties to claim any outstanding amount (if any) under this Indenture by way of making a further claim under the Subject Guarantee at a later point in time, provided that limitations in paragraphs (a)(i) and (a)(ii) above remain applicable as of such later Guarantee Demand Date.
(6) No Recourse Against Others. No past, present or future director, manager, officer, employee, incorporator, member, partner or direct or indirect equityholder of the Issuer, Holdings or the Guaranteeing Subsidiaries shall have any liability for any obligations of the Issuer or the Guarantors (including each Guaranteeing Subsidiary) under the Notes, any Guarantees, the Security Documents, the Indenture or this Supplemental Indenture or for any
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claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
(7) Governing Law. THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(8) Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
(9) Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
(10) The Trustee and the Notes Collateral Agent. The Trustee and the Notes Collateral Agent shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by each Guaranteeing Subsidiary.
(11) Benefits Acknowledged. Each Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
(12) Successors. All agreements of each Guaranteeing Subsidiary in this Supplemental Indenture shall bind its respective successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
(13) Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder shall be bound hereby.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
JC Autobatterie Holding GmbH, as a Guaranteeing Subsidiary | ||
By: | /s/ Johann-Friedrich Dempwolff | |
Name: Johann-Friedrich Dempwolff | ||
Title: Managing Director |
By: | /s/ Brian D. Hanna | |
Name: Brian D. Hanna | ||
Title: Prokurist |
[Signature Page to Third Secured Supplemental Indenture (Germany)]
Johnson Controls Recycling GmbH, as a Guaranteeing Subsidiary | ||
By: | /s/ Johann-Friedrich Dempwolff | |
Name: Johann-Friedrich Dempwolff | ||
Title: Managing Director |
By: | /s/ Brian D. Hanna | |
Name: Brian D. Hanna | ||
Title: Prokurist |
[Signature Page to Third Secured Supplemental Indenture (Germany)]
Panther Germany GmbH, as a Guaranteeing Subsidiary | ||
By: | /s/ John Barkhouse | |
Name: John Barkhouse | ||
Title: Managing Director |
[Signature Page to Third Secured Supplemental Indenture (Germany)]
CITIBANK, N.A., as Trustee and Notes Collateral Agent | ||
By: | /s/ Karen Abarca | |
Name: Karen Abarca | ||
Title: Senior Trust Officer |
[Signature Page to Third Secured Supplemental Indenture (Germany)]
Exhibit 10.14
Execution Version
THIRD SUPPLEMENTAL
INDENTURE
Third Supplemental Indenture (this Supplemental Indenture), dated as of April 30, 2019, among JC Autobatterie Holding GmbH, Johnson Controls Recycling GmbH and Panther Germany GmbH (each a Guaranteeing Subsidiary and, collectively, the Guaranteeing Subsidiaries), each a limited liability company (Gesellschaft mit beschränkter Haftung, GmbH) organized under the laws of Germany and each a subsidiary of Panther BF Aggregator 2 LP, an Ontario limited partnership (the Issuer), and Citibank, N.A., a national banking association, as trustee (the Trustee).
W I T N E S S E T H
WHEREAS, the Issuer, Panther Finance Company, Inc. (the Co-Issuer), Clarios Power Solutions Holdings LP (f/k/a Panther BF Aggregator 1 LP) (Holdings) and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture (the Indenture), dated as of April 1, 2019, providing for the issuance of $1,950,000,000 aggregate principal amount of 8.500% Senior Notes due 2027 (the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
(1) Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. As used herein, the following defined terms shall have the following meaning:
German Guarantor means a Guarantor organized under the laws of Germany or any applicable political subdivision thereof.
GmbH & Co. KG Guarantor means a German Guarantor incorporated as a limited liability partnership having a limited liability company as a general partner (GmbH & Co. KG).
GmbH Guarantor means a German Guarantor incorporated as a limited liability company (Gesellschaft mit beschränkter Haftung).
GmbHG means the German Limited Liability Companies Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung).
Guarantee Demand Date means each date upon which the Trustee makes a written demand upon the relevant Guarantor to make payment in respect of its Guarantee Obligations.
Guarantee Obligations means the obligations and liabilities of the relevant Guarantor under the Subject Guarantee.
HGB means the German Commercial Code (Handelsgesetzbuch).
Notes Documents means the Notes (including Additional Notes), the Guarantees and the Indenture.
Subject Guarantee means any guarantee, indemnity or any joint and several liability created or assumed under this Supplemental Indenture.
(2) Agreement to Guarantee. Each Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. Each Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.
(3) Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
(4) Limitations relating to a GmbH Guarantor. (a) To the extent that (x) the Subject Guarantee is granted by a GmbH Guarantor and (y) the Subject Guarantee secures liabilities which are owed by direct or indirect shareholders of that GmbH Guarantor or Subsidiaries of such shareholders (such Subsidiaries not to include the GmbH Guarantor and the Subsidiaries which are also Subsidiaries of that GmbH Guarantor), the Trustee agrees not to enforce the Subject Guarantee in respect of such amount:
(i) as is required to ensure that the amount of the relevant GmbH Guarantors net assets, calculated as the sum of the balance sheet positions shown under section 266 sub-section (2) (A), (B), (C), (D) and (E) of the HGB less the sum of the amounts shown under balance sheet positions shown under section 266 (3) (B), (C), (D) and (E) of the HGB and any amounts not available for distribution to its shareholders in accordance with section § 253 sub-section (6), section 268 sub-section (8)
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and section 272 sub- section (5) of the HGB, does not fall below the amount of its registered share capital (Stammkapital); or
(ii) where the amount of the relevant GmbH Guarantors net assets already is below the amount of its registered share capital, as is required as to ensure that such amount is not further reduced.
(b) the limitations in paragraph (4)(a) above will not apply (or, as the case may be, shall cease to apply):
(i) to any amounts which correspond to proceeds under the Notes Documents and have been on-lent to, or otherwise been passed on to, the relevant GmbH Guarantor or any of its Subsidiaries from time to time to the extent that any such on-lent or passed-on amount is still outstanding at the Guarantee Demand Date or other financial accommodation made available to such GmbH Guarantor or a Subsidiary of such GmbH Guarantor under a Notes Document and provided that, if this first sentence of this paragraph (i) applies, the Trustee waives with binding effect on the Guaranteed Parties the restrictions set out in Article 10 of the Indenture in respect of the GmbH Guarantors (and any other restrictions contained in any Notes Document in respect of the GmbH Guarantors right to set off its) recourse claim (if any) arising as a result of the enforcement of the Subject Guarantee so that the GmbH Guarantor may exercise its rights to set off its recourse claim (if any) against the loan obligation in respect of the amounts on-lent to it. For the avoidance of doubt, the Trustee may elect not to waive such restrictions provided that if the Trustee so elects the limitations in paragraph (a) apply in relation to any amounts which correspond to proceeds under a Secured Notes Document and have been on-lent to, or otherwise been passed on to, the relevant GmbH Guarantor or any of its Subsidiaries;
(ii) if following the Guarantee Demand Date the relevant GmbH Guarantor does not provide financial statements in accordance with paragraphs (d) and (e) below;
(iii) if and to the extent for any other reason (including, without limitation, as a result of a change in the relevant rules of law) the deficit (Unterbilanz) referred to under paragraphs (a)(i) and (a)(ii) above does not constitute a breach of the GmbH Guarantors obligations to maintain its registered share capital pursuant to sections 30 et seq. GmbHG or does not result in a personal liability of the managing directors (Geschäftsführer) of the GmbH Guarantor pursuant to section 43 GmbHG, each as amended, supplemented and/or replaced from time to time;
(iv) if on the Guarantee Demand Date the relevant GmbH Guarantor (as dominated entity) is party to a domination and/or profit and loss transfer agreement (Beherrschungs-und/oder
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Gewinnabführungsvertrag) other than where despite the existence of such domination and/or profit and loss transfer agreement (Beherrschungs-und/oder Gewinnabführungsvertrag) there would be a violation of sections 30 or 31 GmbHG; or
(v) if and to the extent the relevant GmbH Guarantor holds on the Guarantee Demand Date a fully recoverable indemnity claim or claim for refund (vollwertiger Gegenleistungs- oder Rückgewähranspruch) against its shareholder or against the entity whose obligations are guaranteed under the Subject Guarantee that is capable of being accounted for in the balance sheet of the relevant GmbH Guarantor at full value (vollwertig).
(c) For the purpose of the calculation of the net assets of the relevant GmbH Guarantor, the liabilities resulting from the following shall be disregarded as the relevant balance sheet items:
(i) the amount of any increase of the relevant GmbH Guarantors registered share capital after the date of this Indenture (x) if and to the extent it has been effected without the prior written consent of the Trustee or (y) if and to the extent that it is not fully paid up provided that the corresponding claim against the shareholders is not accounted for as an asset in the balance sheet of the GmbH Guarantor at the Guarantee Demand Date;
(ii) loans provided to the relevant GmbH Guarantor that are subordinated in an insolvency proceeding over its assets pursuant to section 39 sub section 1 no. 5 of the German Insolvency Code; and
(iii) indebtedness incurred in grossly negligent or willful violation of the provisions of this Indenture.
(d) The relevant GmbH Guarantor shall deliver (within 20 Business Days following the Guarantee Demand Date) to the Trustee a notification stating that and to which extent the amount payable in respect of its Guarantee Obligations shall be limited in accordance with paragraphs (a)(i) and (a)(ii) above and taking into account the adjustments in paragraph (c) above, such notification to be supported by evidence reasonably satisfactory to the Trustee, i.e. interim financial statements (Stichtagsbilanz) showing the balance sheet positions mentioned in paragraph (a)(i) above (taking into account the adjustments in paragraph (c) above) (the Management Determination).
(e) Following the Trustees receipt of the Management Determination, upon the Trustees reasonable request (the Trustees Request), the relevant GmbH Guarantor will deliver (within 25 Business Days following receipt of the Trustees Request) to the Trustee an up-to-date balance sheet drawn-up by its auditors together with a determination of the net assets. Such balance sheet and determination of net assets shall be prepared in accordance with accounting principles pursuant to the HGB, be based
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on the same principles that were applied when establishing the previous years balance sheet and take into account the adjustments in paragraph (c) above (the Auditors Determination).
(f) The Trustee shall be entitled to demand payment under the Subject Guarantee in an amount which would, in accordance with the Management Determination or, if applicable and taking into account any previous enforcement in accordance with the Management Determination, the Auditors Determination, not cause the relevant GmbH Guarantors net assets to be reduced below the registered share capital of the relevant GmbH Guarantor or further reduced if already below such registered share capital. If (i) and to the extent the net assets as determined by the Auditors Determination are lower than the amount enforced in accordance with the Management Determination or (ii) the Guarantee Obligations have been enforced without regard to the limitations set out in paragraphs (a)(i) and (a)(ii) above because (x) the Management Determination was not delivered within the relevant period or (y) the Auditors Determination was not delivered within the relevant period but has been delivered within 20 Business Days following the applicable due date for the delivery of the Auditors Determination, the Trustee shall without undue delay repay to the relevant GmbH Guarantor upon written demand of the relevant GmbH Guarantor any amount (if and to the extent already paid to the Trustee) in the case of (i) equal to the difference between the amount paid and the amount payable resulting from the Auditors Determination, and in the case of (ii) above, which the Trustee would not have been entitled to enforce had the Management Determination and the Auditors Determination been delivered within the relevant applicable period provided such demand for repayment is made to the Trustee within 6 months (Ausschlussfrist) from the date the Subject Guarantee is enforced. The Trustee may withhold any amount received pursuant to an enforcement of this Subject Guarantee until final determination of the amount of the net assets pursuant to the Auditors Determination.
(g) If pursuant to the Auditors Determination the amount of the available net assets is higher than that set out in the Management Determination, the relevant GmbH Guarantor shall pay such amount to the Trustee within five Business Days after receipt of the Auditors Determination.
(h) In a situation where the relevant GmbH Guarantor does not have sufficient net assets to maintain its registered share capital it shall within three months after a written request by the Trustee, to the extent commercially justifiable, dispose of all assets which are not necessary for its business (nicht betriebsnotwendig) where the relevant assets are shown in the balance sheet of the relevant GmbH Guarantor with a book value which (in the reasonable opinion of the Trustee) is significantly lower than the market value of such assets. After the expiry of such three months period the relevant GmbH Guarantor shall, within three Business Days, notify the Trustee of the amount of the net proceeds from the sale and submit a statement with a new calculation of the amount of the net assets of the relevant GmbH Guarantor taking into account such proceeds. Such calculation shall, upon the Trustees request (acting reasonably), be confirmed by one of the auditors of the relevant GmbH Guarantor within a period of 20 Business Days following the request.
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(i) The limitations in paragraphs (a)(i) and (a)(ii) above do not affect the rights of the Trustee to claim any outstanding amount (if any) under this Indenture by way of making a further claim under the Subject Guarantee at a later point in time, provided that limitations in paragraphs (a)(i) and (a)(ii)above remain applicable as of such later Guarantee Demand Date.
(5) Limitations relating to a GmbH & Co. KG Guarantor. Paragraphs 4(a) through 4(i) shall apply mutatis mutandis if the Subject Guarantee is granted by a GmbH & Co. KG Guarantor in relation to the limited liability company (GmbH) as general partner (Komplementär) of that GmbH & Co. KG Guarantor.
(6) No Recourse Against Others. No past, present or future director, manager, officer, employee, incorporator, member, partner or direct or indirect equityholder of the Issuer, Holdings or the Guaranteeing Subsidiaries shall have any liability for any obligations of the Issuer or the Guarantors (including each Guaranteeing Subsidiary) under the Notes, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
(7) Governing Law. THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(8) Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
(9) Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
(10) The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by each Guaranteeing Subsidiary.
(11) Benefits Acknowledged. Each Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture
6
and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
(12) Successors. All agreements of each Guaranteeing Subsidiary in this Supplemental Indenture shall bind its respective successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
(13) Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder shall be bound hereby.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
JC Autobatterie Holding GmbH, as a Guaranteeing Subsidiary | ||
By: | /s/ Johann-Friedrich Dempwolff | |
Name: Johann-Friedrich Dempwolff | ||
Title: Managing Director |
By: | /s/ Brian D. Hanna | |
Name: Brian D. Hanna | ||
Title: Prokurist |
[Signature Page to Third Unsecured Supplemental Indenture (Germany)]
Johnson Controls Recycling GmbH, as a Guaranteeing Subsidiary | ||
By: | /s/ Johann-Friedrich Dempwolff | |
Name: Johann-Friedrich Dempwolff | ||
Title: Managing Director |
By: | /s/ Brian D. Hanna | |
Name: Brian D. Hanna | ||
Title: Prokurist |
[Signature Page to Third Unsecured Supplemental Indenture (Germany)]
Panther Germany GmbH, as a Guaranteeing Subsidiary | ||
By: | /s/ John Barkhouse | |
Name: John Barkhouse | ||
Title: Managing Director |
[Signature Page to Third Unsecured Supplemental Indenture (Germany)]
CITIBANK, N.A., as Trustee | ||
By: | /s/ Karen Abarca | |
Name: Karen Abarca | ||
Title: Senior Trust Officer |
[Signature Page to Third Unsecured Supplemental Indenture (Germany)]
Exhibit 10.15
Execution Version
FOURTH SUPPLEMENTAL INDENTURE
Fourth Supplemental Indenture (this Supplemental Indenture), dated as of April 30, 2019, among Johnson Controls Advanced Power Solutions, LLC, Johnson Controls APS Production, Inc., Johnson Controls Battery Components, Inc., Johnson Controls Battery Group, LLC, Johnson Controls Mexico PS Holding LLC and Panther US BidCo LLC (each a Guaranteeing Subsidiary and, collectively, the Guaranteeing Subsidiaries), each a Delaware limited liability company, Delaware corporation or an Ontario limited partnership and each a subsidiary of Panther BF Aggregator 2 LP, an Ontario limited partnership (the Issuer), and Citibank, N.A., a national banking association, as trustee (the Trustee) and Notes Collateral Agent.
W I T N E S S E T H
WHEREAS, the Issuer, Panther Finance Company, Inc. (the Co-Issuer), Clarios Power Solutions Holdings LP (f/k/a Panther BF Aggregator 1 LP) (Holdings) and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture (the Indenture), dated as of April 1, 2019, providing for (i) the issuance of $1,000,000,000 aggregate principal amount of 6.250% Senior Secured Notes due 2026 (the Dollar Notes) and (ii) the issuance of 700,000,000 aggregate principal amount of 4.375% Senior Secured Notes due 2026 (the Euro Notes and together with the Dollar Notes, the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee and the Notes Collateral Agent are authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
(1) Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
(2) Agreement to Guarantee. Each Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. Each Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and
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subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.
(3) Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
(4) No Recourse Against Others. No past, present or future director, manager, officer, employee, incorporator, member, partner or direct or indirect equityholder of the Issuer, Holdings or the Guaranteeing Subsidiaries shall have any liability for any obligations of the Issuer or the Guarantors (including each Guaranteeing Subsidiary) under the Notes, any Guarantees, the Security Documents, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
(5) Governing Law. THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(6) Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
(7) Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
(8) The Trustee and the Notes Collateral Agent. The Trustee and the Notes Collateral Agent shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by each Guaranteeing Subsidiary.
(9) Benefits Acknowledged. Each Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
(10) Successors. All agreements of each Guaranteeing Subsidiary in this Supplemental Indenture shall bind its respective successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
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(11) Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder shall be bound hereby.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
BCD Battery LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Joseph A. Walicki | |
Name: Joseph A. Walicki | ||
Title: Manager |
[Signature Page to Fourth Secured Supplemental Indenture]
Johnson Controls Advanced Power Solutions, LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Joseph A. Walicki | |
Name: Joseph A. Walicki | ||
Title: Manager |
[Signature Page to Fourth Secured Supplemental Indenture]
Johnson Controls Battery Components, LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Joseph A. Walicki | |
Name: Joseph A. Walicki | ||
Title: Manager |
[Signature Page to Fourth Secured Supplemental Indenture]
Johnson Controls Interstate Battery Holding LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Claudio Morfe | |
Name: Claudio Morfe | ||
Title: Vice President and General Counsel |
[Signature Page to Fourth Secured Supplemental Indenture]
Johnson Controls Battery Group, LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Joseph A. Walicki | |
Name: Joseph A. Walicki | ||
Title: Manager |
[Signature Page to Fourth Secured Supplemental Indenture]
Johnson Controls Mexico PS Holding, LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Michael R. Peterson | |
Name: Michael R. Peterson | ||
Title: President |
[Signature Page to Fourth Secured Supplemental Indenture]
Panther US BidCo LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Craig Laurie | |
Name: Craig Laurie | ||
Title: Vice President |
[Signature Page to Fourth Secured Supplemental Indenture]
CPS Technology Holdings LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Kristen Haase | |
Name: Kristen Haase | ||
Title: Vice President and Secretary |
[Signature Page to Fourth Secured Supplemental Indenture]
Johnson Controls APS Production, LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Joseph A. Walicki | |
Name: Joseph A. Walicki | ||
Title: Manager |
[Signature Page to Fourth Secured Supplemental Indenture]
Johnson Controls Battery Investment, LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Joseph A. Walicki | |
Name: Joseph A. Walicki | ||
Title: Manager |
[Signature Page to Fourth Secured Supplemental Indenture]
CITIBANK, N.A., as Trustee and Notes Collateral Agent | ||
By: | /s/ Karen Abarca | |
Name: Karen Abarca | ||
Title: Senior Trust Officer |
[Signature Page to Fourth Secured Supplemental Indenture]
Exhibit 10.16
Execution Version
FOURTH SUPPLEMENTAL INDENTURE
Fourth Supplemental Indenture (this Supplemental Indenture), dated as of April 30, 2019, among Johnson Controls Advanced Power Solutions, LLC, Johnson Controls APS Production, Inc., Johnson Controls Battery Components, Inc., Johnson Controls Battery Group, LLC, Johnson Controls Mexico PS Holding LLC and Panther US BidCo LLC (each a Guaranteeing Subsidiary and, collectively, the Guaranteeing Subsidiaries), each a Delaware limited liability company, a Delaware corporation or an Ontario limited partnership and each a subsidiary of Panther BF Aggregator 2 LP, an Ontario limited partnership (the Issuer), and Citibank, N.A., a national banking association, as trustee (the Trustee).
W I T N E S E T H
WHEREAS, the Issuer, Panther Finance Company, Inc. (the Co-Issuer), Clarios Power Solutions Holdings LP (f/k/a Panther BF Aggregator 1 LP) (Holdings) and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture (the Indenture), dated as of April 1, 2019, providing for the issuance of $1,950,000,000 aggregate principal amount of 8.500% Senior Notes due 2027 (the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
(1) Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
(2) Agreement to Guarantee. Each Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. Each Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.
(3) Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
(4) No Recourse Against Others. No past, present or future director, manager, officer, employee, incorporator, member, partner or direct or indirect equityholder of the Issuer, Holdings or the Guaranteeing Subsidiaries shall have any liability for any obligations of the Issuer or the Guarantors (including each Guaranteeing Subsidiary) under the Notes, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
(5) Governing Law. THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(6) Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
(7) Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
(8) The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by each Guaranteeing Subsidiary.
(9) Benefits Acknowledged. Each Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
(10) Successors. All agreements of each Guaranteeing Subsidiary in this Supplemental Indenture shall bind its respective successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
(11) Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the
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terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder shall be bound hereby.
[Signature Page Follows]
3
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
BCD Battery LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Joseph A. Walicki | |
Name: Joseph A. Walicki | ||
Title: Manager |
[Signature Page to Fourth Unsecured Supplemental Indenture]
Johnson Controls Advanced Power Solutions, LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Joseph A. Walicki | |
Name: Joseph A. Walicki | ||
Title: Manager |
[Signature Page to Fourth Unsecured Supplemental Indenture]
Johnson Controls APS Production, LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Joseph A. Walicki | |
Name: Joseph A. Walicki | ||
Title: Manager |
[Signature Page to Fourth Unsecured Supplemental Indenture]
Johnson Controls Battery Group, LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Joseph A. Walicki | |
Name: Joseph A. Walicki | ||
Title: Manager |
[Signature Page to Fourth Unsecured Supplemental Indenture]
Johnson Controls Battery Components, LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Joseph A. Walicki | |
Name: Joseph A. Walicki | ||
Title: Manager |
[Signature Page to Fourth Unsecured Supplemental Indenture]
Johnson Controls Mexico PS Holding LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Michael R. Peterson | |
Name: Michael R. Peterson | ||
Title: President |
[Signature Page to Fourth Unsecured Supplemental Indenture]
Panther US BidCo LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Craig Laurie | |
Name: Craig Laurie | ||
Title: Vice President |
[Signature Page to Fourth Unsecured Supplemental Indenture]
CPS Technology Holdings LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Kristen Haase | |
Name: Kristen Haase | ||
Title: Vice President and Secretary |
[Signature Page to Fourth Unsecured Supplemental Indenture]
Johnson Controls Battery Investment, LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Joseph A. Walicki | |
Name: Joseph A. Walicki | ||
Title: Manager |
[Signature Page to Fourth Unsecured Supplemental Indenture]
Johnson Controls Interstate Battery Holding LLC, as a Guaranteeing Subsidiary | ||
By: | /s/ Claudio Morfe | |
Name: Claudio Morfe | ||
Title: Vice President and General Counsel |
[Signature Page to Fourth Unsecured Supplemental Indenture]
CITIBANK, N.A., as Trustee | ||
By: | /s/ Karen Abarca | |
Name: Karen Abarca | ||
Title: Senior Trust Officer |
[Signature Page to Fourth Unsecured Supplemental Indenture]
Exhibit 10.17
FIFTH SUPPLEMENTAL INDENTURE
Fifth Supplemental Indenture (this Supplemental Indenture), dated as of April 21, 2020, among Clarios Germany GmbH & Co. KGaA, Clarios Management GmbH, Clarios Zwickau GmbH & Co. KG, Clarios Beteiligungs GmbH and Clarios Varta Hannover GmbH (each a Guaranteeing Subsidiary and, collectively, the Guaranteeing Subsidiaries), each organized under the laws of Germany and each a subsidiary of Clarios Global LP (f/k/a Panther BF Aggregator 2 LP), an Ontario limited partnership (the Issuer), and Citibank, N.A., a national banking association, as trustee (the Trustee) and Notes Collateral Agent.
W I T N E S S E T H
WHEREAS, the Issuer, Clarios US Finance Company, Inc. (f/k/a Panther Finance Company, Inc.) (the Co-Issuer), Clarios International LP (f/k/a Clarios Power Solutions Holdings LP) (Holdings) and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture (the Indenture), dated as of April 1, 2019, providing for (i) the issuance of $1,000,000,000 aggregate principal amount of 6.250% Senior Secured Notes due 2026 (the Dollar Notes) and (ii) the issuance of 700,000,000 aggregate principal amount of 4.375% Senior Secured Notes due 2026 (the Euro Notes and together with the Dollar Notes, the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee and the Notes Collateral Agent are authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
(1) Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
(2) Agreement to Guarantee. Each Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. Each Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.
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(3) Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
(4) General Limitations to Guarantee. For the purposes of any of the German Security Documents, in addition to the other provisions set forth herein and in any other Secured Notes Document and notwithstanding the provisions of the ABL Intercreditor Agreement, the Trustee hereby appoints the Notes Collateral Agent (and agrees that each of the Notes Collateral Agent and/or the ABL Collateral Agent will under the ABL Intercreditor Agreement act as such agent with respect to the relevant security under German Security Documents constituting Single Lien Collateral) as its agent, attorney (Stellvertreter) and trustee (Treuhänder) under or in connection with any German Security Document, including but not limited to, for the purposes of accepting and administering any German Security Document. The Notes Collateral Agent hereby accepts its appointment on the terms and subject to the conditions set out in this Supplemental Indenture. Without limiting any other authorization granted hereunder or under any other provision set out in any Secured Notes Document or otherwise, the Notes Collateral Agent and/or the ABL Collateral Agent shall, in particular, be entitled to enter into any German law governed pledge agreement (including with respect to Single Lien Collateral) in its own name as well as in the name of each other Notes Secured Party. For such purposes, the Trustee releases the Notes Collateral Agent and/or the ABL Collateral Agent from the restrictions imposed by §181 of the German Civil Code (Bürgerliches Gesetzbuch) and any corresponding restriction set forth in other applicable jurisdictions, in each case, to the extent legally possible. If the Trustee is barred by its organizational documents from granting such relief it shall notify the Notes Collateral Agent and/or the ABL Collateral Agent accordingly.
(5) Limitations relating to a GmbH Guarantor. (a) To the extent that (x) the Subject Guarantee is granted by a GmbH Guarantor and (y) the Subject Guarantee secures liabilities which are owed by direct or indirect shareholders of that GmbH Guarantor or Subsidiaries of such shareholders (such Subsidiaries not to include the GmbH Guarantor and the Subsidiaries which are also Subsidiaries of that GmbH Guarantor), each of the Guaranteed Parties agrees not to enforce the Subject Guarantee in respect of such amount:
(i) as is required to ensure that the amount of the relevant GmbH Guarantors net assets, calculated as the sum of the balance sheet positions shown under section 266 sub-section (2) (A), (B), (C), (D) and (E) of the HGB less the sum of the amounts shown under balance sheet positions shown under section 266 (3) (B), (C), (D) and (E) of the HGB and any amounts not available for distribution to its shareholders in accordance with section § 253 sub-section (6), section 268 sub-section (8) and section 272 sub-section (5) of the HGB, does not fall below the amount of its registered share capital (Stammkapital); or
(ii) where the amount of the relevant GmbH Guarantors net assets already is below the amount of its registered share capital, as is required as to ensure that such amount is not further reduced.
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To the extent that Clarios Germany GmbH & Co. KGaA remains in such legal form and is not converted into a limited partnership (Kommanditgeselschaft) (the Conversion), its Subject Guarantee may only be enforced if the conditions of paragraph (b)(iv) are met in its respect as a dominated entity and this requirement shall apply in addition to this Section 5 to each of Clarios Zwickau GmbH & Co. KG, Clarios Beteiligungs GmbH and Clarios Varta Hannover GmbH. After the Conversion, this Section 5 shall apply mutatis mutandis to the general partner of Clarios Germany GmbH & Co. KGaA (then in the form of a Kommanditgesellschaft), in the manner that any reference to a GmbH Guarantor or the net assets of a GmbH Guarantor shall be construed to be a reference to that general partner or such general partners net assets. This Section 5 shall at all times apply mutatis mutandis to the general partner of Clarios Zwickau GmbH & Co. KG in the manner that any reference to a GmbH Guarantor or the net assets of a GmbH Guarantor shall be construed to be a reference to that general partner or such general partners net assets.
(b) the limitations in paragraph (5)(a) above will not apply (or, as the case may be, shall cease to apply):
(i) to any amounts which correspond to proceeds under the Secured Notes Documents and have been on-lent to, or otherwise been passed on to, the relevant GmbH Guarantor or any of its Subsidiaries from time to time to the extent that any such on-lent or passed-on amount is still outstanding at the Guarantee Demand Date or other financial accommodation made available to such GmbH Guarantor or a Subsidiary of such GmbH Guarantor under a Secured Notes Document and provided that, if this first sentence of this paragraph (i) applies, the Trustee waives with binding effect on the Guaranteed Parties the restrictions set out in Article 10 of this Indenture in respect of the GmbH Guarantors (and any other restrictions contained in any Secured Notes Document in respect of the GmbH Guarantors right to set off its) recourse claim (if any) arising as a result of the enforcement of the Subject Guarantee so that the GmbH Guarantor may exercise its rights to set off its recourse claim (if any) against the loan obligation in respect of the amounts on-lent to it. For the avoidance of doubt, the Trustee may elect not to waive such restrictions provided that if the Trustee so elects the limitations in paragraph (a) apply in relation to any amounts which correspond to proceeds under a Secured Notes Document and have been on-lent to, or otherwise been passed on to, the relevant GmbH Guarantor or any of its Subsidiaries;
(ii) if following the Guarantee Demand Date the relevant GmbH Guarantor does not provide financial statements in accordance with paragraphs (d) and (e) below;
(iii) if and to the extent for any other reason (including, without limitation, as a result of a change in the relevant rules of law) the deficit (Unterbilanz) referred to under paragraphs (a)(i) and (a)(ii) above does not constitute a breach of the GmbH Guarantors obligations to maintain its registered share capital pursuant to sections 30 et seq. GmbHG or does not
3
result in a personal liability of the managing directors (Geschäftsführer) of the GmbH Guarantor pursuant to section 43 GmbHG, each as amended, supplemented and/or replaced from time to time;
(iv) if on the Guarantee Demand Date the relevant GmbH Guarantor (as dominated entity) is party to a domination and/or profit and loss transfer agreement (Beherrschungs-und/oder Gewinnabführungsvertrag) other than where despite the existence of such domination and/or profit and loss transfer agreement (Beherrschungs-und/oder Gewinnabführungsvertrag) there would be a violation of sections 30 or 31 GmbHG; or
(v) if and to the extent the relevant GmbH Guarantor holds on the Guarantee Demand Date a fully recoverable indemnity claim or claim for refund (vollwertiger Gegenleistungs- oder Rückgewähranspruch) against its shareholder or against the entity whose obligations are guaranteed under the Subject Guarantee that is capable of being accounted for in the balance sheet of the relevant GmbH Guarantor at full value (vollwertig).
(c) For the purpose of the calculation of the net assets of the relevant GmbH Guarantor, the liabilities resulting from the following shall be disregarded as the relevant balance sheet items:
(i) the amount of any increase of the relevant GmbH Guarantors registered share capital after the date of this Indenture (x) if and to the extent it has been effected without the prior written consent of the Trustee or (y) if and to the extent that it is not fully paid up provided that the corresponding claim against the shareholders is not accounted for as an asset in the balance sheet of the GmbH Guarantor at the Guarantee Demand Date;
(ii) loans provided to the relevant GmbH Guarantor that are subordinated in an insolvency proceeding over its assets pursuant to section 39 sub section 1 no. 5 of the German Insolvency Code; and
(iii) indebtedness incurred in grossly negligent or willful violation of the provisions of this Indenture.
(d) The relevant GmbH Guarantor shall deliver (within 20 Business Days following the Guarantee Demand Date) to the Trustee a notification stating that and to which extent the amount payable in respect of its Guarantee Obligations shall be limited in accordance with paragraphs (a)(i) and (a)(ii) above and taking into account the adjustments in paragraph (c) above, such notification to be supported by evidence reasonably satisfactory to the Trustee, i.e. interim financial statements (Stichtagsbilanz) showing the balance sheet positions mentioned in paragraph (a)(i) above (taking into account the adjustments in paragraph (c) above) (the Management Determination).
(e) Following the Trustees receipt of the Management Determination, upon the Trustees reasonable request (the Trustees Request), the relevant GmbH Guarantor will deliver (within 25 Business Days following receipt of the Trustees Request) to the Trustee an
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up-to-date balance sheet drawn-up by its auditors together with a determination of the net assets. Such balance sheet and determination of net assets shall be prepared in accordance with accounting principles pursuant to the HGB, be based on the same principles that were applied when establishing the previous years balance sheet and take into account the adjustments in paragraph (c) above (the Auditors Determination).
(f) The Trustee shall be entitled to demand payment under the Subject Guarantee in an amount which would, in accordance with the Management Determination or, if applicable and taking into account any previous enforcement in accordance with the Management Determination, the Auditors Determination, not cause the relevant GmbH Guarantors net assets to be reduced below the registered share capital of the relevant GmbH Guarantor or further reduced if already below such registered share capital. If (i) and to the extent the net assets as determined by the Auditors Determination are lower than the amount enforced in accordance with the Management Determination or (ii) the Guarantee Obligations have been enforced without regard to the limitations set out in paragraphs (a)(i) and (a)(ii) above because (x) the Management Determination was not delivered within the relevant period or (y) the Auditors Determination was not delivered within the relevant period but has been delivered within 20 Business Days following the applicable due date for the delivery of the Auditors Determination, the Trustee shall without undue delay repay any amounts received by it under this Section 5(f) to the relevant GmbH Guarantor upon written demand of the relevant GmbH Guarantor any amount (if and to the extent already paid to the Guaranteed Parties (or any of them)) in the case of (i) equal to the difference between the amount paid and the amount payable resulting from the Auditors Determination, and in the case of (ii) above, which the Trustee would not have been entitled to enforce had the Management Determination and the Auditors Determination been delivered within the relevant applicable period provided such demand for repayment is made to the Trustee within 6 months (Ausschlussfrist) from the date the Subject Guarantee is enforced. The Trustee may withhold any amount received pursuant to an enforcement of this Subject Guarantee until final determination of the amount of the net assets pursuant to the Auditors Determination.
(g) If pursuant to the Auditors Determination the amount of the available net assets is higher than that set out in the Management Determination, the relevant GmbH Guarantor shall pay such amount to the Guaranteed Parties within five Business Days after receipt of the Auditors Determination.
(h) In a situation where the relevant GmbH Guarantor does not have sufficient net assets to maintain its registered share capital it shall within three months after a written request by the Trustee, to the extent commercially justifiable, dispose of all assets which are not necessary for its business (nicht betriebsnotwendig) where the relevant assets are shown in the balance sheet of the relevant GmbH Guarantor with a book value which (in the reasonable opinion of the Trustee) is significantly lower than the market value of such assets. After the expiry of such three months period the relevant GmbH Guarantor shall, within three Business Days, notify the Trustee of the amount of the net proceeds from the sale and submit a statement with a new calculation of the amount of the net assets of the relevant GmbH Guarantor taking into account such proceeds. Such calculation shall, upon the Trustees request (acting reasonably), be confirmed by one of the auditors of the relevant GmbH Guarantor within a period of 20 Business Days following the request.
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(i) The limitations in paragraphs (a)(i) and (a)(ii) above do not affect the rights of the Guaranteed Parties to claim any outstanding amount (if any) under this Indenture by way of making a further claim under the Subject Guarantee at a later point in time, provided that limitations in paragraphs (a)(i) and (a)(ii)above remain applicable as of such later Guarantee Demand Date.
(6) No Recourse Against Others. No past, present or future director, manager, officer, employee, incorporator, member, partner or direct or indirect equityholder of the Issuer, Holdings or the Guaranteeing Subsidiaries shall have any liability for any obligations of the Issuer or the Guarantors (including each Guaranteeing Subsidiary) under the Notes, any Guarantees, the Security Documents, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
(7) Governing Law. THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(8) Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
(9) Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
(10) The Trustee and the Notes Collateral Agent. The Trustee and the Notes Collateral Agent shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by each Guaranteeing Subsidiary.
(11) Benefits Acknowledged. Each Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
(12) Successors. All agreements of each Guaranteeing Subsidiary in this Supplemental Indenture shall bind its respective successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
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(13) Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder shall be bound hereby.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
CLARIOS GERMANY GMBH & CO. KGAA, as a Guaranteeing Subsidiary, represented by its general partner Clarios Management GmbH | ||||
By: | /s/ Dr. Christian Rosenkranz | |||
Name: | Dr. Christian Rosenkranz | |||
Title: | Managing Director | |||
By: | /s/ Dr. Julian Fernandez | |||
Name: | Dr. Julian Fernandez | |||
Title: | Authorised Signator | |||
CLARIOS MANAGEMENT GMBH, as a Guaranteeing Subsidiary | ||||
By: | /s/ Jose Miguel Lopez Ascaso | |||
Name: | Jose Miguel Lopez Ascaso | |||
Title: | Managing Director | |||
By: | /s/ Michel Pesch | |||
Name: | Michel Pesch | |||
Title: | Authorised Signator | |||
CLARIOS ZWICKAU GMBH & CO. KG, as a Guaranteeing Subsidiary, represented by its general partner Clarios Beteiligungs GmbH | ||||
By: | /s/ Patricia Krüger | |||
Name: | Patricia Krüger | |||
Title: | Authorised Signatory | |||
By: | /s/ Jose Manuel Domingo Cristo | |||
Name: | Jose Manuel Domingo Cristo | |||
Title: | Managing Director |
[Signature Page to Fifth Secured Supplemental Indenture (Germany)]
CLARIOS BETEILIGUNGS GMBH, as a Guaranteeing Subsidiary | ||||
By: | /s/ Jose Manuel Domingo Cristo | |||
Name: | Jose Manuel Domingo Cristo | |||
Title: | Managing Director | |||
By: | /s/ Patricia Krüger | |||
Name: | Patricia Krüger | |||
Title: | Authorised Signatory | |||
CLARIOS VARTA HANNOVER GMBH, as a Guaranteeing Subsidiary | ||||
By: | /s/ Udo Schade | |||
Name: | Udo Schade | |||
Title: | Authorised Signatory | |||
By: | /s/ Jose Manuel Domingo Cristo | |||
Name: | Jose Manuel Domingo Cristo | |||
Title: | Managing Director | |||
CITIBANK, N.A., as Trustee and Notes Collateral Agent | ||||
By: | /s/ Karen Abarca | |||
Name: | Karen Abarca | |||
Title: | Senior Trust Officer |
[Signature Page to Fifth Secured Supplemental Indenture (Germany)]
Exhibit 10.18
FIFTH SUPPLEMENTAL INDENTURE
Fifth Supplemental Indenture (this Supplemental Indenture), dated as of April 21, 2020, among Clarios Germany GmbH & Co. KGaA, Clarios Management GmbH, Clarios Zwickau GmbH & Co. KG, Clarios Beteiligungs GmbH and Clarios Varta Hannover GmbH (each a Guaranteeing Subsidiary and, collectively, the Guaranteeing Subsidiaries), each organized under the laws of Germany and each a subsidiary of Clarios Global LP (f/k/a Panther BF Aggregator 2 LP), an Ontario limited partnership (the Issuer), and Citibank, N.A., a national banking association, as trustee (the Trustee).
W I T N E S S E T H
WHEREAS, the Issuer, Clarios US Finance Company, Inc. (f/k/a Panther Finance Company, Inc.) (the Co-Issuer), Clarios International LP (f/k/a Clarios Power Solutions Holdings LP) (Holdings) and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture (the Indenture), dated as of April 1, 2019, providing for the issuance of $1,950,000,000 aggregate principal amount of 8.500% Senior Notes due 2027 (the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
(1) Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. As used herein, the following defined terms shall have the following meaning:
German Guarantor means a Guarantor organized under the laws of Germany or any applicable political subdivision thereof.
GmbH & Co. KG Guarantor means a German Guarantor incorporated as a limited liability partnership having a limited liability company as a general partner (GmbH & Co. KG).
GmbH Guarantor means a German Guarantor incorporated as a limited liability company (Gesellschaft mit beschränkter Haftung).
GmbHG means the German Limited Liability Companies Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung).
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Guarantee Demand Date means each date upon which the Trustee makes a written demand upon the relevant Guarantor to make payment in respect of its Guarantee Obligations.
Guarantee Obligations means the obligations and liabilities of the relevant Guarantor under the Subject Guarantee.
HGB means the German Commercial Code (Handelsgesetzbuch).
Notes Documents means the Notes (including Additional Notes), the Guarantees and the Indenture.
Subject Guarantee means any guarantee, indemnity or any joint and several liability created or assumed under this Supplemental Indenture.
(2) Agreement to Guarantee. Each Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. Each Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.
(3) Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
(4) Limitations relating to a GmbH Guarantor. (a) To the extent that (x) the Subject Guarantee is granted by a GmbH Guarantor and (y) the Subject Guarantee secures liabilities which are owed by direct or indirect shareholders of that GmbH Guarantor or Subsidiaries of such shareholders (such Subsidiaries not to include the GmbH Guarantor and the Subsidiaries which are also Subsidiaries of that GmbH Guarantor), the Trustee agrees not to enforce the Subject Guarantee in respect of such amount:
(i) as is required to ensure that the amount of the relevant GmbH Guarantors net assets, calculated as the sum of the balance sheet positions shown under section 266 sub-section (2) (A), (B), (C), (D) and (E) of the HGB less the sum of the amounts shown under balance sheet positions shown under section 266 (3) (B), (C), (D) and (E) of the HGB and any amounts not available for distribution to its shareholders in accordance with section § 253 sub-section (6), section 268 sub-section (8) and section 272 sub-section (5) of the HGB, does not fall below the amount of its registered share capital (Stammkapital); or
(ii) where the amount of the relevant GmbH Guarantors net assets already is below the amount of its registered share capital, as is required as to ensure that such amount is not further reduced.
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To the extent that Clarios Germany GmbH & Co. KGaA remains in such legal form and is not converted into a limited partnership (Kommanditgeselschaft) (the Conversion), its Subject Guarantee may only be enforced if the conditions of paragraph (b)(iv) are met in its respect as a dominated entity and this requirement shall apply in addition to this Section 5 to each of Clarios Zwickau GmbH & Co. KG, Clarios Beteiligungs GmbH and Clarios Varta Hannover GmbH. After the Conversion, this Section 5 shall apply mutatis mutandis to the general partner of Clarios Germany GmbH & Co. KGaA (then in the form of a Kommanditgesellschaft), in the manner that any reference to a GmbH Guarantor or the net assets of a GmbH Guarantor shall be construed to be a reference to that general partner or such general partners net assets. This Section 5 shall at all times apply mutatis mutandis to the general partner of Clarios Zwickau GmbH & Co. KG in the manner that any reference to a GmbH Guarantor or the net assets of a GmbH Guarantor shall be construed to be a reference to that general partner or such general partners net assets.
(b) the limitations in paragraph (4)(a) above will not apply (or, as the case may be, shall cease to apply):
(i) to any amounts which correspond to proceeds under the Notes Documents and have been on-lent to, or otherwise been passed on to, the relevant GmbH Guarantor or any of its Subsidiaries from time to time to the extent that any such on-lent or passed-on amount is still outstanding at the Guarantee Demand Date or other financial accommodation made available to such GmbH Guarantor or a Subsidiary of such GmbH Guarantor under a Notes Document and provided that, if this first sentence of this paragraph (i) applies, the Trustee waives with binding effect on the Guaranteed Parties the restrictions set out in Article 10 of the Indenture in respect of the GmbH Guarantors (and any other restrictions contained in any Notes Document in respect of the GmbH Guarantors right to set off its) recourse claim (if any) arising as a result of the enforcement of the Subject Guarantee so that the GmbH Guarantor may exercise its rights to set off its recourse claim (if any) against the loan obligation in respect of the amounts on-lent to it. For the avoidance of doubt, the Trustee may elect not to waive such restrictions provided that if the Trustee so elects the limitations in paragraph (a) apply in relation to any amounts which correspond to proceeds under a Secured Notes Document and have been on-lent to, or otherwise been passed on to, the relevant GmbH Guarantor or any of its Subsidiaries;
(ii) if following the Guarantee Demand Date the relevant GmbH Guarantor does not provide financial statements in accordance with paragraphs (d) and (e) below;
(iii) if and to the extent for any other reason (including, without limitation, as a result of a change in the relevant rules of law) the deficit (Unterbilanz) referred to under paragraphs (a)(i) and (a)(ii) above does not constitute a breach of the GmbH Guarantors obligations to maintain its registered share capital pursuant to sections 30 et seq. GmbHG or does not result in a personal liability of the managing directors
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(Geschäftsführer) of the GmbH Guarantor pursuant to section 43 GmbHG, each as amended, supplemented and/or replaced from time to time;
(iv) if on the Guarantee Demand Date the relevant GmbH Guarantor (as dominated entity) is party to a domination and/or profit and loss transfer agreement (Beherrschungs-und/oder Gewinnabführungsvertrag) other than where despite the existence of such domination and/or profit and loss transfer agreement (Beherrschungs-und/oder Gewinnabführungsvertrag) there would be a violation of sections 30 or 31 GmbHG; or
(v) if and to the extent the relevant GmbH Guarantor holds on the Guarantee Demand Date a fully recoverable indemnity claim or claim for refund (vollwertiger Gegenleistungs- oder Rückgewähranspruch) against its shareholder or against the entity whose obligations are guaranteed under the Subject Guarantee that is capable of being accounted for in the balance sheet of the relevant GmbH Guarantor at full value (vollwertig).
(c) For the purpose of the calculation of the net assets of the relevant GmbH Guarantor, the liabilities resulting from the following shall be disregarded as the relevant balance sheet items:
(i) the amount of any increase of the relevant GmbH Guarantors registered share capital after the date of this Indenture (x) if and to the extent it has been effected without the prior written consent of the Trustee or (y) if and to the extent that it is not fully paid up provided that the corresponding claim against the shareholders is not accounted for as an asset in the balance sheet of the GmbH Guarantor at the Guarantee Demand Date;
(ii) loans provided to the relevant GmbH Guarantor that are subordinated in an insolvency proceeding over its assets pursuant to section 39 sub section 1 no. 5 of the German Insolvency Code; and
(iii) indebtedness incurred in grossly negligent or willful violation of the provisions of this Indenture.
(d) The relevant GmbH Guarantor shall deliver (within 20 Business Days following the Guarantee Demand Date) to the Trustee a notification stating that and to which extent the amount payable in respect of its Guarantee Obligations shall be limited in accordance with paragraphs (a)(i) and (a)(ii) above and taking into account the adjustments in paragraph (c) above, such notification to be supported by evidence reasonably satisfactory to the Trustee, i.e. interim financial statements (Stichtagsbilanz) showing the balance sheet positions mentioned in paragraph (a)(i) above (taking into account the adjustments in paragraph (c) above) (the Management Determination).
(e) Following the Trustees receipt of the Management Determination, upon the Trustees reasonable request (the Trustees Request), the relevant GmbH Guarantor will deliver (within 25 Business Days following receipt of the Trustees Request) to the Trustee an up-to-date balance sheet drawn-up by its auditors together with a determination of the net assets.
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Such balance sheet and determination of net assets shall be prepared in accordance with accounting principles pursuant to the HGB, be based on the same principles that were applied when establishing the previous years balance sheet and take into account the adjustments in paragraph (c) above (the Auditors Determination).
(f) The Trustee shall be entitled to demand payment under the Subject Guarantee in an amount which would, in accordance with the Management Determination or, if applicable and taking into account any previous enforcement in accordance with the Management Determination, the Auditors Determination, not cause the relevant GmbH Guarantors net assets to be reduced below the registered share capital of the relevant GmbH Guarantor or further reduced if already below such registered share capital. If (i) and to the extent the net assets as determined by the Auditors Determination are lower than the amount enforced in accordance with the Management Determination or (ii) the Guarantee Obligations have been enforced without regard to the limitations set out in paragraphs (a)(i) and (a)(ii) above because (x) the Management Determination was not delivered within the relevant period or (y) the Auditors Determination was not delivered within the relevant period but has been delivered within 20 Business Days following the applicable due date for the delivery of the Auditors Determination, the Trustee shall without undue delay repay to the relevant GmbH Guarantor upon written demand of the relevant GmbH Guarantor any amount (if and to the extent already paid to the Trustee) in the case of (i) equal to the difference between the amount paid and the amount payable resulting from the Auditors Determination, and in the case of (ii) above, which the Trustee would not have been entitled to enforce had the Management Determination and the Auditors Determination been delivered within the relevant applicable period provided such demand for repayment is made to the Trustee within 6 months (Ausschlussfrist) from the date the Subject Guarantee is enforced. The Trustee may withhold any amount received pursuant to an enforcement of this Subject Guarantee until final determination of the amount of the net assets pursuant to the Auditors Determination.
(g) If pursuant to the Auditors Determination the amount of the available net assets is higher than that set out in the Management Determination, the relevant GmbH Guarantor shall pay such amount to the Trustee within five Business Days after receipt of the Auditors Determination.
(h) In a situation where the relevant GmbH Guarantor does not have sufficient net assets to maintain its registered share capital it shall within three months after a written request by the Trustee, to the extent commercially justifiable, dispose of all assets which are not necessary for its business (nicht betriebsnotwendig) where the relevant assets are shown in the balance sheet of the relevant GmbH Guarantor with a book value which (in the reasonable opinion of the Trustee) is significantly lower than the market value of such assets. After the expiry of such three months period the relevant GmbH Guarantor shall, within three Business Days, notify the Trustee of the amount of the net proceeds from the sale and submit a statement with a new calculation of the amount of the net assets of the relevant GmbH Guarantor taking into account such proceeds. Such calculation shall, upon the Trustees request (acting reasonably), be confirmed by one of the auditors of the relevant GmbH Guarantor within a period of 20 Business Days following the request.
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(i) The limitations in paragraphs (a)(i) and (a)(ii) above do not affect the rights of the Trustee to claim any outstanding amount (if any) under this Indenture by way of making a further claim under the Subject Guarantee at a later point in time, provided that limitations in paragraphs (a)(i) and (a)(ii) above remain applicable as of such later Guarantee Demand Date.
(5) Limitations relating to a GmbH & Co. KG Guarantor. Paragraphs 4(a) through 4(i) shall apply mutatis mutandis if the Subject Guarantee is granted by a GmbH & Co. KG Guarantor in relation to the limited liability company (GmbH) as general partner (Komplementär) of that GmbH & Co. KG Guarantor.
(6) No Recourse Against Others. No past, present or future director, manager, officer, employee, incorporator, member, partner or direct or indirect equityholder of the Issuer, Holdings or the Guaranteeing Subsidiaries shall have any liability for any obligations of the Issuer or the Guarantors (including each Guaranteeing Subsidiary) under the Notes, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
(7) Governing Law. THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(8) Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
(9) Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
(10) The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by each Guaranteeing Subsidiary.
(11) Benefits Acknowledged. Each Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
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(12) Successors. All agreements of each Guaranteeing Subsidiary in this Supplemental Indenture shall bind its respective successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
(13) Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder shall be bound hereby.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
CLARIOS GERMANY GMBH & CO. KGAA, as a Guaranteeing Subsidiary, represented by its general partner Clarios Management GmbH | ||||
By: | /s/ Dr. Christian Rosenkranz | |||
Name: | Dr. Christian Rosenkranz | |||
Title: | Managing Director | |||
By: | /s/ Dr. Julian Fernandez | |||
Name: | Dr. Julian Fernandez | |||
Title: | Authorised Signatory | |||
CLARIOS MANAGEMENT GMBH, as a Guaranteeing Subsidiary | ||||
By: | /s/ Jose Miguel Lopez Ascaso | |||
Name: | Jose Miguel Lopez Ascaso | |||
Title: | Managing Director | |||
By: | /s/ Michel Pesch | |||
Name: | Michel Pesch | |||
Title: | Authorised Signatory | |||
CLARIOS ZWICKAU GMBH & CO. KG, as a Guaranteeing Subsidiary, represented by its general partner Clarios Beteiligungs GmbH | ||||
By: | /s/ Jose Manuel Domingo Cristo | |||
Name: | Jose Manuel Domingo Cristo | |||
Title: | Managing Director | |||
By: | /s/ Patricia Krüger | |||
Name: | Patricia Krüger | |||
Title: | Authorised Signatory |
[Signature Page to Fifth Unsecured Supplemental Indenture (Germany)]
CLARIOS BETEILIGUNGS GMBH, as a Guaranteeing Subsidiary | ||||
By: | /s/ Patricia Krüger | |||
Name: | Patricia Krüger | |||
Title: | Authorised Signatory | |||
By: | /s/ Jose Manuel Domingo Cristo | |||
Name: | Jose Manuel Domingo Cristo | |||
Title: | Managing Director | |||
CLARIOS VARTA HANNOVER GMBH, as a Guaranteeing Subsidiary | ||||
By: | /s/ Udo Schade | |||
Name: | Udo Schade | |||
Title: | Authorised Signatory | |||
By: | /s/ Jose Manuel Domingo Cristo | |||
Name: | Jose Manuel Domingo Cristo | |||
Title: | Managing Director | |||
CITIBANK, N.A., as Trustee | ||||
By: | /s/ Karen Abarca | |||
Name: | Karen Abarca | |||
Title: | Senior Trust Officer |
[Signature Page to Fifth Unsecured Supplemental Indenture (Germany)]
Exhibit 10.19
[FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS]
[●] Supplemental Indenture (this Supplemental Indenture), dated as of [●], among [●] (the Guaranteeing Subsidiary), a subsidiary of Clarios Global LP (f/k/a Panther BF Aggregator 2 LP), an Ontario limited partnership (the Issuer), and Citibank, N.A., a national banking association, as trustee (the Trustee) and Notes Collateral Agent.
W I T N E S S E T H
WHEREAS, the Issuer, Clarios US Finance Company, Inf. (f/k/a Panther Finance Company, Inc.) (the Co-Issuer), Holdings and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture (the Indenture), dated as of April 1, 2019, providing for (i) the issuance of $1,000,000,000 aggregate principal amount of 6.250% Senior Secured Notes due 2026 (the Dollar Notes) and (ii) the issuance of 700,000,000 aggregate principal amount of 4.375% Senior Secured Notes due 2026 (the Euro Notes and together with the Dollar Notes, the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee and the Notes Collateral Agent are authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
(1) Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
(2) Agreement to Guarantee. The Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.
(3) Execution and Delivery. The Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
(4) Limitations to Guarantee. [●]
(5) No Recourse Against Others. No past, present or future director, manager, officer, employee, incorporator, member, partner or direct or indirect equityholder of the Issuer, Holdings or the Guaranteeing Subsidiary shall have any liability for any obligations of the Issuer or the Guarantors (including the Guaranteeing Subsidiary) under the Notes, any Guarantees, the Security Documents, the
1
Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
(6) Governing Law. THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(7) Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
(8) Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
(9) The Trustee and the Notes Collateral Agent. The Trustee and the Notes Collateral Agent shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary.
(10) Benefits Acknowledged. The Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. The Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
(11) Successors. All agreements of the Guaranteeing Subsidiary in this Supplemental Indenture shall bind its successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
(12) Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder shall be bound hereby.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
[GUARANTEEING SUBSIDIARY] | ||
By: | ||
Name: | ||
Title: | ||
CITIBANK, N.A., as Trustee and Notes Collateral Agent | ||
By: | ||
Name: | ||
Title: | ||
CITIBANK, N.A., London Branch, as Euro Paying Agent | ||
By: | ||
Name: | ||
Title: |
[Signature Page to Supplemental Indenture]
Exhibit 10.20
[FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS]
[●] Supplemental Indenture (this Supplemental Indenture), dated as of [●], among [●] (the Guaranteeing Subsidiary), a subsidiary of Clarios Global LP (f/k/a/ Panther BF Aggregator 2 LP), an Ontario limited partnership (the Issuer), and Citibank, N.A., a national banking association, as trustee (the Trustee).
W I T N E S S E T H
WHEREAS, the Issuer, Clarios US Finance Company, Inc. (f/k/a Panther Finance Company, Inc.) (the Co-Issuer), Holdings and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture (the Indenture), dated as of April 1, 2019, providing for the issuance of $1,950,000,000 aggregate principal amount of 8.500% Senior Notes due 2027 (the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
(1) Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
(2) Agreement to Guarantee. The Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.
(3) Execution and Delivery. The Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
(4) Limitations to Guarantee. [●]
(5) No Recourse Against Others. No past, present or future director, manager, officer, employee, incorporator, member, partner or direct or indirect equityholder of the Issuer, Holdings or the Guaranteeing Subsidiary shall have any liability for any obligations of the Issuer or the Guarantors (including the Guaranteeing Subsidiary) under the Notes, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their
1
creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
(6) Governing Law. THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(7) Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
(8) Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
(9) The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary.
(10) Benefits Acknowledged. The Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. The Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
(11) Successors. All agreements of the Guaranteeing Subsidiary in this Supplemental Indenture shall bind its successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
(12) Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder shall be bound hereby.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
[GUARANTEEING SUBSIDIARY] | ||
By: |
||
Name: | ||
Title: |
CITIBANK, N.A., as Trustee | ||
By: |
||
Name: | ||
Title: |
[Signature Page to Supplemental Indenture]
Exhibit 10.21
[FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS]
[●] Supplemental Indenture (this Supplemental Indenture), dated as of [●], among [●] (the Guaranteeing Subsidiary), a subsidiary of Clarios Global LP, an Ontario limited partnership (the Issuer), and Citibank, N.A., a national banking association, as trustee (the Trustee) and Notes Collateral Agent.
W I T N E S S E T H
WHEREAS, the Issuer, Clarios US Finance Company, Inc. (the Co-Issuer), Holdings and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture (the Indenture), dated as of May 20, 2020, providing for the issuance of $500,000,000 aggregate principal amount of 6.750% Senior Secured Notes due 2025 (the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee and the Notes Collateral Agent are authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
(1) Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
(2) Agreement to Guarantee. The Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.
(3) Execution and Delivery. The Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
(4) Limitations to Guarantee. [●]
(5) No Recourse Against Others. No past, present or future director, manager, officer, employee, incorporator, member, partner or direct or indirect equityholder of the Issuer, Holdings or the Guaranteeing Subsidiary shall have any liability for any obligations of the Issuer or the Guarantors (including the Guaranteeing Subsidiary) under the Notes, any Guarantees, the Security Documents, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such
1
obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
(6) Governing Law. THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(7) Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
(8) Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
(9) The Trustee and the Notes Collateral Agent. The Trustee and the Notes Collateral Agent shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary.
(10) Benefits Acknowledged. The Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. The Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
(11) Successors. All agreements of the Guaranteeing Subsidiary in this Supplemental Indenture shall bind its successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
(12) Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder shall be bound hereby.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
[GUARANTEEING SUBSIDIARY] | ||
By: |
||
Name: | ||
Title: |
CITIBANK, N.A., as Trustee and Notes Collateral Agent | ||
By: |
||
Name: | ||
Title: |
[Signature Page to Supplemental Indenture]
Exhibit 10.22
CLARIOS INTERNATIONAL LP
EXECUTIVE LONG-TERM INCENTIVE PLAN
1. | Introduction |
This Clarios International LP Executive Long-Term Incentive Plan (the Plan) has been adopted by the Board of Directors of the general partner of Clarios International LP (the Company) effective as of January 1, 2020 (the Effective Date). Brookfield Capital Partners V L.P., together with its Affiliates (Brookfield), owns 100% of the equity interests of the Company as at April 30, 2019 (the Investment Date). The purpose of the Plan is to attract and retain senior management of the Company, to incentivize them to make decisions with a long term view and to motivate and influence behavior on their part that is consistent with maximizing value for the shareholders of the Company in a prudent manner. Capitalized terms not otherwise defined herein shall have the meanings set forth in Section 7.
2. | Plan Administration |
The Plan will be administered by Brookfield through its representatives on the Board of Directors of the Company. All determinations of the value of the Incentive Pool and the Option Units (as hereinafter defined) will be made by Brookfield, in its sole discretion, and shall be final and binding on all Participants and their beneficiaries, including, without limitation, determinations with respect to: (i) the terms of the Plan and any Option Units; (ii) the rights of any person under the Plan, or the meaning of requirements imposed by the terms of the Plan or award of Option Units; (iii) the calculation of any amounts due under the Plan or in respect of Option Units; (iv) any acceleration of the vesting or payment of awards; (v) all questions of interpretation, fact, or other matters arising under the Plan; and (vi) resolving all disputes under the Plan. Brookfield will have ultimate authority to make any required determinations and calculations under the Plan and for implementing any changes to the Plan. Brookfields determinations shall be binding and conclusive upon all Participants and all other interested parties. No employee of Brookfield shall be liable for any action taken or determination made in good faith with respect to the Plan or any Option Units granted hereunder.
3. | Plan Participants |
Brookfield has the authority to determine and designate from time to time any employee, officer, director or consultant of the Company or an Affiliate to receive an award under the Plan (each a Participant). Brookfield shall determine the number of Option Units to be granted and the terms and conditions of such Option Units consistent with the terms of the Plan. In selecting Participants, and in determining the awards, Brookfield shall consider any and all factors that it deems relevant or appropriate. At the time a Participant is granted an award under the Plan, Brookfield shall allocate to such Participant General Option Units and/or Stretch Option Units (collectively, the Option Units), which shall represent a share in the General Incentive Pool and Stretch Incentive Pool, respectively.
4. | Incentive Pool and Option Units |
(a) General Incentive Pool. Subject to vesting and other terms and conditions set forth herein, an award of General Option Units to a Participant shall entitle such Participant to payment based on a share of the General Incentive Pool. The General Incentive Pool as a percentage of the Sale Proceeds may be increased in Brookfields sole discretion (as described in Section 4(e)). In the event that, in connection with a Change in Control, Brookfield disposes of less than 100% of its ownership interest in the Company, the amount of the Sale Proceeds in excess of the Threshold Value shall be determined on a pro-rata basis
by reference to the percentage of ownership interest disposed, as determined by Brookfield in its sole discretion. A Participants interest in the General Incentive Pool shall be expressed in a number of notional unitary interests in the General Incentive Pool, as described in Section 4(c) (a General Option Unit).
(b) Stretch Incentive Pool. Subject to vesting and other terms and conditions set forth herein, an award of Stretch Option Units to a Participant shall entitle such Participant to payment based on a share of the Stretch Incentive Pool. The Stretch Incentive Pool as a percentage of the Sale Proceeds may be increased in Brookfields sole discretion (as described in Section 4(e)). In the event that, in connection with a Change in Control, Brookfield disposes of less than 100% of its ownership interest in the Company, the amount of the Sale Proceeds in excess of the Stretch Threshold Value shall be determined on a pro-rata basis by reference to the percentage of ownership interest disposed, as determined by Brookfield in its sole discretion. A Participants interest in the Stretch Incentive Pool shall be expressed in a number of notional unitary interests in the Stretch Incentive Pool, as described in Section 4(d) (a Stretch Option Unit).
(c) General Option Units. Each Participant that is allocated General Option Units will be allocated a number of General Option Units which equate to a share in the General Incentive Pool. A total of 10,555,200 General Option Units are available for allocation to Participants, subject to any discretionary increases pursuant to Section 4(e). Each General Option Unit represents a $10 notional interest in the General Incentive Pool, with the implied number of units outstanding in the Companys overall profit pool equating to 293,200,000 (i.e., the General Incentive Pool equals 3.6% of the difference between the Sale Proceeds and the Threshold Value). At any date of determination, each Participants percentage interest in the General Incentive Pool will equal the number of General Option Units granted to such Participant, divided by the maximum amount of General Option Units available under the General Incentive Pool.
(d) Stretch Option Units. In the normal course, each Participant will be allocated one (1) Stretch Option Unit for every four (4) General Option Units that they receive. However, Brookfield maintains the discretion to grant to a Participant a higher or lower number of Stretch Option Units. Each Stretch Option Unit equates to a share in the Stretch Incentive Pool. A total of 2,638,800 Stretch Option Units be available for allocation to all Participants, subject to any discretionary increases pursuant to Section 4(e). Each Stretch Option Unit represents a $10 notional interest in the Stretch Incentive Pool, with the implied number of units outstanding in the Companys overall profit pool equating to 293,200,000 (i.e., the Stretch Incentive Pool equals 0.9% of the difference between the Sale Proceeds and the Stretch Threshold Value). At any date of determination, each Participants percentage interest in the Stretch Incentive Pool will equal the number of Stretch Option Units granted to such Participant, divided by the maximum amount of Stretch Option Units available under the Stretch Incentive Pool.
(e) Potential Adjustments. In the event of any increase in the size of the Incentive Pool, the number of Option Units shall be increased in the same proportion (e.g., an increase in the percentage of the Sale Proceeds allocated to the Incentive Pool of 50% shall result in an increase in the number of available Option Units under the Plan by 50%). Any such increase shall not result in dilution or enlargement of a Participants rights with respect to any previously granted Option Units.
(f) Allocation and Forfeiture. Brookfield may issue all or some portion of the Option Units in the Incentive Pool from time to time in its sole discretion. Any forfeiture of Option Units previously allocated to Participants under awards will be held for future grants, if any, and will not be automatically reallocated to other Participants. Any unallocated portion of the Incentive Pool shall be retained by the Company and shall be available for future grants of awards under the Plan, if any. Any portion of the Incentive Pool that is not allocated to Participants at the time of settlement of awards under the Plan shall be retained by the Company.
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(g) Notice of Awards. Option Units shall be granted to Participants in the sole discretion of Brookfield. The Company shall notify each Participant of an award, including the number of General Option Units and/or Stretch Option Units allocated to such Participant, in a written notice (an Option Unit Notice). An Option Unit Notice may include such additional terms and conditions as Brookfield may determine.
5. | Vesting of Option Units |
(a) General. Awards of Option Units shall be subject to time-based vesting based on a Participants continued Service, and vesting may be accelerated as provided below. An award may be subject to additional conditions as set forth in the applicable Option Unit Notice.
(b) Vesting Schedule. In general, unless otherwise provided in a Option Unit Notice or as set forth herein, Option Units will become vested based on the continued Service of the Participant in equal annual installments at the rate of twenty percent (20%) of the total number of Option Units covered by an award on each of the first (1st) through the fifth (5th) anniversaries of the date of grant, and shall be settled in accordance with the terms of the Plan. Option Units will become vested under the Plan provided that the Participant has been continuously employed through each such date and is employed by the Company on each anniversary date of grant.
(c) Termination of Service (General). If a Participant ceases to provide Service prior to any applicable vesting date or event under the Plan for any reason, other than a termination for Cause, then the Participant shall forfeit all unvested Option Units for no consideration. Any portion of a Participants Option Units that is vested as of the date such Participant ceases to provide Service shall continue to be outstanding vested Option Units and shall be settled in accordance with the terms of the Plan.
(d) Termination for Cause. Notwithstanding anything contained herein to the contrary, if a Participants employment with the Company is terminated by the Company for Cause, all of such Participants Option Units (whether or not vested) shall terminate and be forfeited for no consideration and cancelled without further force or effect immediately upon such termination for Cause.
(e) Vesting upon Change in Control. Upon the occurrence of a Change in Control, unless otherwise provided in an Option Unit Notice, any unvested Option Units that have not previously been forfeited shall accelerate and become fully vested on such date and shall be settled in accordance with the terms of the Plan.
6. | Settlement of Option Units |
(a) Amount of Payment. The amount, form and timing of any payments for Option Units shall be determined and approved by Brookfield in accordance with the Plan. The amount of payment in respect of the General Option Units shall be based on the amount of the Sale Proceeds in excess of the Threshold Value that is allocated to the General Incentive Pool in accordance with the Plan, as well as the Participants interest in the General Incentive Pool represented by the number of General Option Units awarded to the Participant. The value of each General Option Unit shall be determined by multiplying the total amount of the General Incentive Pool by a fraction, the numerator of which is such Participants vested General Option Units and the denominator of which is the total number of General Option Units available under the General Incentive Pool (10,555,200 units). The amount of payment in respect of the Stretch Option Units shall be based on the amount of the Sale Proceeds in excess of the Stretch Threshold Value that is allocated to the Stretch Incentive Pool in accordance with the Plan, as well as the Participants interest in the Stretch Incentive Pool represented by the number of Stretch Option Units awarded to the Participant. The value of each Stretch Option Unit shall be determined by multiplying the total amount of the Stretch Incentive Pool
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by a fraction, the numerator of which is such Participants vested Stretch Option Units and the denominator of which is the total number of Stretch Option Units available under the Stretch Incentive Pool (2,638,800 units).
(b) Conditions of Exercise for the General Option Units. Notwithstanding anything in the Plan to the contrary, one-half of the General Option Units, or 5,277,600 General Option Units shall only be exercisable on a proportionate basis between: (a) the point at which the Sale Proceeds are equal to the Threshold Value on the one hand; and (b) the point at which the Sale Proceeds are equal to the Stretch Threshold Value on the other hand (the 50% Condition of Exercise). Unless otherwise determined by Brookfield and set forth in a Participants Option Unit Notice, one-half of all General Option Units allocated to any individual Participant shall have the 50% Condition of Exercise applied to them. For example, in the event that upon a Change in Control the Sale Proceeds are equal to: (i) 1.5 times the Threshold Value, then 62.5% of a Participants General Option Units would be exercisable; (ii) 2 times the Threshold Value, then 75% of a Participants General Option Units would be exercisable; (iii) 2.5 times the Threshold Value, then 87.5% of a Participants General Option Units would be exercisable; and (iv) 3 times the Threshold Value, then 100% of a Participants General Option Units would be exercisable. To the extent that the difference between the Sale Proceeds and the Threshold Value upon a Change in Control results in certain General Option Units being rendered non-exercisable then such General Option Units will be forfeited to the Company.
(c) Form of Payment. Payments of Option Units shall generally be made in cash by the Company, provided that if Sale Proceeds are paid to Brookfield all or in part in a form other than cash, Brookfield may provide payment in the same form and proportion as such payment.
(d) Timing of Payment. Payment of vested Option Units shall generally be made in a lump sum within thirty (30) days following the consummation date of a Change in Control, based on the Sale Proceeds received by Brookfield in connection with the Change in Control. Notwithstanding the foregoing, and subject to compliance with Section 409A of the Code, if a portion of Sale Proceeds are scheduled to be paid to Brookfield after such 30th day, whether in the form of earn-outs, escrows of other contingent or deferred consideration, payments in respect of the Option Units (as calculated above) shall be paid on the same schedule and subject to the same terms and conditions as payments are made to Brookfield generally, but not later than the date that is five (5) years following the consummation date of the Change in Control.
7. | Definitions |
As used herein, the following terms shall have the following meanings:
(a) Affiliate means, with respect to any Person, means any other Person which controls, is controlled by or is under common control with, directly or indirectly, such Person. For this purpose, control of a Person shall mean possession, directly or indirectly, of the right or power to direct or cause the direction of the management or policies of such Person, whether through ownership of voting securities, through rights under contracts, or otherwise.
(b) Cause has the meaning, with respect to a Participant, set forth in such Participants employment agreement, offer letter or similar agreement in connection with the employment by the Company. In the absence thereof, Cause shall mean: (a) the willful failure of the Participant to properly carry out his or her duties or to comply with the rules and policies of the Company, or any reasonable instruction or directive of the Company, that is not cured, if curable, to the Companys reasonable satisfaction, within ten (10) days after the Company or its designee gives written notice thereof to the Participant; (b) the Participant acting dishonestly or fraudulently, or the willful misconduct of the Participant in the course of his or her employment, in each case resulting in adverse consequences to the
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Company, which in the case of willful misconduct only, is not cured, if curable, to the Companys reasonable satisfaction, within 10 days after the Company or its designee gives written notice thereof to the Participant; (c) if the Participant or any member of his or her family makes any personal profit arising out of or in connection with any transaction to which the Company or is a party or with which the Company is associated without making disclosure to and obtaining the prior written consent of the Company; (d) the conviction of the Participant for, or a guilty plea by the Participant to, any criminal offence punishable by imprisonment that may reasonably be considered to be likely to adversely affect the Company or the suitability of the Participant to perform his or her duties, including without limitation any offence involving fraud, theft, embezzlement, forgery, willful misappropriation of funds or property, or other fraudulent or dishonest acts involving moral turpitude; (e) the failure by the Participant to fully comply with and perform his or her fiduciary duties; (f) any other act, event or circumstance which would constitute just cause at law for termination of the Participants employment; or (g) any resignation by the Participant in anticipation of a termination by the Company of such Participants employment due to any of the above.
(c) Code means the Internal Revenue Code of 1986, as amended.
(d) Change in Control means any transaction or series of transactions (including, without limitation, the consummation of a combination, share purchases, recapitalization, redemption, issuance of capital stock, consolidation, reorganization or otherwise) pursuant to which: (a) a Person not affiliated with Brookfield acquires securities representing more than seventy percent (70%) of the combined voting power of the outstanding voting securities of the Company or the entity surviving or resulting from such transaction; (b) following a public offering of the Companys stock, Brookfield has ceased to have a beneficial ownership interest in at least thirty percent (30%) of the Companys outstanding voting securities (effective on the first such date); or (c) the Company sells all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis. It is intended that the occurrence of a Change in Control in which Sale Proceeds exceed the Threshold Value (and in which the Sale Proceeds exceed the Stretch Threshold Value) would constitute a substantial risk of forfeiture within the meaning of Section 409A.
(e) General Incentive Pool shall be the dollar amount represented by three and 6/10ths percent (3.6%) of the Sale Proceeds realized by Brookfield as of any date of determination hereunder in excess of the Threshold Value.
(f) Incentive Pool means, collectively, the General Incentive Pool and the Stretch Incentive Pool.
(g) Person means an individual, a partnership, a sole proprietorship, a company, a firm, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a union, a group acting in concert, a judicial authority, a governmental authority or any other entity or association of any kind. References to any Person shall include the successors and assigns thereof, except to the extent otherwise expressly provided in the Plan.
(h) Sale Proceeds as of any date of determination, means, without duplication, the sum of all proceeds actually received by Brookfield, net of all Sales Costs: (i) as consideration (whether cash or equity) upon the Change in Control; and (ii) as distributions, dividends, repurchases, redemptions or otherwise as a holder of such equity interests in the Company. Proceeds that are not paid upon or prior to or in connection with the Change in Control, including earn-outs, escrows and other contingent or deferred consideration shall become Sale Proceeds only as and when such proceeds are received by Brookfield. The amount of Sale Proceeds shall be determined by Brookfield in its sole discretion.
5
(i) Sales Costs means any costs or expenses (including legal or other advisor costs), fees (including investment banking fees), commissions or discounts payable directly by Brookfield in connection with, arising out of or relating to a Change in Control, as determined by Brookfield in its sole discretion.
(j) Service means provision of services as an employee, officer, director or consultant to or for the benefit of the Company or an Affiliate.
(k) Option Units means, collectively, the General Option Units and the Stretch Option Units.
(l) Stretch Incentive Pool shall be the dollar amount represented by 9/10ths percent (0.9%) of the Sale Proceeds realized by Brookfield as of any date of determination hereunder in excess of the Stretch Threshold Value.
(m) Stretch Threshold Value as of any date of determination, means, an amount equal to US$8,796,000,000 (which represents three times (3X) the amount of the total invested capital of Brookfield as of the Investment Date), plus the dollar value of any cash or other consideration contributed to or invested in the Company by Brookfield after the Investment Date. The Stretch Threshold Value shall be determined by Brookfield in its sole discretion.
(n) Threshold Value as of any date of determination, means, an amount equal to US$2,932,000,000 (which represents the amount of the total invested capital of Brookfield as of the Investment Date), plus the dollar value of any cash or other consideration contributed to or invested in the Company by Brookfield after the Investment Date. The Threshold Value shall be determined by Brookfield in its sole discretion.
8. | Miscellaneous |
(a) Tax Withholding. All payments in respect of Option Units under the Plan will be treated as ordinary compensation income for tax purposes and will be subject to all applicable tax withholdings.
(b) Rights as an Award Holder. The Option Units do not constitute an equity interest in the Company or any of its Affiliates and shall not be construed as providing or creating any rights of a holder of an equity interest (including rights to distributions and to vote). Participants shall not be treated as an equity holder of the Company or any of its Affiliates as a result of being granted an award hereunder.
(c) Non-Transferability; Unfunded Plan. Other than in accordance with the laws of descent and distribution, in no event shall any Option Units allocated to a Participant, nor any payment to any Participant or any right of any Participant to receive any payment arising under the Plan, be subject to alienation, sale, transfer, assignment, garnishment, pledge, encumbrance or charge. The Participants right to the payments under the Plan shall represent an unfunded and unsecured promise to be paid by the Company. A Participant will be a general, unsecured creditor of the Company and the Participants right to payments shall remain subject to the claims of the Companys creditors. If the Companys assets are insufficient to pay all of its creditors, each Participant recognizes that such Participant may not receive part or all of such Participants payments hereunder. Brookfield is not a party to and shall not have any liability for payments under the Plan. The Plan is not subject to the Employment Retirement Income Security Act of 1974.
(d) Limitation of Rights. Neither the establishment of the Plan nor any grant of an award or payment of an amount hereunder shall be construed as conferring upon a Participant any right with respect to a continuation of employment by the Company or any of its Affiliates nor shall it interfere in any way
6
with the right of the Company or any of its Affiliates to terminate a Participants employment at any time. Nothing in the Plan shall be construed to limit, impair or otherwise affect the Companys right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets or limit the right or power of the Company to take any action that it deems necessary or appropriate.
(e) Section 409A. All payments hereunder are intended to comply with or be exempt from Section 409A of the Code and the regulations promulgated thereunder (Section 409A). If a payment is deemed to be subject to Section 409A, the Company may, in its sole discretion and without a Participants prior consent, amend the Plan, adopt policies and procedures, or take any other necessary or appropriate actions (including actions with retroactive effect) to preserve the intended tax treatment of any such payment or comply with the requirements of Section 409A. A termination of Service shall not be deemed to have occurred for purposes of any provision of this Plan providing for the payment of any amounts or benefits considered nonqualified deferred compensation under Section 409A upon or following a termination of Service unless such termination is also a separation from service within the meaning of Section 409A, and for purposes of any such provision of this Plan, references to a termination, termination of employment or like terms shall mean separation from service. If the Participant is deemed on the date of termination to be a specified employee within the meaning of that term under Section 409A(a)(2)(B) of the Code, then with regard to any payment or the provision of any benefit that is considered nonqualified deferred compensation under Section 409A payable on account of a separation from service, no such payment or benefit shall be made or provided prior to the earlier of (A) the expiration of the six-month period measured from the date of such separation from service of the Participant, and (B) the date of the Participants death (the Delay Period). All payments and benefits delayed pursuant to this Section 8(e) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed on the first business day following the expiration of the Delay Period to Participant in a lump sum without interest, and any remaining payments and benefits due under this Plan shall be paid or provided in accordance with the normal payment dates specified for them herein. Except as permitted under Section 409A, any deferred compensation (within the meaning of Section 409A) payable to any Participant or for such Participants benefit under this Plan may not be reduced by or offset against any amount owing by the Participant to the Company or any of its Affiliates. It is intended that each payment provided under this Plan shall be a separate payment for purposes of Section 409A.
(f) Amendment and Termination. The Plan shall take effect on the Effective Date. Brookfield shall be entitled at any time or from time to time to amend, alter, suspend or terminate in whole or in part any or all of the provisions of the Plan; provided, that with respect to any outstanding award of Option Units, no such action shall be made without the consent of the affected Participants unless Brookfield shall have determined that such action would not adversely affect the right of such Participant in a material manner.
(g) Successors; Governing Law. The Companys rights and obligations hereunder shall be binding upon its successors. The Companys rights and obligations hereunder may be assigned or transferred by the Company to, and may be assumed by and become binding upon and may inure to the benefit of, any Affiliate of the Company or transferee of all or substantially all of its assets. The validity, interpretation, and enforcement of the Plan and all awards hereunder shall be governed by the laws of the state of Delaware without regard to its conflict of laws principles and rules.
IN WITNESS WHEREOF, the Company has adopted the Plan effective as of January 1, 2020.
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Exhibit 10.23
[NAME]
We are very pleased to provide you with a one-time award under the 2019 Clarios International LP (Clarios) Executive Long-Term Incentive Plan (the ELTIP or the Plan). The purpose of the Plan is to reward Clarios executives for creating long term value for the owner of Clarios, Brookfield Capital Partners V L.P. together with affiliates (collectively, Brookfield).
The Plan has two types of awards: General Option Units and Stretch Option Units (collectively, Option Units). You are hereby awarded:
[] General Option Units and [] Stretch Option Units.
The final value of your award of General Option Units is determined once Brookfield sells at least 70% of its common equity in Clarios (a Change in Control). At that time, the value of each of your Option Units will be calculated as a percentage Brookfields net proceeds upon sale.
Your award of General Option Units is subject to the condition of exercise that []% of your award, or [] General Option Units, are exercisable over time and that the other [] of your award, or [] General Option Units, are exercisable against company performance. Any General Option Units that are not exercisable upon a Change in Control shall be forfeited to Clarios for no consideration. Stretch Option Units become exercisable against a higher company performance.
Payment under the ELTIP will only occur upon a Change in Control. To the extent Brookfield has sold greater than 70% of its ownership in Clarios but less than 100%, all payments made under the ELTIP will be calculated as though Brookfield sold all of its equity interest in Clarios.
You will not be entitled to voting rights or interim cash distributions as a result of your award. For greater certainty however, any interim return of capital (including dividends) from Clarios to Brookfield will be included in the calculation of the final profit pool.
Effective [], your award will vest equally over a five-year period and expire on []. If no final distribution has been made on or before this expiry date, your award will be extended in twelve month increments until a final distribution occurs.
Your award is contingent upon your continued employment at Clarios on each annual vesting date. If you cease to be employed by Clarios at any time other than termination for cause, you shall forfeit all unvested Option Units for no consideration. Any vested Option Units on the date you cease to be employed will continue to be outstanding and will be settled in accordance with the terms of the Plan. If you are terminated for cause, all of your Option Units (whether vested or not vested) shall be forfeited to Clarios for no consideration and cancelled.
Other terms and conditions are outlined in more detail in the Plan Document enclosed.
The Plan will be administered by Brookfield who will have the authority: (i) to construe and interpret the Plan and apply its provisions; (ii) to promulgate, amend, and rescind rules and regulations relating to the administration of the Plan; (iii) to authorize any person to execute, on behalf of Clarios, any instrument required to carry out the Plan; (iv) to delegate its authority to one or more officers of Clarios; (v) to determine when awards are to be granted under the Plan and the applicable grant date; (vi) from time to time to select those participants in the Plan to whom awards will be granted; (vii) to interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument or agreement relating to, or award granted under, the Plan; and (viii) to exercise discretion to make any and all other determinations which it determines to be necessary or advisable for the administration of the Plan.
All decisions made by Brookfield with respect to the Plan will be final and binding.
Exhibit 10.24
Clarios 5757 Green Bay Avenue Milwaukee, WI 53209 |
Mark Wallace 24 N Lake Bridge Ln Watersount, Florida 32461 | ||
March 20, 2020 |
Dear Mark:
I am pleased to confirm our verbal offer of employment as Chief Executive Officer of Clarios (or the Company) with an anticipated start date in April or May 2020 (date to be mutually determined). In this role you will report directly to the Board of Directors of the Company (Board) serving as an officer of the Company and as a director on the Board. This letter agreement (Agreement) sets forth the principal terms and conditions of your employment. The position will be based at our Global Headquarters in Milwaukee, Wisconsin. All amounts are in U.S. dollars.
BASE SALARY
Your annual base salary will be $950,000 paid on a bi-weekly basis (subject to changes in the Boards discretion). Any changes will be incorporated into your annual base salary for all purposes thereafter.
ANNUAL INCENTIVE PERFORMANCE PROGRAM
You will participate in the Clarios Annual Incentive Performance Plan (AIPP) at a target of 100% of your annual base salary. Your participation will start on the first of the following month after date of hire and your payment for fiscal year 2020 will not be pro-rated. Actual incentive payments to you under the AIPP can range from 0% of annual base salary to as much as 200% of annual base salary. Payments are made in December of each year for the current fiscal year. Your first AIPP payment will be in December of 2020 for performance in fiscal year 2020.
LONG-TERM INCENTIVE PLAN
In this position, you will participate in the Clarios Long-Term Incentive Program (the Plan). Determination of actual award levels relative to the target award will be based on achievement of performance goals outlined in the Plan in accordance with the form of award agreement attached hereto as Exhibit A (LTIP Award) and the Plan document attached hereto as Exhibit B.
In the event that any payment or benefit under the Plan results in an increased income tax, penalty (increased) interest thereon or penalty tax due to the failure of the Plan (or LTIP Award) to comply with section 409A of the Code (collectively, the 409A Tax), you will receive a tax gross-up payment in an amount which, after reduction for any Federal, state or local income taxes on such payment, shall equal the amount of the 409A Tax (Tax Make- Whole). The Tax Make-Whole shall be paid no later than five days following the date that Clarios reports on a Form W-2 that the 409A Tax is due, or (absent such report) following the date of any other final non-appealable determination by (or agreement with) the Internal Revenue Service or any judicial authority that the 409A Tax is due. You agree that Clarios will control any audit or consent with respect to any claims by the IRS that the 409A Tax is due, that you will cooperate in good faith with respect to any such proceeding and will not take any position contrary to Clarios, except as required by law.
ONE-TIME COMPENSATION
You will be provided with a one-time lump sum cash bonus in an after-tax amount of $500,000 (net of all income and employment taxes), paid at the successful completion of you first 30 days of service.
DEFERRED COMPENSATION
In your position, you are eligible to participate in the Clarios Senior Executive Deferred Compensation Plan, a key executive benefit. This plan allows you to defer a portion of your base salary and annual bonus. You will receive further information and have an opportunity to learn more about this benefit during the enrollment period in the first quarter of the fiscal year. This plan is under review and will be finalized in 2020.
FLEXIBLE PERQUISITES
You will also be able to participate in the Flexible Perquisites Plan which, subject to the terms and conditions of such plan, as amended, provides you annually with up to 5% of your annual base salary each year to cover financial planning expenses. Applicable taxes on perquisite funds will be withheld in accordance with Clarios executive payroll practices.
U.S. MANAGEMENT CAR ALLOWANCE PROGRAM
In this position you are eligible to participate in the Management Car Allowance Program. An annual cash car allowance of $15,000 will be added to your paycheck. This annual amount will be paid via payroll on a bi-weekly basis. All payments in association with the Management Car Allowance Program are subject to applicable Federal and local taxes.
BENEFITS
Clarios offers an extensive employee benefit program. Choices exist for you and your dependents in medical, dental, life and disability insurance. You will be eligible to participate in the Clarios Savings and Investment Plan which includes a 401K plan with a Company match. Details of this plan are described in the summary plan description. You are entitled to thirteen (13) Company paid holidays each year. Additionally, each year you will receive four (4) weeks of vacation to be governed in accordance with the terms and conditions of the Companys Vacation Policy.
SEVERANCE
Upon a termination without Cause (as defined below) or by you for Good Reason (as defined below), you will be provided with one-and-one-half (1.5) times the sum of your annual base salary and your annual bonus target amount, payable in a lump sum within 30 days following termination. For the period of 1.5 years (18 months), benefit continuation (medical/dental/vision) will be covered by the Company at the current employee contribution levels. You also will receive any unpaid prior year bonus, to the extent earned under the AIPP for such year, payable at the same time as such years bonuses are paid to other senior executives. Senior executive-level outplacement services provided for a period of 1 year (12 months).
RELOCATION
To assist you with your transition into this role, you will be provided with relocation assistance managed by BGRS. Should you voluntarily terminate your employment within the first (1st) year of employment without Good Reason (and not due to total disability), you will be required to reimburse Clarios in full for the cost of any and all relocation assistance provided to you or paid for on your behalf by Clarios. You will be required to agree to the Payback Agreement following the acceptance of this offer (the terms of which shall be consistent with this paragraph).
Additionally, you will be required to complete an I-9 form (Employment Eligibility Verification) and provide the required documentation establishing your legal right to work in the United States.
LEGAL FEES
Clarios will pay (or reimburse you for) reasonable, documented out-of-pocket professional fees up to $20,000 incurred to negotiate and prepare this Agreement and all agreements related hereto.
INDEMNIFICATION; D&O INSURANCE
Clarios will indemnify and hold you harmless for all acts and omissions to act occurring while a director or officer or other employee to the maximum extent permitted under Clarioss governing instruments and applicable law. Clarios will cover you as an insured party on all directors and officers insurance maintained by Clarios for the benefit of the Board. Such indemnification and insurance coverage will continue during your employment and service as a member of the Board and will survive thereafter for such period of time during which you may be subject to liability for any act or omission occurring while a director or officer or other employee of Clarios.
RESTRICTIVE COVENANTS
Non-Competition: In accepting this employment offer, and in consideration of this employment offer, your continued employment, and/or the Companys obligation and promise to provide you with confidential and propriety information pertaining to its business operations and/or customers, and your promise and obligation not to use or disclose that information except in the course of performing your job duties, you agree that, except as prohibited by law, during your employment with the Company or its parent, subsidiaries or affiliates, and for the 18 month period following your termination of employment for any reason, you will not directly or indirectly, own, manage, operate, control (including indirectly through a debt, equity investment, or otherwise), provide services to, or be employed by, any person or entity engaged in any business that (i) conducts or is planning to conduct a business in competition with any business conducted or planned by the Company or its parent, subsidiaries, or any of its subsidiaries on the date of your termination of employment, including but not limited to any business or company engaged in the business of energy storage solutions, battery manufacturing, battery and energy storage solutions distribution, and battery technologies; or (ii) designs, develops, produces, distributes, offers for sale or sells a product or service that can be used as a substitute for, or is generally intended to satisfy the same customer needs for, any one or more products or services designed, developed, manufactured, produced, distributed or offered for sale or sold by any of the Companys businesses (1) that is located in a region where you had substantial responsibilities during the eighteen (18) month period preceding your employment termination date, and (2) for which you (A) were materially involved in during the eighteen (18) month period preceding your employment termination date, or (B) had knowledge of operations or substantial exposure to during the eighteen (18) month period preceding your employment termination date.
Non-Solicitation of Customers: Further, in accepting this employment offer, and in consideration of this employment offer, except as prohibited by law, you further agree that during your employment with the Company or its parent, subsidiaries or affiliates, and for the eighteen (18) month period following your termination of employment, you will not directly or indirectly, on your own behalf or on behalf of another (i) solicit, aid or induce any customer of the Company or its subsidiaries that you were responsible for, directly or indirectly through direct supervisor or management of other employees, departments or business units of the Company, to purchase goods or services then sold by the Company or its subsidiaries from another person or entity, or assist or aid any other person or entity in identifying or soliciting any such customer, or (ii) solicit, aid or induce any customer that was pursued by the Company and where you had direct contact, participated in the contact, or had knowledge of Confidential Information because of your employment with the Company within the eighteen (18) months preceding your employment termination date if that sale or service would be located in a region where you had substantial responsibilities while employed by the Company or its subsidiaries.
Non-Solicitation of Employees: Further, in accepting this employment offer, and in consideration of this employment offer, except as prohibited by law, you further agree that during your employment with the Company or its parent, subsidiaries or affiliates, and for the eighteen (18) month period following termination of your employment, you will not, directly or indirectly, on your own behalf or on behalf of another solicit, recruit, aid or induce employees of the Company or any of its subsidiaries (a) who were directly managed by or reported to you as of your employment termination date, or (b) with whom you had material contact with during the eighteen (18) months period preceding your employment termination date and who had access to Confidential Information, trade secrets or customer relationships, to leave their employment with the Company or its subsidiaries in order to accept employment with or
render services to another person or entity unaffiliated with the Company or its subsidiaries, or hire or knowingly take any action to assist or aid any other person or entity in identifying or hiring any such employee.
Irreparable injury will result to the Company, its business, subsidiaries in the event of a breach by you of any of the above restrictive covenants you have accepted as a condition of this employment offer, including the covenants of non-competition and non-solicitation. Therefore, in the event of a breach of such covenants and commitments, the Company reserves all rights to seek any and all remedies and damages permitted under law, including, but not limited to, injunctive relief, equitable relief and compensatory damages.
The non-competition and non-solicitation provisions are expressly intended to benefit the Company (which includes its subsidiaries as third party beneficiaries) and its successors and assigns; and the parties expressly authorize the Company (including its subsidiaries) and its successors and assigns to enforce these provisions.
DEFINITIONS
For all purposes under this Agreement and your LTIP Award (and the Plan to the contrary notwithstanding, but only with respect to the following definitions):
Cause shall mean (a) your willful failure to properly carry out your duties or to comply with the material rules and material policies of Clarios, or any reasonable instruction or directive of the Board, that is not cured, if deemed curable in the discretion of the Board, within ten (10) days after the Board gives you written notice thereof setting forth the particulars in detail of such failure; (b) your acting dishonestly or fraudulently, or your willful misconduct in the course of your employment, in each case resulting in material adverse consequences to Clarios which is not cured, if deemed curable in the discretion of the Board, within ten (10) days after the Board gives you written notice thereof setting forth the particulars in detail of such misconduct; (c) if you or any member of your family makes any personal profit arising out of or in connection with any transaction to which Clarios is a party or with which Clarios is associated without making disclosure to and obtaining the prior written consent of the Company (other than respecting any trading in shares of Clarios following a public offering and stock exchange listing); (d) your conviction for, or a guilty plea (or a plea of nolo contendere) by you to any criminal offence that may reasonably be considered to be likely to adversely affect the Company or your ability to perform your duties, including without limitation, any offence involving fraud, theft, embezzlement, forgery, willful misappropriation of funds or property, or other fraudulent or dishonest acts involving moral turpitude; (e) your failure to fully comply with and perform your fiduciary duties as an officer and member of the Board; or (f) engaging in conduct (done either intentionally or through gross negligence) that is materially detrimental to the reputation, character, or standing of the Company. An opportunity to cure any of the above Cause grounds may be provided to you only where specified in subsections (a) through (f) above.
Good Reason shall mean the occurrence of any one or more of the following without your prior written consent:(a) a material reduction of your title, authorities, duties or responsibilities (including reporting responsibilities) as Chief Executive Officer of Clarios; (b) a material reduction in your annual base salary or target bonus opportunity, except for reductions that affect other officers of Clarios in proportionally the same amount of reduction; (c) a material breach by Clarios of the LTIP Award agreement; or (d) or a material failure to pay any compensation set forth in this Agreement, or compensation subsequently agreed to by you and Clarios in writing. To constitute Good Reason, (i) you must provide written notice to the Chairman of the Board within thirty (30) days following the occurrence of Good Reason, (ii) Clarios must fail to cure such event within thirty (30) days of delivering such notice, and (iii) you must terminate employment within sixty (60) days following the expiration of such cure period in which the Good Reason event is not so cured.
MISCELLANEOUS; SECTION 409A
In the event of your death, any monies that are due and owing to you as of the date of your death will be paid to your estate (including for any death occurring after a termination of employment, above, in which severance is due).
This Agreement and the Exhibits hereto sets forth the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes all other agreements and understandings previously entered into, written or oral, between the parties hereto with respect to the subject matter hereof.
This Agreement may not be amended, modified or changed except by an instrument in writing signed by the parties hereto. A waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition.
This Agreement will be governed by the laws of the State of Delaware, without regard to its conflicts of law provisions.
The parties may execute this Agreement in one or more counterparts, all of which together shall constitute one and the same instrument.
The parties intend that all payments and benefits under this Agreement comply with Section 409A of the Code and the regulations promulgated thereunder (collectively Section 409A) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted in a manner in compliance therewith. Although Clarios intends to administer this Agreement so that it will be exempt from or otherwise comply with the requirements of Section 409A, Clarios does not represent or warrant that this Agreement will be exempt from or otherwise comply with Section 409A or any other provision of federal, state, local, or non-United States law. Except for the Tax Make- Whole, neither Clarios, its affiliates, nor their respective directors, officers, employees or advisers shall be liable to you (or any other individual claiming a benefit through you) for any tax, interest, or penalties you may owe as a result of compensation or benefits paid under this Agreement, and Clarios and its affiliates shall have no obligation to indemnify or otherwise protect you from the obligation to pay any taxes pursuant to Code Section 409A or otherwise. To the extent that any provision hereof is modified in order to comply with Section 409A, such modification shall be made in good faith and shall, to the maximum extent reasonably possible, maintain the original intent and economic benefit to you and the Company of the applicable provision without violating the provisions of Section 409A. No amount shall be payable upon a termination of your employment unless such termination constitutes a separation from service with Clarios under Section 409A. To the maximum extent permitted by applicable law, amounts payable to you shall be made in reliance upon the exception for certain involuntary terminations under a separation pay plan or as a short-term deferral under Section 409A. To the extent any amounts payable upon your separation from service are nonqualified deferred compensation under Section 409A, and if you are at such time a specified employee thereunder, then to the extent required under Section 409A payment of such amounts shall be postponed until six (6) months following the date of your separation from service (or until any earlier date of your death), upon which date all such postponed amounts shall be paid to you in a lump sum, and any remaining payments due under the Agreement shall be paid as otherwise provided herein. To the extent that reimbursements or other in-kind benefits under this Agreement constitute nonqualified deferred compensation, (i) all expenses or other reimbursements hereunder shall be made on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by you, (ii) any right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (iii) no such reimbursement, expenses eligible for reimbursement, or in-kind benefits provided in any taxable year shall in any way affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year. For purposes of Section 409A, your right to receive installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments.
Mark, speaking for myself and my colleagues, we are enthusiastic about your joining Clarios. We have a great Company with important work to be done. We are confident that the combination of your experiences and personal attributes will allow you to contribute and succeed at Clarios.
We look forward to your positive response to our offer as soon as possible.
Sincerely,
/s/ John Barkhouse
John Barkhouse
Interim Chief Executive Officer, Clarios
Managing Partner, Brookfield Asset Management
Acceptance/Rejection:Please indicate your response to this offer below with your signature.
✓ |
I accept the offer as detailed | |
|
I decline the offer |
/s/ Mark Wallace |
4-5-20 | |
Name | Date |
EXHIBIT A (LTIP Award)
March 2020 Executive LTI Grant Letter |
Mark Wallace
24 N Lake Bridge Ln
Watersount, Florida
32461
March 20, 2020
We are very pleased to provide you with a one-time award under the 2019 Clarios International LP (Clarios) Executive Long-Term Incentive Plan (the ELTIP or the Plan). The purpose of the Plan is to reward Clarios executives for creating long term value for the owner of Clarios, Brookfield Capital Partners V L.P. together with affiliates (collectively, Brookfield).
The Plan has two types of awards: General Option Units and Stretch Option Units (collectively, Option Units). You are hereby awarded: 2,322,144 General Option Units and 580,536 Stretch Option Units.
The final value of your award of General Option Units is determined once Brookfield sells at least 70% of its common equity in Clarios (a Change in Control). At that time, the value of each of your Option Units will be calculated as a percentage Brookfields net proceeds upon sale.
Your award of General Option Units is subject to the condition of exercise that one-half of your award, or 1,161,072 General Option Units, are exercisable over time and that the other one-half of your award, or 1,161,072 General Option Units, are exercisable against company performance. Any General Option Units that are not exercisable upon a Change in Control shall be forfeited to Clarios for no consideration. Stretch Option Units become exercisable against a higher company performance.
Payment under the ELTIP will only occur upon a Change in Control. To the extent Brookfield has sold greater than 70% of its ownership in Clarios but less than 100%, all payments made under the ELTIP will be calculated as though Brookfield sold all of its equity interest in Clarios.
You will not be entitled to voting rights or interim cash distributions as a result of your award. For greater certainty however, any interim return of capital (including dividends) from Clarios to Brookfield will be included in the calculation of the final profit pool.
Effective January 1, 2020, your award will vest equally over a five-year period and expire on January 1, 2030. If no final distribution has been made on or before this expiry date, your award will be extended in twelve month increments until a final distribution occurs.
Your award is contingent upon your continued employment at Clarios on each annual vesting date. If you cease to be employed by Clarios at any time other than termination for cause, you shall forfeit all unvested Option Units for no consideration. Any vested Option Units on the date you cease to be employed will continue to be outstanding and will be settled in accordance with the terms of the Plan. If you are terminated for cause, all of your Option Units (whether vested or not vested) shall be forfeited to Clarios for no consideration and cancelled.
Other terms and conditions are outlined in more detail in the Plan Document enclosed.
The Plan will be administered by Brookfield who will have the authority: (i) to construe and interpret the Plan and apply its provisions; (ii) to promulgate, amend, and rescind rules and regulations relating to the administration of the Plan; (iii) to authorize any person to execute, on behalf of Clarios, any instrument required to carry out the Plan; (iv) to delegate its authority to one or more officers of Clarios; (v) to determine when awards are to be granted under the Plan and the applicable grant date; (vi) from time to time to select those participants in the Plan to whom awards will be granted; (vii) to interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument or agreement relating to, or award granted under, the Plan; and (viii) to exercise discretion to make any and all other determinations which it determines to be necessary or advisable for the administration of the Plan.
All decisions made by Brookfield with respect to the Plan will be final and binding.
Powering today, into tomorrow.
EXHIBIT B (Plan)
CLARIOS INTERNATIONAL LP
EXECUTIVE LONG-TERM INCENTIVE PLAN
1. | Introduction |
This Clarios International LP Executive Long-Term Incentive Plan (the Plan) has been adopted by the Board of Directors of the general partner of Clarios International LP (the Company) effective as of January 1, 2020 (the Effective Date). Brookfield Capital Partners V L.P., together with its Affiliates (Brookfield), owns 100% of the equity interests of the Company as at April 30, 2019 (the Investment Date). The purpose of the Plan is to attract and retain senior management of the Company, to incentivize them to make decisions with a long term view and to motivate and influence behavior on their part that is consistent with maximizing value for the shareholders of the Company in a prudent manner. Capitalized terms not otherwise defined herein shall have the meanings set forth in Section 7.
2. | Plan Administration |
The Plan will be administered by Brookfield through its representatives on the Board of Directors of the Company. All determinations of the value of the Incentive Pool and the Option Units (as hereinafter defined) will be made by Brookfield, in its sole discretion, and shall be final and binding on all Participants and their beneficiaries, including, without limitation, determinations with respect to: (i) the terms of the Plan and any Option Units; (ii) the rights of any person under the Plan, or the meaning of requirements imposed by the terms of the Plan or award of Option Units; (iii) the calculation of any amounts due under the Plan or in respect of Option Units; (iv) any acceleration of the vesting or payment of awards; (v) all questions of interpretation, fact, or other matters arising under the Plan; and (vi) resolving all disputes under the Plan. Brookfield will have ultimate authority to make any required determinations and calculations under the Plan and for implementing any changes to the Plan. Brookfields determinations shall be binding and conclusive upon all Participants and all other interested parties. No employee of Brookfield shall be liable for any action taken or determination made in good faith with respect to the Plan or any Option Units granted hereunder.
3. | Plan Participants |
Brookfield has the authority to determine and designate from time to time any employee, officer, director or consultant of the Company or an Affiliate to receive an award under the Plan (each a Participant). Brookfield shall determine the number of Option Units to be granted and the terms and conditions of such Option Units consistent with the terms of the Plan. In selecting Participants, and in determining the awards, Brookfield shall consider any and all factors that it deems relevant or appropriate. At the time a Participant is granted an award under the Plan, Brookfield shall allocate to such Participant General Option Units and/or Stretch Option Units (collectively, the Option Units), which shall represent a share in the General Incentive Pool and Stretch Incentive Pool, respectively.
4. | Incentive Pool and Option Units |
(a) General Incentive Pool. Subject to vesting and other terms and conditions set forth herein, an award of General Option Units to a Participant shall entitle such Participant to payment based on a share of the General Incentive Pool. The General Incentive Pool as a percentage of the Sale Proceeds may be increased in Brookfields sole discretion (as described in Section 4(e)). In the event that, in connection with a Change in Control, Brookfield disposes of less than 100% of its ownership interest in the Company, the amount of the Sale Proceeds in excess of the Threshold Value shall be determined on a pro-rata basis by reference to the percentage of ownership interest disposed, as determined by Brookfield in its sole discretion.
A Participants interest in the General Incentive Pool shall be expressed in a number of notional unitary interests in the General Incentive Pool, as described in Section 4(c) (a General Option Unit).
(b) Stretch Incentive Pool. Subject to vesting and other terms and conditions set forth herein, an award of Stretch Option Units to a Participant shall entitle such Participant to payment based on a share of the Stretch Incentive Pool. The Stretch Incentive Pool as a percentage of the Sale Proceeds may be increased in Brookfields sole discretion (as described in Section 4(e)). In the event that, in connection with a Change in Control, Brookfield disposes of less than 100% of its ownership interest in the Company, the amount of the Sale Proceeds in excess of the Stretch Threshold Value shall be determined on a pro-rata basis by reference to the percentage of ownership interest disposed, as determined by Brookfield in its sole discretion. A Participants interest in the Stretch Incentive Pool shall be expressed in a number of notional unitary interests in the Stretch Incentive Pool, as described in Section 4(d) (a Stretch Option Unit).
(c) General Option Units. Each Participant that is allocated General Option Units will be allocated a number of General Option Units which equate to a share in the General Incentive Pool. A total of 10,555,200 General Option Units are available for allocation to Participants, subject to any discretionary increases pursuant to Section 4(e). Each General Option Unit represents a $10 notional interest in the General Incentive Pool, with the implied number of units outstanding in the Companys overall profit pool equating to 293,200,000 (i.e., the General Incentive Pool equals 3.6% of the difference between the Sale Proceeds and the Threshold Value). At any date of determination, each Participants percentage interest in the General Incentive Pool will equal the number of General Option Units granted to such Participant, divided by the maximum amount of General Option Units available under the General Incentive Pool.
(d) Stretch Option Units. In the normal course, each Participant will be allocated one (1) Stretch Option Unit for every four (4) General Option Units that they receive. However, Brookfield maintains the discretion to grant to a Participant a higher or lower number of Stretch Option Units. Each Stretch Option Unit equates to a share in the Stretch Incentive Pool. A total of 2,638,800 Stretch Option Units be available for allocation to all Participants, subject to any discretionary increases pursuant to Section 4(e). Each Stretch Option Unit represents a $10 notional interest in the Stretch Incentive Pool, with the implied number of units outstanding in the Companys overall profit pool equating to 293,200,000 (i.e., the Stretch Incentive Pool equals 0.9% of the difference between the Sale Proceeds and the Stretch Threshold Value). At any date of determination, each Participants percentage interest in the Stretch Incentive Pool will equal the number of Stretch Option Units granted to such Participant, divided by the maximum amount of Stretch Option Units available under the Stretch Incentive Pool.
(e) Potential Adjustments. In the event of any increase in the size of the Incentive Pool, the number of Option Units shall be increased in the same proportion (e.g., an increase in the percentage of the Sale Proceeds allocated to the Incentive Pool of 50% shall result in an increase in the number of available Option Units under the Plan by 50%). Any such increase shall not result in dilution or enlargement of a Participants rights with respect to any previously granted Option Units.
(f) Allocation and Forfeiture. Brookfield may issue all or some portion of the Option Units in the Incentive Pool from time to time in its sole discretion. Any forfeiture of Option Units previously allocated to Participants under awards will be held for future grants, if any, and will not be automatically reallocated to other Participants. Any unallocated portion of the Incentive Pool shall be retained by the Company and shall be available for future grants of awards under the Plan, if any. Any portion of the Incentive Pool that is not allocated to Participants at the time of settlement of awards under the Plan shall be retained by the Company.
(g) Notice of Awards. Option Units shall be granted to Participants in the sole discretion of Brookfield. The Company shall notify each Participant of an award, including the number of General Option Units and/or Stretch Option Units allocated to such Participant, in a written notice (an Option Unit Notice). An Option Unit Notice may include such additional terms and conditions as Brookfield may determine.
5. | Vesting of Option Units |
(a) General. Awards of Option Units shall be subject to time-based vesting based on a Participants continued Service, and vesting may be accelerated as provided below. An award may be subject to additional conditions as set forth in the applicable Option Unit Notice.
(b) Vesting Schedule. In general, unless otherwise provided in a Option Unit Notice or as set forth herein, Option Units will become vested based on the continued Service of the Participant in equal annual installments at the rate of twenty percent (20%) of the total number of Option Units covered by an award on each of the first (1st) through the fifth (5th) anniversaries of the date of grant, and shall be settled in accordance with the terms of the Plan. Option Units will become vested under the Plan provided that the Participant has been continuously employed through each such date and is employed by the Company on each anniversary date of grant.
(c) Termination of Service (General). If a Participant ceases to provide Service prior to any applicable vesting date or event under the Plan for any reason, other than a termination for Cause, then the Participant shall forfeit all unvested Option Units for no consideration. Any portion of a Participants Option Units that is vested as of the date such Participant ceases to provide Service shall continue to be outstanding vested Option Units and shall be settled in accordance with the terms of the Plan.
(d) Termination for Cause. Notwithstanding anything contained herein to the contrary, if a Participants employment with the Company is terminated by the Company for Cause, all of such Participants Option Units (whether or not vested) shall terminate and be forfeited for no consideration and cancelled without further force or effect immediately upon such termination for Cause.
(e) Vesting upon Change in Control. Upon the occurrence of a Change in Control, unless otherwise provided in an Option Unit Notice, any unvested Option Units that have not previously been forfeited shall accelerate and become fully vested on such date and shall be settled in accordance with the terms of the Plan.
6. | Settlement of Option Units |
(a) Amount of Payment. The amount, form and timing of any payments for Option Units shall be determined and approved by Brookfield in accordance with the Plan. The amount of payment in respect of the General Option Units shall be based on the amount of the Sale Proceeds in excess of the Threshold Value that is allocated to the General Incentive Pool in accordance with the Plan, as well as the Participants interest in the General Incentive Pool represented by the number of General Option Units awarded to the Participant. The value of each General Option Unit shall be determined by multiplying the total amount of the General Incentive Pool by a fraction, the numerator of which is such Participants vested General Option Units and the denominator of which is the total number of General Option Units available under the General Incentive Pool (10,555,200 units). The amount of payment in respect of the Stretch Option Units shall be based on the amount of the Sale Proceeds in excess of the Stretch Threshold Value that is allocated to the Stretch Incentive Pool in accordance with the Plan, as well as the Participants interest in the Stretch Incentive Pool represented by the number of Stretch Option Units awarded to the Participant. The value of each Stretch Option Unit shall be determined by multiplying the total amount of the Stretch Incentive Pool
by a fraction, the numerator of which is such Participants vested Stretch Option Units and the denominator of which is the total number of Stretch Option Units available under the Stretch Incentive Pool (2,638,800 units).
(b) Conditions of Exercise for the General Option Units. Notwithstanding anything in the Plan to the contrary, one-half of the General Option Units, or 5,277,600 General Option Units shall only be exercisable on a proportionate basis between: (a) the point at which the Sale Proceeds are equal to the Threshold Value on the one hand; and (b) the point at which the Sale Proceeds are equal to the Stretch Threshold Value on the other hand (the 50% Condition of Exercise). Unless otherwise determined by Brookfield and set forth in a Participants Option Unit Notice, one-half of all General Option Units allocated to any individual Participant shall have the 50% Condition of Exercise applied to them. For example, in the event that upon a Change in Control the Sale Proceeds are equal to: (i) 1.5 times the Threshold Value, then 62.5% of a Participants General Option Units would be exercisable; (ii) 2 times the Threshold Value, then 75% of a Participants General Option Units would be exercisable; (iii) 2.5 times the Threshold Value, then 87.5% of a Participants General Option Units would be exercisable; and (iv) 3 times the Threshold Value, then 100% of a Participants General Option Units would be exercisable. To the extent that the difference between the Sale Proceeds and the Threshold Value upon a Change in Control results in certain General Option Units being rendered non-exercisable then such General Option Units will be forfeited to the Company.
(c) Form of Payment. Payments of Option Units shall generally be made in cash by the Company, provided that if Sale Proceeds are paid to Brookfield all or in part in a form other than cash, Brookfield may provide payment in the same form and proportion as such payment.
(d) Timing of Payment. Payment of vested Option Units shall generally be made in a lump sum within thirty (30) days following the consummation date of a Change in Control, based on the Sale Proceeds received by Brookfield in connection with the Change in Control. Notwithstanding the foregoing, and subject to compliance with Section 409A of the Code, if a portion of Sale Proceeds are scheduled to be paid to Brookfield after such 30th day, whether in the form of earn-outs, escrows of other contingent or deferred consideration, payments in respect of the Option Units (as calculated above) shall be paid on the same schedule and subject to the same terms and conditions as payments are made to Brookfield generally, but not later than the date that is five (5) years following the consummation date of the Change in Control.
7. | Definitions |
As used herein, the following terms shall have the following meanings:
(a) Affiliate means, with respect to any Person, means any other Person which controls, is controlled by or is under common control with, directly or indirectly, such Person. For this purpose, control of a Person shall mean possession, directly or indirectly, of the right or power to direct or cause the direction of the management or policies of such Person, whether through ownership of voting securities, through rights under contracts, or otherwise.
(b) Cause has the meaning, with respect to a Participant, set forth in such Participants employment agreement, offer letter or similar agreement in connection with the employment by the Company. In the absence thereof, Cause shall mean: (a) the willful failure of the Participant to properly carry out his or her duties or to comply with the rules and policies of the Company, or any reasonable instruction or directive of the Company, that is not cured, if curable, to the Companys reasonable satisfaction, within ten (10) days after the Company or its designee gives written notice thereof to the Participant; (b) the Participant acting dishonestly or fraudulently, or the willful misconduct of the Participant
in the course of his or her employment, in each case resulting in adverse consequences to the Company, which in the case of willful misconduct only, is not cured, if curable, to the Companys reasonable satisfaction, within 10 days after the Company or its designee gives written notice thereof to the Participant; (c) if the Participant or any member of his or her family makes any personal profit arising out of or in connection with any transaction to which the Company or is a party or with which the Company is associated without making disclosure to and obtaining the prior written consent of the Company; (d) the conviction of the Participant for, or a guilty plea by the Participant to, any criminal offence punishable by imprisonment that may reasonably be considered to be likely to adversely affect the Company or the suitability of the Participant to perform his or her duties, including without limitation any offence involving fraud, theft, embezzlement, forgery, willful misappropriation of funds or property, or other fraudulent or dishonest acts involving moral turpitude; (e) the failure by the Participant to fully comply with and perform his or her fiduciary duties; (f) any other act, event or circumstance which would constitute just cause at law for termination of the Participants employment; or (g) any resignation by the Participant in anticipation of a termination by the Company of such Participants employment due to any of the above.
(c) Code means the Internal Revenue Code of 1986, as amended.
(d) Change in Control means any transaction or series of transactions (including, without limitation, the consummation of a combination, share purchases, recapitalization, redemption, issuance of capital stock, consolidation, reorganization or otherwise) pursuant to which: (a) a Person not affiliated with Brookfield acquires securities representing more than seventy percent (70%) of the combined voting power of the outstanding voting securities of the Company or the entity surviving or resulting from such transaction; (b) following a public offering of the Companys stock, Brookfield has ceased to have a beneficial ownership interest in at least thirty percent (30%) of the Companys outstanding voting securities (effective on the first such date); or (c) the Company sells all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis. It is intended that the occurrence of a Change in Control in which Sale Proceeds exceed the Threshold Value (and in which the Sale Proceeds exceed the Stretch Threshold Value) would constitute a substantial risk of forfeiture within the meaning of Section 409A.
(e) General Incentive Pool shall be the dollar amount represented by three and 6/10ths percent (3.6%) of the Sale Proceeds realized by Brookfield as of any date of determination hereunder in excess of the Threshold Value.
(f) Incentive Pool means, collectively, the General Incentive Pool and the Stretch Incentive Pool.
(g) Person means an individual, a partnership, a sole proprietorship, a company, a firm, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a union, a group acting in concert, a judicial authority, a governmental authority or any other entity or association of any kind. References to any Person shall include the successors and assigns thereof, except to the extent otherwise expressly provided in the Plan.
(h) Sale Proceeds as of any date of determination, means, without duplication, the sum of all proceeds actually received by Brookfield, net of all Sales Costs: (i) as consideration (whether cash or equity) upon the Change in Control; and (ii) as distributions, dividends, repurchases, redemptions or otherwise as a holder of such equity interests in the Company. Proceeds that are not paid upon or prior to or in connection with the Change in Control, including earn-outs, escrows and other contingent or deferred consideration shall become Sale Proceeds only as and when such proceeds are received by Brookfield. The amount of Sale Proceeds shall be determined by Brookfield in its sole discretion.
(i) Sales Costs means any costs or expenses (including legal or other advisor costs), fees (including investment banking fees), commissions or discounts payable directly by Brookfield in connection with, arising out of or relating to a Change in Control, as determined by Brookfield in its sole discretion.
(j) Service means provision of services as an employee, officer, director or consultant to or for the benefit of the Company or an Affiliate.
(k) Option Units means, collectively, the General Option Units and the Stretch Option Units.
(l) Stretch Incentive Pool shall be the dollar amount represented by 9/10ths percent (0.9%) of the Sale Proceeds realized by Brookfield as of any date of determination hereunder in excess of the Stretch Threshold Value.
(m) Stretch Threshold Value as of any date of determination, means, an amount equal to US$8,796,000,000 (which represents three times (3X) the amount of the total invested capital of Brookfield as of the Investment Date), plus the dollar value of any cash or other consideration contributed to or invested in the Company by Brookfield after the Investment Date. The Stretch Threshold Value shall be determined by Brookfield in its sole discretion.
(n) Threshold Value as of any date of determination, means, an amount equal to US$2,932,000,000 (which represents the amount of the total invested capital of Brookfield as of the Investment Date), plus the dollar value of any cash or other consideration contributed to or invested in the Company by Brookfield after the Investment Date. The Threshold Value shall be determined by Brookfield in its sole discretion.
8. | Miscellaneous |
(a) Tax Withholding. All payments in respect of Option Units under the Plan will be treated as ordinary compensation income for tax purposes and will be subject to all applicable tax withholdings.
(b) Rights as an Award Holder. The Option Units do not constitute an equity interest in the Company or any of its Affiliates and shall not be construed as providing or creating any rights of a holder of an equity interest (including rights to distributions and to vote). Participants shall not be treated as an equity holder of the Company or any of its Affiliates as a result of being granted an award hereunder.
(c) Non-Transferability; Unfunded Plan. Other than in accordance with the laws of descent and distribution, in no event shall any Option Units allocated to a Participant, nor any payment to any Participant or any right of any Participant to receive any payment arising under the Plan, be subject to alienation, sale, transfer, assignment, garnishment, pledge, encumbrance or charge. The Participants right to the payments under the Plan shall represent an unfunded and unsecured promise to be paid by the Company. A Participant will be a general, unsecured creditor of the Company and the Participants right to payments shall remain subject to the claims of the Companys creditors. If the Companys assets are insufficient to pay all of its creditors, each Participant recognizes that such Participant may not receive part or all of such Participants payments hereunder. Brookfield is not a party to and shall not have any liability for payments under the Plan. The Plan is not subject to the Employment Retirement Income Security Act of 1974.
(d) Limitation of Rights. Neither the establishment of the Plan nor any grant of an award or payment of an amount hereunder shall be construed as conferring upon a Participant any right with respect to a continuation of employment by the Company or any of its Affiliates nor shall it interfere in any way with the right of the Company or any of its Affiliates to terminate a Participants employment at any time.
Nothing in the Plan shall be construed to limit, impair or otherwise affect the Companys right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets or limit the right or power of the Company to take any action that it deems necessary or appropriate.
(e) Section 409A. All payments hereunder are intended to comply with or be exempt from Section 409A of the Code and the regulations promulgated thereunder (Section 409A). If a payment is deemed to be subject to Section 409A, the Company may, in its sole discretion and without a Participants prior consent, amend the Plan, adopt policies and procedures, or take any other necessary or appropriate actions (including actions with retroactive effect) to preserve the intended tax treatment of any such payment or comply with the requirements of Section 409A. A termination of Service shall not be deemed to have occurred for purposes of any provision of this Plan providing for the payment of any amounts or benefits considered nonqualified deferred compensation under Section 409A upon or following a termination of Service unless such termination is also a separation from service within the meaning of Section 409A, and for purposes of any such provision of this Plan, references to a termination, termination of employment or like terms shall mean separation from service. If the Participant is deemed on the date of termination to be a specified employee within the meaning of that term under Section 409A(a)(2)(B) of the Code, then with regard to any payment or the provision of any benefit that is considered nonqualified deferred compensation under Section 409A payable on account of a separation from service, no such payment or benefit shall be made or provided prior to the earlier of (A) the expiration of the six-month period measured from the date of such separation from service of the Participant, and (B) the date of the Participants death (the Delay Period). All payments and benefits delayed pursuant to this Section 8(e) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed on the first business day following the expiration of the Delay Period to Participant in a lump sum without interest, and any remaining payments and benefits due under this Plan shall be paid or provided in accordance with the normal payment dates specified for them herein. Except as permitted under Section 409A, any deferred compensation (within the meaning of Section 409A) payable to any Participant or for such Participants benefit under this Plan may not be reduced by or offset against any amount owing by the Participant to the Company or any of its Affiliates. It is intended that each payment provided under this Plan shall be a separate payment for purposes of Section 409A.
(f) Amendment and Termination. The Plan shall take effect on the Effective Date. Brookfield shall be entitled at any time or from time to time to amend, alter, suspend or terminate in whole or in part any or all of the provisions of the Plan; provided, that with respect to any outstanding award of Option Units, no such action shall be made without the consent of the affected Participants unless Brookfield shall have determined that such action would not adversely affect the right of such Participant in a material manner.
(g) Successors; Governing Law. The Companys rights and obligations hereunder shall be binding upon its successors. The Companys rights and obligations hereunder may be assigned or transferred by the Company to, and may be assumed by and become binding upon and may inure to the benefit of, any Affiliate of the Company or transferee of all or substantially all of its assets. The validity, interpretation, and enforcement of the Plan and all awards hereunder shall be governed by the laws of the state of Delaware without regard to its conflict of laws principles and rules.
IN WITNESS WHEREOF, the Company has adopted the Plan effective as of January 1, 2020.
Exhibit 10.25
Clarios 5757 Green Bay Avenue | ||
Milwaukee, WI 53209 |
Mark Wallace
24 N Lake Bridge Ln
Watersound, Florida
32461
June 8, 2021
Dear Mark:
This letter will serve as an amendment to your offer letter dated March 20, 2020 (the Offer Letter). Specifically, we are amending the paragraph titled SEVERANCE by deleting it in its entirely and replacing it with the following new paragraph in its stead:
SEVERANCE
Upon a termination without Cause (as defined below) or by you for Good Reason (as defined below), and subject to execution of a release of claims in a form reasonably provided to you by Clarios, you will be provided with one-and-one-half (1.5) times the sum of your annual base salary and your annual bonus target amount, payable in a lump sum within 30 days following termination. For the period of 1.5 years (18 months), benefit continuation (medical/dental/vision) will be covered by the Company at the current employee contribution levels. You also will receive any unpaid prior year bonus, to the extent earned under the AIPP for such year, payable at the same time as such years bonuses are paid to other senior executives. Senior executive-level outplacement services provided for a period of 1 year (12 months).
In all other respects, the Offer Letter remains in full force and effect without any further modification or amendment whatsoever.
Sincerely,
/s/ John Barkhouse
John Barkhouse
Chairman of the Board, Clarios
Managing Partner, Brookfield Asset Management
Agreed-to and Accepted
/s/ Mark Wallace |
June 22, 2021 |
|||
Mark Wallace | Date |
Exhibit 10.26
Clarios 5757 Green Bay Avenue Milwaukee, WI 53209 | ||||
Chris Eperjesy 2 Corey Creek Rd Toledo, Ohio 43623 | ||||
July 10, 2020 |
Dear Chris:
I am pleased to confirm our verbal offer of employment as Chief Financial Officer with an anticipated start date on August 24, 2020, or earlier if mutually agreed. In this role you will report directly to the Chief Executive Officer and the position will be based at our Global Headquarters in Milwaukee
BASE SALARY
Your annual base salary will be $585,000 paid on a bi-weekly basis.
ANNUAL INCENTIVE PERFORMANCE PROGRAM
You will participate in the Clarios Annual incentive Performance Plan (AIPP) at a target of 80% of your annual base salary. Your participation will start in performance year 2021, payable in fiscal 2021. Actual incentive payments to you under the AIPP can range from 0% of annual base salary to as much as 200% of annual base salary. Payments are made in December of each year for the previous fiscal year. For performance year 2020, your AIPP payment is guaranteed at US $240,000, payable in December 2020.
LONG-TERM INCENTIVE PLAN
In this position, you will participate in the Clarios Long-Term incentive Program. You will receive 6% of the total profit pool on Brookfields sale proceeds, net of all sales costs, less Brookfields initial invested capital of approximately US$2,932 Million. Awards will vest 20% per year, provided you are employed on each annual vesting date. Determination of actual award levels relative to the target award will be based on achievement of performance goals outlined in the plan document. The plan details will be released by January 1, 2020.
SIGN-ON BONUS
You will be provided with a one-time sign-on bonus of US$80,000, net of all income and employment taxes, paid on the first pay, following your start date.
ONE TIME COMPENSATION
You will be provided with a one-time bonus of US$820,000 net of all income and employment taxes, paid at the successful completion of six (6) months of service. Should your employment be terminated without Cause (as defined bellow), the company will pay the full amount within thirty (30) days following termination.
DEFERRED COMPENSATION
In your position, you are eligible to participate in the Clarios Senior Executive Deferred Compensation Plan, a key executive benefit. The Plan allows you to defer a portion of your base salary and annual bonus. You will receive further information and have an opportunity to learn more about this benefit during the enrollment period in the first quarter of the fiscal year. This plan is under review and will be finalized in 2020.
FLEXIBLE PERQUISITES
You will also be able to participate in the Flexible Perquisites Plan which provides you with up to 5% of your annual base salary each year to cover financial planning expenses. Taxes on perquisite funds are the responsibility of the participant.
U.S. MANAGEMENT CAR ALLOWANCE PROGRAM
In this position you are eligible to participate in the Management Car Allowance Program. An annual cash car allowance of $15,000 will be added to your paycheck. This annual amount will be paid via payroll on a bi-weekly basis. All payments in association with the Management Car Allowance Program are subject to applicable Federal and local taxes.
BENEFITS
Clarios offers an extensive employee benefit program. Choices exist for you and your dependents in medical, dental, life and disability insurance. You will be eligible to participate in the Clarios Savings and Investment Plan which includes a 401K plan with a company match. Details of this plan are described in the summary plan description. You are entitled to thirteen (13) company paid holidays each year. Additionally, you will receive four (4) weeks of vacation.
SEVERANCE
Upon termination without Cause (as, defined below), you will be provided with one (1) times the sum of your annual base salary and your annual bonus target amount, payable in a lump sum within thirty (301 days following termination. For the period of one (1) year (12 months), benefit continuation (medical/dental/vision) will be covered by the Company at the current employee contribution levels. You will also receive any unpaid prior year bonus to the extent eared under the AIPP for such year, payable at the same time, as such years bonuses are paid to other senior executives. Senior executive-level outplacement services provided for a period of on (1) year (12) months).
RELOCATION
To assist you with your transition into this role, you will be provided with relocation assistance managed by BGRS. Should you voluntarily terminate your employment within the first (1st) year of employment, you will be required to reimburse the Company in full for the cost of any and all relocation assistance provided to you or paid for on your behalf by the Company. You will be required to agree to the Payback Agreement following the acceptance of this offer.
This offer is contingent upon the satisfactory results from a drug test, successful completion of a background check, successful completion of a leadership assessment and your agreement to the restrictive covenants identified below. Additionally, you will be required to complete an 1-9 form (Employment Eligibility Verification) and provide the required documentation establishing your legal right to work in the United States.
RESTRICTIVE COVENANTS
Non-Competition: In accepting this employment offer, and in consideration, of this employment offer, your continued employment, and/or the Companys obligation, and promise to provide you with confidential and propriety information pertaining to its business operations and/or customers, and your promise and obligation not to use or disclose that information except in the course of performing your job duties, you agree that, except as prohibited by law, during your employment with the Company or its parent, subsidiaries for affiliates, and for the 18 month period following your termination of employment for any reason, you will not directly or indirectly, own, manage, operate, control (including indirectly through a debt, equity investment, or otherwise), provide services to, or be employed by, any person or entity engaged in any business that (i) conducts or is planning to conduct a business in competition with any business conducted or planned by the Company or its parent, subsidiaries, or any of its Affiliates including but not limited to any business or Company engaged in the business of energy storage solutions, battery manufacturing, battery and energy storage solutions distribution, and battery technologies; or (ii) designs, develops, produces, distributes, offers for sale or sells a product or service that can be used as a substitute for, or is generally intended to satisfy the same customer needs for, any one or more products or services designed, developed, manufactured, produced, distributed or offered for sale or sold by any of the Companys businesses (1) that is located in a region where Employee had substantial responsibilities during the twenty-four (24) month period preceding Employees
Termination Date, and (2), for which Employee (A) was materially involved in during the twenty-four (24) month period preceding Employees Termination Date, or (B) had knowledge of operations or substantial exposure to during the twenty-four (24) month period preceding Employees Termination Date.
Non-Solicitation of Customers: Further, in accepting this employment offer, and in consideration of this employment offer, except as prohibited by law, you further agree that during your employment with the Company or its parent, subsidiaries or affiliates, and for the two (2) year period thereafter, you will not directly or indirectly, on Employees own behalf or on behalf of another (i) solicit, aid or induce any customer of the Company or its Affiliates that Employee was responsible for, directly or indirectly through direct supervisor or management of other employees, departments or business units of the Company, to purchase goods or services then sold by the Company or its Affiliates from another person or entity, or assist or aid any other person or entity in identifying or soliciting any such customer, or (ii) solicit, aid or induce any customer that was pursued by the Company and where Employee had direct contact, participated in the contact, or had knowledge of Confidential Information because of Employees employment with the Company within the twenty-four (24) months preceding Employees Termination Date if that sale or service would be located in a region where Employee had substantial responsibilities while employed by the Company or its Affiliates.
Non-Solicitation of Employees: Further, in accepting this employment, offer, and in consideration of this employment offer, except as prohibited by law, you further agree that during your employment with the Company or its parent, subsidiaries or affiliates, and for the two (2) year period thereafter, you win not, directly or indirectly, on your own behalf or on behalf of another solicit, recruit, aid or induce employees of the Company or any of its Affiliates (a) who were directly managed by or reported to Employee, as of the date of Employees termination, or (b) with whom Employee has had material contact with during the twelve (12) months period preceding Employees termination and who had access to Confidential Information, trade secrets or customer relationships, to leave their employment with the Company or its Affiliates in order to accept employment with or render services to another person or entity unaffiliated with the Company or its Affiliates, or hire or knowingly take any action to assist or aid any other person or entity in identifying or hiring any such employee.
Irreparable injury will result to the Company, its business, and its parent, subsidiaries or affiliates in the event of a breach by you of any of your covenants and commitments you have accepted as a condition of this employment offer, including the covenants of non-competition and non-solicitation. Therefore, in the event of a breach of such covenants and commitments, the Company reserves all rights to seek any and all remedies and damages permitted under law, including, but not limited to, injunctive relief, equitable relief and compensatory damages.
The non-competition and non-solicitation provisions are, expressly intended to benefit the Company (which includes its parents, subsidiaries and/or affiliates as third party beneficiaries) and its successors and assigns; and the parties expressly authorize the Company (including all third party beneficiaries) and its successors and assigns to enforce these provisions,
DEFINITIONS
For all purposes under this Agreement and your LTIP Award (and the Plan to the contrary notwithstanding, but only with respect to the following definition):
Cause shall mean (a) your willful failure to properly carry out your duties or to comply with the material rules and material policies of Clarios, or any reasonable instruction or directive of the Board, that is not cured, if deemed curable in the discretion of that Board, within ten (10) days after the Board gives you written notice thereof setting forth the particulars in detail of such failure; (b) your acting dishonestly or fraudulently, or your willful misconduct in the course of your employment, in each case resulting in material adverse consequences to Clarios which is not cured, if deemed curable in the discretion of the Board, within ten (10) days after the Board gives you written notice thereof setting forth the particulars in detail of such misconduct; (c) if you, or any member of your family makes any personal profit arising out of or in connection with any transaction to which Clarios is a party or with which Clarios is associated without making disclosure to and obtaining the prior written consent of the Company (other than respecting any trading in shares, of Clarios following a public offering and stock exchange listing); (d) your conviction for, or a guilty
plea (or a plea of nolo contendere) by you to any criminal offence that may reasonably be considered to be likely to adversely affect the Company or your ability to perform your duties, including without limitation, any offence involving fraud, theft, embezzlement, forgery, willful misappropriation of funds or property, or other fraudulent or dishonest acts involving moral turpitude; (e) your failure to fully comply with and perform your fiduciary duties as an officer and member of the Board; or r(f) engaging in conduct (done either intentionality or through gross negligence) that is materially detrimental to the reputation, character, or standing of the Company. An opportunity to cure any of the above Cause grounds may be provided to you only where specified in subsections (a) through (f) above.
Chris, speaking for myself and my colleagues, we are enthusiastic about your joining Clairios. We have a great company with important work to be done. We are confident that the combination of your experiences and personal attributes will allow you to contribute and succeed at Clarios.
We look forward to your positive response to our offer as soon as possible.
Sincerely,
/s/ Mark Wallace
Mark Wallace
Chief Executive Officer, Clarios
Acceptance/Rejection:
Please indicate your response to this offer below with your signature.
X |
I accept the offer as detailed | |
|
I decline the offer |
/s/ Chris Eperjesy |
8-5-2020 |
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Chris Eperjesy | Date |
Exhibit 10.27
Clarios 5757 Green Bay Avenue | ||
Milwaukee, WI 53209 |
Chris Eperjesy
14270 N. Pine Bluff Road
Mequon, Wisconsin
53097
June 8, 2021
Dear Chris:
This letter will serve as an amendment to your offer letter dated March 20, 2020 (Offer Letter). Specifically, we are amending the paragraph titled SEVERANCE by deleting it in its entirely and replacing it with the following new paragraph in its stead:
SEVERANCE
Upon a termination without Cause (as defined below) and subject to execution of a release of claims in a form reasonably provided to you by Clarios, you will be provided with one (1) times the sum of your annual base salary and your annual bonus target amount, payable in a lump sum within 30 days following termination. For the period of one (1) year (12 months), benefit continuation (medical/dental/vision) will be covered by the Clarios at the current employee contribution levels. You also will receive any unpaid prior year bonus, to the extent earned under the AIPP for such year, payable at the same time as such years bonuses are paid to other senior executives. Senior executive-level outplacement services provided for a period of 1 year (12 months).
In all other respects, the Offer Letter remains in full force and effect without any further modification or amendment whatsoever.
Sincerely,
/s/ Mark Wallace
Mark Wallace
Chief Executive Officer, Clarios
Agreed-to and Accepted
/s/ Chris Eperjesy |
June 21, 2021 |
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Chris Eperjesy | Date |
Exhibit 10.28
RETENTION INCENTIVE BONUS AGREEMENT
THIS RETENTION INCENTIVE BONUS AGREEMENT (the Agreement) is made by Clarios LLC (the Company) and Jennifer Slater (Employee).
RECITALS
WHEREAS, Employee is Group Vice President & General Manager Original Equipment of the Company; and
WHEREAS, Employees contributions to the Company to date and Employees continued contributions are key to the success of the business;
WHEREAS, the Company desires to provide an incentive for Employee to continue employment with the Company, subject to the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the Company and Employee hereby agree to the following terms and conditions of the incentive to be provided to Employee to continue employment with the Company.
TERMS AND CONDITIONS
1. Definitions
(a) Active Employee. For purposes of this Agreement, and subject to paragraphs 2(b) and (c) hereof, Employee shall be considered an Active Employee on a given date if, on that date, Employee is then, and has since the date of this Agreement been, actively employed by the Company, diligently performed the duties and responsibilities associated with the Employees position, diligently performed any additional responsibilities that may reasonably be assigned to Employee, has not given written notice of Employees intent to resign or retire as of a date prior to the end of the Retention Period, and has not engaged in any conduct that would be grounds for discharge for Cause (as defined herein).
(b) Cause. For purposes of this Agreement, Cause shall mean the following: (i) substantial failure or refusal to perform duties and responsibilities of his or her job as required by the Company, (ii) material violation of any fiduciary duty owed to the Company, (iii) conviction of, or entry of a plea of nolo contendere with respect to, a felony, (iv) conviction of, or entry of a plea of nolo contendere with respect to, a misdemeanor which involves dishonesty, fraud or morally repugnant behavior, (v) dishonesty, (vi) theft, (vii) violation of Company rules or policy, or (viii) other egregious or morally repugnant conduct that has, or could have, a serious and detrimental impact on the Company and its employees. The Chief Executive Office and Vice President of Human Resources (or the equivalent) of the Company, in his/her sole and absolute discretion, shall determine whether Cause exists.
(c) Retention Period. For purposes of this Agreement, there shall be three (3) retention periods. The First Retention Period shall mean the period beginning on the date Employee executes this Agreement (the Effective Date) and ending on April 30, 2021. The Second Retention Period shall mean the period beginning on May 1, 2021 and ending on April 30, 2022. The Third Retention Period shall mean the period beginning on May 1, 2022 and ending on April 30, 2023.
2. Retention Incentive Eligibility
(a) Retention Incentive Bonus. Subject to the terms of this Agreement, Employee shall receive a cash award in three (3) installments, with an aggregate value equal to the percentage of Employees base salary, calculated and payable as described in Section 2(b) below (the Retention Incentive Bonus).
(b) Vesting. Except in the event of Employees Termination of Employment, Death or Disability or a Change in Control, Employees Retention Incentive will vest in three installments, if and only if (i) Employee has remained an Active Employee of the Company and worked diligently for the period of time from the grant date up through and including a respective vesting date, and (ii) Employee is not in breach of any provision of this Agreement or any other agreement between Employee and the Company. At the end of the First Retention Period, Employee shall receive a cash payment equal to 75% of Employees base salary as of April 30, 2021. At the end of the Second Retention Period, Employee shall receive a cash payment equal to 75% of Employees base salary as of April 30, 2022. At the end of the Third Retention Period, Employee shall receive a cash payment equal to 75% of Employees base salary as of April 30, 2023. Employees vested right will be calculated on the completion of each respective Retention Period. No credit will be given for periods following Termination of Employment, except as specifically provided herein. Except as otherwise provided in these Terms and Conditions, any payment shall be made to Employee as soon as practicable following the vesting date set forth in this paragraph 2. The Retention Incentive Bonus will be subject to all applicable tax withholdings and other deductions required by law.
(c) Termination of Employment. In the event that Employee voluntarily resigns or retires for any reason or is discharged for Cause prior to or during a specific Retention Period, Employee shall not be eligible to receive, nor shall have any right to receive, all or any portion of any Retention Incentive Bonus that has not yet vested under this Agreement. If the Employees employment is involuntarily terminated for a reason other than Cause, including but not limited to a restructure, all or any portion of the Retention Incentive Bonus that has not vested under this Agreement shall vest immediately upon Employees involuntary termination of employment.
(d) Death or Disability. If Employees employment terminates prior to the end of a Retention Period, because of Employees death or a termination following Employees Permanent Disability (as defined herein), the Retention Incentive Bonus will vest in full. If Employee is deceased, the Company will make a payment to Employees estate only after the Company has determined that the payee is the duly appointed executor or administrator of Employees estate. Permanent Disability means (i) that
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Employee is permanently and totally incapacitated from engaging in any employment for the Company because of physical or mental conditions, or (ii) Employee meets the requirements for long-term disability benefits under the long term disability plan of the Company, or has satisfied the requirements for disability benefits under Social Security law (or a similar law outside the U.S. if Employee is employed there) then in effect.
(e) Severance/Termination Benefits. A Retention Incentive Bonus is an extraordinary item of compensation, and is separate and apart from any severance or termination payments to which Employee may be entitled on termination pursuant to any severance plan that is in effect on Employees termination date, and this Agreement shall not reduce, offset, or preclude any such severance or termination payments, if applicable. The amount of the severance or termination benefits, if any, will be determined in accordance with the terms of such severance plan applicable at the time. Any amounts to be paid under this Agreement shall not be treated as compensation for purposes of computing or determining any additional benefit payable under any severance plan, bonus plan, savings plan, insurance plan, pension plan, or other employee benefit plan maintained by the Company, its parent or their subsidiaries or affiliates.
3. Confidentiality. Employee agrees not to disclose or discuss, other than with Employees legal counsel, financial or tax adviser, and spouse (if any), either the existence or any details of this Agreement, unless otherwise required to do so by law. Employee will obtain the agreement of any such legal counsel, financial or tax adviser, and/or spouse, and make a good faith effort to ensure that Employee will not disclose or discuss the existence or any details of this Agreement with any other person.
4. Non-solicitation of Customers. In accepting the benefits provided in this Agreement, Employee agrees that during his or her employment with the Company or its Affiliates, and for the period of two (2) years following the Employees termination of employment for any reason, or such longer period of non-solicitation as is included in any offer letter or any other agreement between Employee and the Company or its Affiliates, the Employee will not, directly or indirectly, on Employees own behalf or on behalf of another (i) solicit, aid or induce any customer of the Company or its Affiliates that Employee was responsible for, directly or indirectly through direct supervisor or management of other employees, departments or business units of the Company, to purchase goods or services then sold by the Company or its Affiliates from another person or entity, or assist or aid any other person or entity in identifying or soliciting any such customer, or (ii) solicit, aid or induce any customer that was pursued by the Company and where Employee had direct contact, participated in the contact, or had knowledge of Confidential Information because of Employees employment with the Company within the twenty-four (24) months preceding Employees Termination Date if that sale or service would be located in a region where Employee had substantial responsibilities while employed by the Company or its Affiliates.
5. Non-Solicitation of Employees. In accepting the benefits provided in this Agreement, Employee agrees that during his or her employment with the Company or its Affiliates, and for the period of two (2) years following the Employees termination of employment for any reason, or such longer period of non-solicitation as is included in
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any offer letter or any other agreement between Employee and the Company or its Affiliates, the Employee will not, directly or indirectly, on his or her own behalf or on behalf of another solicit, recruit, aid or induce employees of the Company or any of its Affiliates (a) who were directly managed by or reported to Employee as of the date of Employees termination, or (b) with whom Employee has had material contact with during the twelve (12) months period preceding Employees termination and who had access to Confidential Information, trade secrets or customer relationships, to leave their employment with the Company or its Affiliates in order to accept employment with or render services to another person or entity unaffiliated with the Company or its Affiliates, or hire or knowingly take any action to assist or aid any other person or entity in identifying or hiring any such employee.
6. Non-Competition. In accepting the benefits provided in this Agreement, and in consideration of those benefits, Employee agrees that during his or her employment with the Company or its Affiliates, and for the period of one (1) year following Employees termination of employment for any reason, or such longer period of non-competition as is included in any offer letter or any other agreement between Employee and the Company or its Affiliates, Employee will not directly or indirectly, own, manage, operate, control (including indirectly through a debt, equity investment, or otherwise), provide services to, or be employed by, any person or entity engaged in any business that (i) conducts or is planning to conduct a business in competition with any business conducted or planned by the Company or any of its Affiliates including but not limited to any business or Company engaged in the business of energy storage solutions, battery manufacturing, battery and energy storage solutions distribution and battery technologies; or (ii) designs, develops, produces, distributes, offers for sale or sells a product or service that can be used as a substitute for, or is generally intended to satisfy the same customer needs for, any one or more products or services designed, developed, manufactured, produced, distributed or offered for sale or sold by any of the Companys businesses (1) that is located in a region where Employee had substantial responsibilities during the twenty-four (24) month period preceding Employees Termination Date, and (2) for which employee (A) was materially involved in during the twenty-four (24) month period preceding Employees Termination Date, or (B) had knowledge of operations or substantial exposure to during the twenty-four (24) month period preceding Employees Termination Date.
7. Assignment by the Company. The Company may assign this Agreement without Employees consent to Brookfield Business Partners L.P. This Agreement may not be assigned by Employee and no person other than Employee (or Employees estate) may assert the rights of Employee under this Agreement.
8. Business Discretion of the Company. This Agreement does not obligate the Company, its current and/or future parent, or their subsidiaries and affiliates, to retain Employee in the employ of the Company for any prescribed period or term. This Agreement does not modify the employment-at-will status of Employee. Further, the Company shall have the right to modify the timing and/or method of payment of any amounts payable under this Agreement if such modification is necessary to avoid the imposition of the excise tax under Section 409A of the Internal Revenue Code.
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9. Remedies. In the event of a breach of any of Employees covenants and commitments under this Agreement, Employee, in the sole discretion of the Company, may forfeit any amount otherwise payable to Employee under paragraph 2 of this Agreement. Employee irrevocably and unconditionally (i) agrees that any suit, action or other legal proceeding relating to or arising out of this Agreement may be brought in the State of Wisconsin, (ii) consents to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding, and (iii) waives any objection which Employee may have to the laying of venue of any such suit, action or proceeding in any such court. Employee also irrevocably and unconditionally consents to the service of any process, pleadings, notices or other papers by personal service or by registered or certified mail, return receipt requested, or by overnight express courier service, addressed to Employee at the home address which Employee most recently communicated to the Company in writing.
10. Governing Law. This Agreement shall be deemed to be made in, and in all respects shall be interpreted, construed and governed by and in accordance with, the laws of the State of Wisconsin, without regard to any principles governing conflicts of laws or canons of construction interpreting written agreements against the drafter.
11. Survival of Provisions. Any obligation intended to be performed by Employee following the termination of Employees employment with the Company shall survive such termination and shall be fully enforceable thereafter.
12. Waiver. The waiver by the Company of a breach by Employee of any provision of this Agreement shall not be construed as a waiver of any subsequent breach.
13. Entire Agreement. This Agreement sets forth the entire understanding of the Company and Employee, and supersedes all prior agreements and representations relating to retention awards, whether oral or written, with respect to the subject matter contained in this Agreement, except the Retention Incentive Bonus Agreement executed on June 8, 2018. This Agreement shall not be modified except by written agreement of Employee and the Company. This Agreement shall not supersede, reduce or eliminate any promises of non-competition and non-solicitation made by Employee to Company under any other agreements.
The parties have executed this Agreement as of the dates written below.
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confidential
Joseph Brown
Davis Polk
Apr 08, 2021 12:54
Jennifer Slater | Clarios, LLC | |||||||
/s/ Jennifer Slater |
By: | /s/ David A. Slusser | ||||||
Print Name: | Jennifer Slater |
Print Name: | David A. Slusser |
Date: | 12/18/19 |
Title | VP, HR |
Exhibit 10.29
SEPARATION AGREEMENT AND RELEASE OF ALL CLAIMS
This Separation Agreement and Release of All Claims (the Agreement) is made between Clarios LLC and its subsidiaries and affiliated entities (collectively the Company) and Petar Oklobdzija (Executive).
WHEREAS, Executive is a Participant in the Clarios Severance Plan for U.S. Executives (the Plan) which provides for certain benefits in the event that Executives employment is terminated on account of a reason set forth in the Plan, subject to the terms of the Plan;
WHEREAS, the Company desires to terminate Executives employment on an amicable basis, such termination to be effective October 1, 2020 (Date of Termination); and
WHEREAS, in connection with the termination of Executives employment, the parties have agreed to a separation package and the resolution of any and all disputes between them.
NOW, THEREFORE, in consideration of the mutual covenants of the parties, it is agreed as follows:
1. Notice Pay. Pursuant to this Agreement, Executive is hereby being provided with two weeks (10 business days) of base pay in lieu of written notice of the termination of Employees employment (the Notice Period), which termination shall be effective on the Date of Termination. The Company in its sole discretion may change Executives Date of Termination in accordance with its business needs. Unless otherwise provided under applicable law, Executive will not be eligible to apply for workers compensation at any time after Executives last active day at work.
2. Severance Benefits. In consideration for the promises contained in this Agreement, the Company will provide the following severance benefits to Executive:
a. Salary Continuation Benefits. As soon as is administratively practical after the Date of Termination or, if applicable, the end of the revocation period provided in this Agreement, whichever is later, Executive will begin receiving fifty-two (52) weeks of Executives weekly base pay (such number of weeks shall hereinafter be referred to as the Salary Continuation Period), minus any applicable deductions or withholdings or other reductions provided by this Agreement or law, which will be payable in a manner and on days that correspond to the Companys regular paydays and payroll practices. Executive expressly authorizes the Company to make any necessary deductions, withholdings, or other reductions from the Salary Continuation Benefits. This Agreement and any and all obligations contained herein are subject to and conditioned upon Executive remaining an employee in good standing through Executives Date of Termination. If Executive begins employment with a competing
business as defined in paragraph 8 of this Agreement during the period in which Executive is receiving Salary Continuation Benefits or the period in which the non-competition provision is in effect, whichever is longer, Executive will cease receiving Salary Continuation Benefits, and Executive will be required to repay any Salary Continuation Benefits paid previous to the respective hire date.
b. Medical, Prescription Drug, Dental and Health Care Flexible Spending Account Benefits. Executive shall continue to be eligible to participate in the medical, dental and vision coverage in effect at Executives Date of Termination for (i) Executive and, where applicable, (ii) Executives spouse, domestic partner and dependents, as if Executive had continued in employment during the Salary Continuation Period; provided, however, that Executive has made a timely election to continue such coverage under COBRA (the COBRA Continuation Coverage Period). Executive shall be responsible for the payment of the medical, dental and vision contributions that are required during the COBRA Continuation Coverage Period and such contributions shall be made within the time period that other employees are required to pay to the Company for similar coverage; provided, however, that for the Salary Continuation Period, Executive shall pay the rate for medical coverage that is paid by active employees of the Company, and upon the expiration of the Salary Continuation Period, shall pay the rate for medical coverage that is paid under COBRA. Notwithstanding any other provision of this Plan to the contrary, in the event that Executive commences employment with another company at any time during the Salary Continuation Period and becomes eligible for medical and/or dental coverage under the plans of such other company, Executive will cease receiving coverage under the Companys medical and dental plans. The COBRA Continuation Coverage Period under section 4980B of the Internal Revenue Code shall run concurrently with the Salary Continuation Period. Any questions regarding these plans should be directed to the COBRA administrator, Clarios Benefit Service Center, at 1-833-525-2746 or digital.alight.com/clarios. PLEASE NOTE, if Executive and/or Executives covered spouse is 65 or older, entitled to Medicare coverage, and enrolled in the Clarios Health Plan through COBRA, Medicare provides the primary coverage for medical claims, and COBRA is secondary, whether or not Executive or Executives covered dependents actually enroll in Medicare.
c. Outplacement Services. The Company will pay the outplacement services fee for Executive to participate in an outplacement assistance program identified by the Company (which program will be selected by the Company in its sole discretion based upon Executives labor grade), provided Executive timely initiates outplacement services. In order to initiate such outplacement services, Executive must contact the identified vendor within thirty (30) days following the effective date of this Agreement.
d. Bonuses. If Executive is a participant in the Company Annual Incentive Performance Plan, Executive will be eligible for an additional lump sum payment of the Executives annual target bonus for fiscal year 2021 to be paid out in accordance with the
Companys Annual Incentive Performance Plan. Such annual bonus shall be calculated on the basis of the twelve-month period encompassing the entire fiscal year 2021 and pro-rated for the number of full months during which Executive serviced as an active employee. Because Executive will not complete a full month as an active employee during fiscal year 2021, he will receive a payment of three twelfths (3/12) of Executives annual target bonus for fiscal year 2021. Executive is not entitled to any payments pursuant to the discretionary recognition award issued in December 2019.
e. Long Term Incentive. The treatment of any outstanding long term incentive awards that Executive was granted will be administered in accordance with the terms and conditions of the Long Term Incentive Plan (LTIP).
f. Lump Sum Payment. The Company agrees to pay Executive a one-time lump sum payment of Ninety Thousand Dollars ($90,000) minus any applicable deductions or withholdings or other reductions provided by this Agreement or law. Such lump sum payment will be made to Executive within thirty (30) calendar days after execution of this Agreement, or, if applicable, the end of the revocation period provided in this Agreement, whichever is later. Executive expressly authorizes the Company to make any necessary deductions, withholdings, or other reductions from this payment.
3. Release of All Claims. In consideration of the benefits described in paragraph 2 above, Executive hereby REMISES, RELEASES and FOREVER DISCHARGES the Released Parties (defined below) from any and all claims, contracts, judgments and expenses (including attorneys fees and costs of any kind), whether known or unknown, which Executive has or may have against the Released Parties, or any of them, arising out of or based on any transaction, occurrence, matter, event, cause or thing whatsoever which has occurred prior to or on the date Executive executes this Agreement. Released Parties includes the Company, and all of its affiliated entities (including but not limited to any subsidiary, division, business unit, parent, sister, partner and related companies or entities), predecessors and successors, and its and their past, present and future officers, directors, agents, employees, shareholders, members, managers, partners, attorneys, executors, employee benefit plans, insurers, assigns and other representatives of any kind. This release includes, but is not limited to: (i) all causes of action, suits, debts, claims and demands whatsoever in law or in equity, which Executive ever had, now has, or hereafter may have, whether known or unknown, or which Executives heirs, executors, or administrators may have, by reason of any matter, cause or thing whatsoever, up to the date of Executives execution of this Agreement, and particularly, but without limitation of the foregoing general terms, any claims arising from or relating in any way to Executives employment relationship with the Company, the terms and conditions of that employment relationship, and the termination of that employment relationship, including, but not limited to, any claims arising under any applicable Company severance or supplemental unemployment benefits pay plan(s); (ii) claims arising under the Age Discrimination in Employment Act of
1967, as amended (ADEA), Title VII of the Civil Rights Act of 1964, as amended, the Americans With Disabilities Act of 1990, as amended, the Civil Rights Act of 1991, as amended, the Worker Adjustment and Retraining Notification Act, the National Labor Relations Act, the Occupational Safety and Health Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, as amended, the Family and Medical Leave Act of 1993, as amended, state family and/or medical leave laws, state fair employment laws, state and federal wage and hour laws, state and/or local plant closing or mass layoff laws, Wisconsin state employment laws, as amended, and/or any other federal, state or local law, statute or regulation; (iii) claims based on breach of contract (express or implied), tort, personal injury, misrepresentation, discrimination, retaliation, harassment, defamation, invasion of privacy or wrongful discharge; (iv) claims for bonuses, payments or benefits under any of the Companys bonus, severance or incentive plans or fringe benefit programs or policies; and (v) any other claims arising out of or connected with Executives employment with or separation of employment from the Company. This release does not include a waiver of any claim that cannot legally be waived. Nothing in this Agreement bars a claim by Executive for unemployment compensation benefits to which Executive is entitled under an unemployment compensation law.
4. Agreement Not to Sue. To the fullest extent permitted by law and subject to the provisions of paragraph 5 below, Executive represents and affirms that: (i) Executive has not filed or caused to be filed on Executives behalf any claim for relief against the Company or any Release and, to the best of Executives knowledge and belief, no outstanding claims for relief have been filed or asserted against the Company or any of the Released Parties on Executives behalf; and (ii) Executive has no knowledge of any improper, unethical or illegal conduct or activities that Executive has not already reported to any supervisor, manager, department head, human resources representative, agent or other representative of the Company, to any member of the Companys legal or compliance departments, or to the ethics hotline; and (iii) Executive agrees not to file, commence, prosecute or participate in any arbitration or any federal, state or local lawsuit or administrative proceeding, against the Released Parties, or any of them, based upon any claim arising prior to or on the date Executive executes this Agreement. In the event that suit is filed in breach of this release of claims, it is expressly understood and agreed that this release of claims shall constitute a complete defense to any such suit. In the event any Released Party is required to institute litigation to enforce the terms of this paragraph, the Released Parties shall be entitled to recover reasonable costs and attorneys fees incurred in such enforcement.
5. Challenge to Validity; Cooperation with Government Agencies. Nothing in this Agreement, including paragraph 4 (i) limits Executives right to challenge the validity of this Agreement under the ADEA; (ii) making any disclosure of information required by law; (iii) providing information to, or testifying or otherwise assisting in any investigation or proceeding brought by any federal regulatory or law enforcement agency or legislative body, any self-regulatory organization, or the Companys designated legal, compliance or human resources officers; or (iv) filing, testifying, participating in or otherwise assisting in a proceeding relating
to an alleged violation of any federal, state or municipal law relating to fraud, or any rule or regulation of the Securities and Exchange Commission or any self-regulatory organization. In addition, nothing prohibits Executive from filing a charge or complaint with, making a report to, participating in any investigation or proceeding conducted by, or otherwise cooperating with the U.S. Equal Employment Opportunity Commission (EEOC). However, Executive agrees and hereby waives any and all rights to any monetary relief or other personal recovery from any such charge, including costs and attorneys fees. Additionally, this release of claims does not preclude Executive from filing claims that arise after the date of execution of this Agreement.
6. Confidentiality. Subject to the provisions of Paragraphs 4 and 5, Executive agrees not to disclose the terms of this Agreement to anyone, except his/her spouse, attorney and, as necessary, tax/financial advisor, provided they agree to be bound by this confidentiality obligation. It is expressly understood that any violation of the confidentiality obligation imposed herein constitutes a material breach of this Agreement.
7. Confidential Information. Executive agrees that Executive shall not, directly or indirectly, use, make available, sell, disclose, or otherwise communicate to any person, other than in the course of Executives assigned duties and for the benefit of the Company, either during the period of Executives employment or at any time thereafter, any nonpublic, proprietary or confidential information, knowledge or data relating to the Company, or any of its businesses which shall have been obtained by Executive during Executives employment by the Company. The foregoing shall not apply to information that (i) was known to the public prior to its disclosure to Executive; (ii) becomes known to the public subsequent to disclosure to Executive through no wrongful act of Executive or any representative of Executive; or (iii) Executive is required to disclose by applicable law, regulation or legal process (provided that Executive provides the Company with prior notice of the contemplated disclosure and reasonably cooperates with the Company at its expense in seeking a protective order or other appropriate protection of such information). Notwithstanding clauses (i) and (ii) of the preceding sentence, Executives obligation to maintain such disclosed information in confidence shall not terminate where only portions of the information are in the public domain. Notwithstanding this paragraph, any non-disclosure provision in this Agreement does not prohibit or restrict Executive (or Executives attorney) from initiating communications directly with or responding to any inquiry from, or providing testimony before, any self-regulatory organization or state or federal regulatory authority, regarding this Agreement or its underlying facts and circumstances. Any pre-authorization provision in this Agreement does not require Executive to contact the Company regarding the subject matter of any such communication before engaging in such communications. Nothing in this Agreement is intended to discourage or restrict Executive from reporting any theft of Trade Secrets pursuant to the Defend Trade Secrets Act of 2016 (DTSA) or other applicable state or federal law. The DTSA provides: An individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a federal, state or local government official, either
directly or indirectly, or to any attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation or law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to an attorney for the individual and use the trade secret information in the court proceeding, if the individual (a) files any document containing the trade secret under seal; and (b) does not disclose the trade secret, except pursuant to court order.
8. Non-competition. In accepting the benefits provided in this Agreement, and in consideration of those benefits, Executive agrees that for the one (1) year period following the Date of Termination, or such longer period of non-competition as is included in any offer letter or any other agreement between Executive and the Company, Executive will not directly or indirectly, own, manage, operate, control (including indirectly through a debt, equity investment, or otherwise), provide services to, or be employed by, any person or entity engaged in any business that (i) conducts or is planning to conduct a business in competition with any business conducted or planned by the Company including but not limited to any business or Company engaged in the business of energy storage solutions, battery manufacturing, battery and energy storage solutions distribution and battery technologies; or (ii) designs, develops, produces, distributes, offers for sale or sells a product or service that can be used as a substitute for, or is generally intended to satisfy the same customer needs for, any one or more products or services designed, developed, manufactured, produced, distributed or offered for sale or sold by any of the Companys businesses (1) that is located in a region where Executive had substantial responsibilities during the twenty-four (24) month period preceding Executives Termination Date, and (2) for which Executive (A) was materially involved in during the twenty-four (24) month period preceding Executives Termination Date, or (B) had knowledge of operations or substantial exposure to during the twenty-four (24) month period preceding Executives Termination Date, unless Executives management has used its discretion to waive the application of this provision in writing.
9. Non-solicitation of Customers. In accepting the benefits provided in this Agreement, and in consideration of those benefits, Executive agrees that for the two (2) year period following the Date of Termination, or such longer period of non-solicitation as is included in any offer letter or any other agreement between Executive and the Company, Executive will not directly or indirectly on behalf of Employee or on behalf of another (i) solicit, aid or induce any customer of the Company or its Affiliates that Participant was responsible for, directly or indirectly through direct supervisor or management of other employees, departments or business units of the Company, to purchase goods or services then sold by the Company from another person or entity, or assist or aid any other person or entity in identifying or soliciting any such customer, or (ii) solicit, aid or induce any customer that was pursued by the Company and where Participant had direct contact, participated in the contact, or had knowledge of Confidential Information because of Executives employment with the Company within the twenty-four (24)
months preceding Executives Termination Date if that sale or service would be located in a region where Executive had substantial responsibilities while employed by the Company.
10. Non-solicitation of Employees. In accepting the benefits provided in this Agreement, and in consideration of those benefits, Executive agrees that during his or her employment with the Company, and for the period of two (2) years following the Date of Termination for any reason, or such longer period of non-solicitation as is included in any offer letter or any other agreement between Executive and the Company, Executive will not, directly or indirectly, on Executives own behalf or on behalf of another solicit, recruit, aid or induce employees of the Company (a) who were directly managed by or reported to Participant as of the date of Executives termination, or (b) with whom Executive has had material contact with during the twelve (12) months period preceding Executives termination and who had access to Confidential Information, trade secrets or customer relationships, to leave their employment with the Company in order to accept employment with or render services to another person or entity unaffiliated with the Company, or hire or knowingly take any action to assist or aid any other person or entity in identifying or hiring any such employee.
11. Non-Disparagement. Subject to the provisions of paragraphs 4 and 5, Executive further agrees that Executive will not disparage or subvert the Company, or make any statement reflecting negatively on the Company, its affiliated corporations or entities, or any of their present or former officers, directors, employees, agents or representatives, including, but not limited to, any matters relating to the operation or management of the Company, Executives employment and the termination of Executives employment.
12. Continued Cooperation. Executive acknowledges that the Company may need to consult with Executive from time to time on a reasonable basis after Executives Date of Termination on matters that Executive had worked on prior to the Date of Termination. Executive agrees to continue to cooperate with the Company and to provide any such information as is reasonably requested by the Company.
13. Reasonableness. This Agreement does not (i) supersede any confidentiality agreements, intellectual property rights agreements or non-competition or non-solicitation agreements to which Executive was subject while an employee of the Company, or (ii) negate, limit or reduce Executives obligations or the Companys rights under any laws relating to trade secrets, confidential information or unfair competition. Executive acknowledges that the restrictions contained in Paragraphs 7, 8, 9 and 10 are reasonable and necessary to protect the legitimate interests of the Company, that the Company would not have executed this Agreement in the absence of such restrictions, and that any violation of any provision of these paragraphs will represent in irreparable injury to the Company. By executing this Agreement, Executive represents that Executives experience and capabilities are such that the restrictions contained in Paragraphs 7, 8, 9 and 10 will not prevent Executive from obtaining employment or otherwise
earning a living at the same general level of economic benefit as is currently the case. Executive further represents and acknowledges that (i) Executive has been advised by the Company to consult with legal counsel of Executives choosing with respect to this Agreement, and (ii) that Executive has had full opportunity, prior to executing this Agreement, to review thoroughly this Agreement with counsel. In the event the provisions of Paragraphs 7, 8, 9, 10 are deemed to exceed the time or scope or geographic limitations permitted by applicable laws, then such provisions shall be reformed to the maximum time, scope or geographic limitations, as the case may be, permitted by applicable laws.
14. Representations. Executive represents, warrants and certifies that: (i) the severance benefits provided in this Agreement are equivalent to or greater than those to which Executive is entitled by contract, employment policy or otherwise; (ii) Executive has returned to the Company all items of personal property (including, without limitation, automobiles, keys, credit cards, computers and computer equipment, hardware and software, and cell phones) that are the property of the Company; (iii) Executive has returned all records, files, manuals, reports, notes or any other documents or materials, whether in written, electronic or other form, and whether prepared by Executive or others (including any copies of the same), which contain confidential, proprietary or other information regarding the Company, its affiliates or the businesses of the Company or its affiliates; (iv) Executive has returned to the Company any and all passwords and/or encryption codes utilized by Executive with regard to computer, electronic or communication systems of the Company or its affiliated entities so that the Company has immediate, full and complete access to all data and information stored, used or maintained by Executive on such systems; and (v) apart from benefits provided by this Agreement, Executive has been paid all compensation and received all benefits due to Executive as a result of Executives employment with the Company.
15. Repayment of Salary Continuation Benefits. In the event Executive is offered re-employment and becomes re-employed with the Company or any of its affiliated entities during the Salary Continuation Period, any remaining Salary Continuation Benefit that Executive has not yet received will cease, and Executive will no longer be eligible to receive the balance of any Salary Continuation Benefits provided under this Agreement, as of the effective date of reemployment. Further, Executive shall be required, as a condition of re-employment, to sign a repayment agreement whereby Executive agrees to repay the Company an amount equal to any of the forfeited balance of Salary Continuation Benefits for which Executive is not eligible to receive already paid to Executive under this Agreement.
16. Non-Admission of Wrongdoing. Neither this Agreement nor the furnishing of the consideration provided for in this Agreement shall be deemed or construed at any time or for any purpose as an admission of liability by the Released Parties. Liability for any and all claims for relief is expressly denied by the Released Parties.
17. Acknowledgments. Executive acknowledges as follows:
a. Executive has read the terms of this Agreement, and that Executive understands its terms and effects, including the fact that Executive has agreed to RELEASE AND FOREVER DISCHARGE the Company and each and every one of its affiliated entities from legal action arising out of Executives employment relationship with the Company and each and every one of its affiliated entitles from legal action arising out of Executives employment relationship with the Company and the termination of that relationship;
b. Executive has signed this Agreement voluntarily and knowingly in exchange for the consideration described herein, which Executive acknowledges is adequate and satisfactory to Executive and which Executive acknowledges is in addition to any other benefits to which Executive is otherwise entitled;
c. Executive has been and hereby is advised in writing by the Company to consult with an attorney prior to signing this Agreement;
d. Executive has been and hereby is advised in writing by the Company that Executive had at least twenty-one (21) days within which to consider this Agreement.
e. Executive is fully aware of the contents of this Agreement and its legal effect, that the preceding paragraphs recite the sole consideration for this Agreement, that all agreements and understandings between the parties regarding the subject matter of this Agreement are embodied and expressed herein, and that Executive has been afforded ample opportunity to consider this Agreement and enters into this Agreement freely, knowingly, and without coercion and not in reliance upon any representations or promises made by the Company or its agents, other than those contained herein;
f. This Agreement may not be signed prior to the third calendar day before Executives Date of Termination. If the Agreement is signed prior to Executives Date of Termination, the Company reserves the right to have Executive ratify the Agreement on or after Executives Date of Termination.
18. Revocation Period. For a period of seven (7) days following the execution of this Agreement, Executive may revoke this Agreement. To be effective, any notice of revocation must be in writing and received by Dave Slusser, Vice President Human Resources, 5757 N. Green Bay Ave., Milwaukee, WI 53209, within the seven (7) day revocation period (or, if the seventh day of the revocation period is not a business day, on the first business day following such date). The Agreement shall not become effective or enforceable until the seven (7) day revocation period has expired without revocation by Executive.
19. Severability. The provisions of this Agreement are severable. If any portion of this Agreement is found to be invalid or unenforceable, the parties desire that all other portions of the Agreement shall nonetheless remain in full force and effect. If Paragraph 3 is deemed invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, this entire Agreement shall be null and void, and any consideration paid hereunder shall be repaid immediately upon receipt of notice thereof.
20. Counterparts and Facsimile Signatures. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. Electronically scanned and faxed copies of signatures may be relied upon as the true and correct signatures of the undersigned.
21. Signature and Return. Executive shall return the signed Agreement within the 21-day consideration period provided herein via hand-delivery Dave Slusser, Vice President Human Resources, or if sent by mail, must be postmarked within the 21-day consideration period, sent by certified mail, return receipt requested, and addressed to Dave Slusser, Vice President Human Resources, 5757 N. Green Bay Ave., Milwaukee, WI 53209. If not returned within this time period, the Agreement shall expire.
22. Notwithstanding any provision to the contrary, all provisions of this Agreement shall be construed and interpreted to comply with Section 409A of the Internal Revenue Code (the Code) and applicable regulations thereunder, and, if necessary, any provision shall be held null and void to the extent such provision (or part thereof) fails to comply with Section 409A of the Code or regulations thereunder. For purposes of the limitations on nonqualified deferred compensation under Section 409A of the Code, each payment of compensation to Executive under this Agreement shall be treated as a separate payment of compensation for purposes of applying the deferral election rules and the exclusion of certain short-term deferral amounts under Section 409A of the Code. To the extent that deferred compensation subject to the requirements of Section 409A of the Code becomes payable to Executive under this Agreement, any such payments shall be delayed by six months to the extent necessary to comply with the requirements of Section 409A of the Code. The parties have executed this Agreement as of the dates written below.
The parties have executed this Agreement as of the dates written below.
EXECUTIVE | CLARIOS LLC | |||
/s/ Petar Oklobdzija |
/s/ Dave Slusser | |||
PETAR OKLOBDZIJA | By: DAVE SLUSSER | |||
October 13, 2020 |
10/13/20 | |||
Date | Date |
Exhibit 10.30
Clarios 5757 Green Bay Avenue Milwaukee, WI 53209 |
Wendy Radtke 9027 Hollybrook Ln S Germantown, TN 38138
September 21, 2020 |
Dear Wendy:
I am pleased to confirm our verbal offer of employment as Chief Human Resources Officer with an anticipated start date on November 2, 2020. In this role you will report directly to the Chief Executive Officer and the position will be based at our Global Headquarters in Milwaukee.
BASE SALARY
Your annual base salary will be $450,000 paid on a bi-weekly basis.
ANNUAL INCENTIVE PERFORMANCE PROGRAM
You will participate in the Clarios Annual Incentive Performance Plan (AIPP) at a target of 60% of your annual base salary. Your participation will start in performance year 2021, payable in fiscal 2021. Actual incentive payments to you under the AIPP can range from 0% of annual base salary to as much as 200% of annual base salary. Payments are made in December of each year for the previous fiscal year. For performance year 2020, your AIPP payment is guaranteed at US $200,000, payable in December 2020.
LONG-TERM INCENTIVE PLAN
In this position, you will participate in the Clarios Long-Term Incentive Program. You will receive 3% of the total profit pool on Brookfields sale proceeds, net of all sales costs, less Brookfields initial invested capital of approximately US$2,932 Million. Awards will vest 20% per year, provided you are employed on each annual vesting date. Determination of actual award levels relative to the target award will be based on achievement of performance goals outlined in the plan document.
SIGN-ON BONUS
You will be provided with a one-time sign-on bonus of US$195,000 paid on the first pay, following your start date.
DEFERRED COMPENSATION
In your position, you are eligible to participate in the Clarios Senior Executive Deferred Compensation Plan, a key executive benefit. The Plan allows you to defer a portion of your base salary and annual bonus. You will receive further information and have an opportunity to learn more about this benefit during the enrollment period in the first quarter of the fiscal year. This plan is under review and will be finalized in 2020.
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FLEXIBLE PERQUISITES
You will participate in the Flexible Perquisites Plan which provides you with up to 5% of your annual base salary each year to cove r financial planning expenses. Taxes on perquisite funds are the responsibility of the participant.
U.S. MANAGEMENT CAR ALLOWANCE PROGRAM
You are eligible to participate in the Management Car Allowance Program. An annual cash car allowance of $15,000 will be added to your paycheck. This annual amount will be paid via payroll on a bi-weekly basis. All payments in association with the Program are subject to applicable Federal and Local taxes.
BENEFITS
Clarios offers an extensive employee benefit program. Choices exist for you and your dependents in medical, dental, life and disability insurance. You will be eligible to participate in the Clarios Savings and Investment Plan which includes a 401K plan with a company match. Details of this plan are described in the summary plan description. You are entitled to thirteen (13) company paid holidays each year. Additionally, you will receive four (4) weeks of vacation.
SEVERANCE
Upon termination without Cause (as defined below), you will be provided with one (1) times the sum of your annual base salary and your annual bonus target amount, payable in a lump sum within thirty (30) days following termination. For the period of one (1) year (12 months), benefit continuation (medical/dental/vision) will be covered by the Company at the current employee contribution levels. You will also receive any unpaid prior year bonus to the extent eared under the AIPP for such year, payable at the same time as such years bonuses are paid to other senior executives. Senior executive-level outplacement services provided for a period of one (1) year (12 months).
RELOCATION
To assist you with your transition into this role, you will be provided with relocation assistance managed by BGRS. Should you voluntarily terminate your employment within the first (1st) year of employment, you will be required to reimburse the Company in full for the cost of any and all relocation assistance provided to you or paid for on your behalf by the Company. You will be required to agree to the Payback Agreement following the acceptance of this offer. You will be required to complete an 1-9 form (Employment Eligibility Verification) and provide the required documentation establishing your legal right to work in the United States.
RESTRICTIVE COVENANTS
Non-Competition: In accepting this employment offer, and in consideration of this employment offer, your continued employment, and/or the Companys obligation and promise to provide you with confidential and propriety information pertaining to its business operations and/or customers, and your promise and obligation not to use or disclose that information except in the course of performing your job duties, you agree that, except as prohibited by law, during your employment with the Company or its parent, subsidiaries or affiliates, and for the 18 month period following your termination of employment for any reason, you will not directly or indirectly, own, manage, operate, control (including indirectly through a debt, equity investment, or otherwise), provide services to, or be employed by, any person or entity engaged in any business that (i) conducts or is planning to conduct a business in competition with any business conducted or planned by the Company or its parent, subsidiaries, or any of its Affiliates including but not limited to any business or Company engaged in the business of energy storage solutions, battery
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manufacturing, battery and energy storage solutions distribution, and battery technologies; or (ii) designs, develops, produces, distributes, offers for sale or sells a product or service that can be used as a substitute for, or is generally intended to satisfy the same customer needs for, any one or more products or services designed, developed, manufactured, produced, distributed or offered for sale or sold by any of the Companys businesses (1) that is located in a region where Employee had substantial responsibilities during the twenty-four (24) month period preceding Employees Termination Date, and (2) for which Employee (A) was materially involved in during the twenty-four (24) month period preceding Employees Termination Date, or (B) had knowledge of operations or substantial exposure to during the twenty-four (24) month period preceding Employees Termination Date.
Non-Solicitation of Customers: Further, in accepting this employment offer, and in consideration of this employment offer, except as prohibited by law, you further agree that during your employment with the Company or its parent, subsidiaries or affiliates, and for the two (2) year period thereafter, you will not directly or indirectly, on Employees own behalf or on behalf of another (i) solicit, aid or induce any customer of the Company or its Affiliates that Employee was responsible for, directly or indirectly through direct supervisor or management of other employees, departments or business units of the Company, to purchase goods or services then sold by the Company or its Affiliates from another person or entity, or assist or aid any other person or entity in identifying or soliciting any such customer, or (ii) solicit, aid or induce any customer that was pursued by the Company and where Employee had direct contact, participated in the contact, or had knowledge of Confidential Information because of Employees employment with the Company within the twenty-four (24) months preceding Employees Termination Date if that sale or service would be located in a region where Employee had substantial responsibilities while employed by the Company or its Affiliates.
Non-Solicitation of Employees: Further, in accepting this employment offer, and in consideration of this employment offer, except as prohibited by law, you further agree that during your employment with the Company or its parent, subsidiaries or affiliates, and for the two (2) year period thereafter, you will not, directly or indirectly, on your own behalf or on behalf of another solicit, recruit, aid or induce employees of the Company or any of its Affiliates (a) who were directly managed by or reported to Employee as of the date of Employees termination, or (b) with whom Employee has had material contact with during the twelve (12) months period preceding Employees termination and who had access to Confidential information, trade secrets or customer relationships, to leave their employment with the Company or its Affiliates in order to accept employment with or render services to another person or entity unaffiliated with the Company or its Affiliates, or hire or knowingly take any action to assist or aid any other person or entity in identifying or hiring any such employee.
Irreparable injury will result to the Company, its business, and its parent, subsidiaries or affiliates in the event of a breach by you of any of your covenants and commitments you have accepted as a condition of this employment offer, including the covenants of non-competition and non-solicitation. Therefore, in the event of a breach of such covenants and commitments, the Company reserves all rights to seek any and all remedies and damages permitted under law, including, but not limited to, injunctive relief, equitable relief and compensatory damages.
The non-competition and non-solicitation provisions are expressly intended to benefit the Company (which includes its parents, subsidiaries and/or affiliates as third party beneficiaries) and its successors and assigns; and the parties expressly authorize the Company (including all third party beneficiaries) and its successors and assigns to enforce these provisions.
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DEFINITIONS
For all purposes under this Agreement and your LTIP Award (and the Plan to the contrary notwithstanding, but only with respect to the following definition):
Cause shall mean (a) your willful failure to properly carry out your duties or to comply with the material rules and material policies of Clarios, or any reasonable instruction or directive of the Board, that is not cured, if deemed curable in the discretion of the Board, within ten (10) days after the Board gives you written notice thereof setting forth the particulars in detail of such failure; (b) your acting dishonestly or fraudulently, or your willful misconduct in the course of your employment, in each case resulting in material adverse consequences to Clarios which is not cured, if deemed curable in the discretion of the Board, within ten (10) days after the Board gives you written notice thereof setting forth the particulars in detail of such misconduct; (c) if you or any member of your family makes any personal profit arising out of or in connection with any transaction to which Clarios is a party or with which Clarios is associated without making disclosure to and obtaining the prior written consent of the Company (other than respecting any trading in shares of Clarios following a public offering and stock exchange listing); (d) your conviction for, or a guilty plea (or a plea of nolo contendere) by you to any criminal offence that may reasonably be considered to be likely to adversely affect the Company or your ability to perform your duties, including without limitation, any offence involving fraud, theft, embezzlement, forgery, willful misappropriation of funds or property, or other fraudulent or dishonest acts involving moral turpitude; (e) your failure to fully comply with and perform your fiduciary duties as an officer and member of the Board; or (f) engaging in conduct (done either intentionally or through gross negligence) that is materially detrimental to the reputation, character, or standing of the Company. An opportunity to cure any of the above Cause grounds may be provided to you only where specified in subsections (a) through (f) above.
Wendy, speaking for myself and my colleagues, we are enthusiastic about your joining Clarios. We have a great company with important work to be done. We are confident that the combination of your experiences and personal attributes will allow you to contribute and succeed at Clarios. We look forward to your positive response to our offer as soon as possible.
Sincerely,
/s/ Mark Wallace
Mark Wallace
Chief Executive Officer, Clarios
Please indicate your response to this offer below with your signature.
☒ | I accept the offer as detailed |
☐ | I decline the offer |
/s/ Wendy Radtke |
9-23-2020 | |||
Wendy Radtke | Date |
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Exhibit 10.31
Florist Tower, 5757 N. Green Bay Avenue Milwaukee, WI 53209 |
September 8, 2020
Tony Moore
1572 Steamboat Road
Gilbertsville, KY 42044
Dear Tony:
I am pleased to confirm our verbal offer of employment as Vice President and General Manager USA/Canada with an anticipated start date no later than October 12, 2020, or mutually agreed upon date. In this role you will report directly to me and the position will be based at our Global Headquarters in Milwaukee.
BASE SALARY
Your annual base salary will be $450,000. Your salary will be paid according to the normal and customary payroll process of the Company.
ANNUAL INCENTIVE PROGRAM
You will participate in the Clarios Annual Incentive Program (AIP) at a target of 50% of your annual base salary. Your participation will start in performance year 2021, payable in fiscal 2021. Actual incentive payments to you under the AIP can range from 0% of annual base salary to as much as 200% of annual base salary. Payments are made in December of each year for the previous fiscal year.
LONG-TERM INCENTIVE PLAN
In this position, you will participate in the Clarios Long-Term Incentive Program. You will receive 4.75% of the total profit pool on Brookfields sale proceeds, net of all sales costs, less Brookfields initial invested capital of approximately US$2,932 Million. Awards will vest 20% per year, provided you are employed on each annual vesting date. Determination of actual award levels relative to the target award will be based on achievement of performance goals outlined in the plan document. The plan details will be released by January 1, 2021.
SPECIAL COMPENSATION
You will receive a one-time compensation payment of US$320,000 that will be paid in two increments. US$100,000 will be paid within thirty days from your start date and the remaining US$220,000 will be paid six months from your start date. These payments are taxable and will reflect standard withholding deductions. Should your employment terminate without cause, the company will pay the full amount within 30 days following the termination.
DEFERRED COMPENSATION
In your position, you are eligible to participate in the Clarios Senior Executive Deferred Compensation Plan, a key executive benefit. The Plan allows you to defer a portion of your base salary and annual bonus. You will
Florist Tower, 5757 N. Green Bay Avenue Milwaukee, WI 53209 |
receive further information and have an opportunity to learn more about this benefit during the enrollment period in the first quarter of the fiscal year.
BENEFITS
Clarios offers an extensive employee benefit program. Choices exist for you and your dependents in medical, dental, life and disability insurance. You will be eligible to participate in the Clarios Savings and Investment Plan which includes a 401K plan with a company match. You are entitled to thirteen (13) company paid holidays each year. Additionally, you will receive four (4) weeks of vacation.
U.S MANAGEMENT CAR ALLOWANCE PROGRAM
In this position you are eligible to participate in the Management Car Allowance Program. This program provides for an annual cash car allowance of $10,000. This annual amount will be paid via payroll on a bi-weekly basis. All payments in association with the Management Car Allowance Program are subject to applicable Federal and Local tax.
RELOCATION
To assist you with your transition into this role, you will be provided with relocation assistance managed by our relocation company. Should you voluntarily terminate your employment or are terminated for cause as defined in the policy, within two (2) years of your start date, you will be required to reimburse the Company for the costs of relocation benefits received, per the schedule outlined in the agreement. Also, you will be required to sign the repayment agreement following the acceptance of this offer.
RESTRICTIVE COVENANTS
Non-Competition: In accepting this employment offer, and in consideration of this employment offer, your continued employment, and/or the Companys obligation and promise to provide you with confidential and propriety information pertaining to its business operations and/or customers, and your promise and obligation not to use or disclose that information except in the course of performing your job duties, you agree that, except as prohibited by law, during your employment with the Company or its parent, subsidiaries or affiliates, and for the one (1) year period following your termination of employment for any reason, you will not directly or indirectly, own, manage, operate, control (including indirectly through a debt, equity investment, or otherwise), provide services to, or be employed by, any person or entity engaged in any business that (i) conducts or is planning to conduct a business in competition with any business conducted or planned by the Company or its parent, subsidiaries, or any of its Affiliates including but not limited to any business or Company engaged in the business of energy storage solutions, battery manufacturing, battery and energy storage solutions distribution, and battery technologies; or (ii) designs, develops, produces, distributes, offers for sale or sells a product or service that can be used as a substitute for, or is generally intended to satisfy the same customer needs for, any one or more products or services designed, developed, manufactured, produced, distributed or offered for sale or sold by any of the Companys businesses (1) that is located in a region where Employee had substantial responsibilities during the twenty-four (24) month period preceding Employees Termination Date, and (2) for which Employee (A) was materially involved in during the twenty-four (24) month period preceding Employees Termination Date, or (B) had knowledge of operations or substantial exposure to during the twenty-four (24) month period preceding Employees Termination Date.
Florist Tower, 5757 N. Green Bay Avenue Milwaukee, WI 53209 |
Non-Solicitation of Customers: In accepting this employment offer, and in consideration of this employment offer, except as prohibited by law, you further agree that during your employment with the Company or its parent, subsidiaries or affiliates, and for the two (2) year period thereafter, you will not directly or indirectly, on Employees own behalf or on behalf of another (i) solicit, aid or induce any customer of the Company or its Affiliates that Employee was responsible for, directly or indirectly through direct supervisor or management of other employees, departments or business units of the Company, to purchase goods or services then sold by the Company or its Affiliates from another person or entity, or assist or aid any other person or entity in identifying or soliciting any such customer, or (ii) solicit, aid or induce any customer that was pursued by the
Company and where Employee had direct contact, participated in the contact, or had knowledge of Confidential Information because of Employees employment with the Company within the twenty-four (24) months preceding Employees Termination Date if that sale or service would be located in a region where Employee had substantial responsibilities while employed by the Company or its Affiliates.
Non-Solicitation of Employees: In accepting this employment offer, and in consideration of this employment offer, except as prohibited by law, you further agree that during your employment with the Company or its parent, subsidiaries or affiliates, and for the two (2) year period thereafter, you will not, directly or indirectly, on your own behalf or on behalf of another solicit, recruit, aid or induce employees of the Company or any of its Affiliates (a) who were directly managed by or reported to Employee as of the date of Employees termination, or (b) with whom Employee has had material contact with during the twelve (12) months period preceding Employees termination and who had access to Confidential Information, trade secrets or customer relationships, to leave their employment with the Company or its Affiliates in order to accept employment with or render services to another person or entity unaffiliated with the Company or its Affiliates, or hire or knowingly take any action to assist or aid any other person or entity in identifying or hiring any such employee.
Irreparable injury will result to the Company, its business, and its parent, subsidiaries or affiliates in the event of a breach by you of any of your covenants and commitments you have accepted as a condition of this employment offer, including the covenants of non-competition and non-solicitation. Therefore, in the event of a breach of such covenants and commitments, the Company reserves all rights to seek any and all remedies and damages permitted under law, including, but not limited to, injunctive relief, equitable relief and compensatory damages.
The non-competition and non-solicitation provisions are expressly intended to benefit the Company (which includes its parents, subsidiaries and/or affiliates as third party beneficiaries) and its successors and assigns; and the parties expressly authorize the Company (including all third party beneficiaries) and its successors and assigns to enforce these provisions.
Conditions of Employment
Please be advised that notwithstanding anything in this offer letter to the contrary, neither this letter nor any statement made by the Company or its parent, subsidiaries or affiliates is intended to be a contract of employment for a definite period of time. That means that the employment relationship established by this letter is at will and either you or the Company may terminate the employment relationship at any time and for any reason, with or without cause or notice. Further, the Company may from time to time, and in its sole
Florist Tower, 5757 N. Green Bay Avenue Milwaukee, WI 53209 |
discretion, change the terms and conditions of your employment and benefits, with or without notice, and all payments are subject to applicable taxes and other deductions required or permitted by law.
Your employment will be conditioned upon your execution of this letter, and execution of and ongoing compliance with the terms of (1) the Companys Code of Ethics, Values First and (2) any conditional documents, including a Non-Compete, Non-Solicit, Confidentiality and/or other Restrictive Covenants that are presented with this offer.
In addition, the conditions of this letter are contingent upon the completion of a drug test, references and background check. You will also be required to complete the employee portion of the documentation (Form I-9) on your first day to satisfy the legal requirements under federal immigration laws of identifying that you have the unrestricted legal authority to work in the United States.
Tony, I am enthusiastic about your joining Clarios. I am confident that the combination of your experiences and personal attributes will allow you to contribute and succeed at Clarios. If you have any questions, please feel free to contact me at 262-225-5010. We look forward to your positive response to our offer as soon as possible.
Sincerely,
/s/ Mark Wallace
Mark Wallace
Chief Executive Officer, Clarios
Acceptance/Rejection:
Please indicate your response to this offer below with your signature.
X I accept the offer as detailed
I decline the offer
/s/ Tony Moore |
9-9-20 |
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First Name Last Name | Date |
Exhibit 10.32
CLARIOS
RETIREMENT RESTORATION PLAN
Effective May 1, 2019
Amended and Restated June 30, 2021
ARTICLE 1
PURPOSE AND DURATION
Section 1.1. Purpose. The purpose of the Clarios Retirement Restoration Plan (formerly known as the Power Solutions Retirement Restoration Plan) (the Plan) is to restore retirement benefits to certain participants in the Savings Plan whose benefits under such plan are or will be limited by reason of Code Sections 401(a)(17), 401(k), 401(m), 402(g) and/or 415, and/or by reason of the election of such employees to defer income or reduce salary pursuant to this Plan or to defer annual incentive payments pursuant to the Clarios Senior Executive Deferred Compensation Plan. This Plan is completely separate from the tax-qualified plans maintained by the Company and its subsidiaries and is not funded or qualified for special tax treatment under the Code. The Plan is intended to be an unfunded plan covering a select group of management and highly compensated employees for purposes of ERISA. The Plan also assumed certain liabilities from the Johnson Controls International plc Retirement Restoration Plan, the Johnson Controls International plc Executive Deferred Compensation Plan and the Tyco Supplemental Savings and Retirement Plan as of May 1, 2019, as described herein.
Section 1.2. Duration of the Plan. The Plan became effective May 1, 2019. Notwithstanding the effective date of this Plan, the Administrator may implement the administration of the Plan prior to the effective date as necessary to effectuate the Plan. The Plan was amended and restated effective June 30, 2021 to incorporate a prior Plan amendment that reflected a change to the name of the Company and the Plan. The Plan shall remain in effect until terminated pursuant to Article 7.
ARTICLE 2
DEFINITIONS
Section 2.1. Definitions. Wherever used in the Plan, the following terms shall have the meanings set forth below and, where the meaning is intended, the initial letter of the word is capitalized:
(a) Account means the record keeping account or accounts maintained to record the interest of each Participant under Article 4. An Account is established for record keeping purposes only and not to reflect the physical segregation of assets on the Participants behalf, and may consist of such subaccounts or balances as the Administrator may determine to be necessary or appropriate. Effective on the Effective Date, each Participant shall have a beginning Account balance equal to the balance credited to a Participant under the Prior Plans as of immediately prior to the Effective Date.
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(b) Administrator means the person(s) or entity appointed by the Company to administer the Plan.
(c) Affiliate means each entity that is required to be included in the Companys controlled group of corporations within the meaning of Code Section 414(b), or that is under common control with the Company within the meaning of Code Section 414(c); provided that for purposes of determining when a Participant has incurred a Separation from Service, the phrase at least 50 percent shall be used in place of at least 80 percent each place it appears in the regulations thereunder.
(d) Beneficiary means the person or persons designated by the Participant to receive payments under the Plan in the event of the Participants death as provided in Section 4.3.
(e) Board means the Board of Directors of the Company.
(f) Cause means a Participants (1) substantial failure or refusal to perform duties and responsibilities of his or her job as required by the Employer, (2) violation of any fiduciary duty owed to the Company or any Affiliate, (3) conviction of or plea of no contest to a felony or misdemeanor, (4) dishonesty, (5) theft, (6) violation of Company or Employer rules or policy, or (7) other egregious conduct, that has or could have a serious and detrimental impact on the Company, any of its Affiliates or any of their employees. The Administrator, in its sole and absolute discretion, shall determine whether Cause exists. Examples of Cause may include, but are not limited to, excessive absenteeism, misconduct, insubordination, violation of Company policy, dishonesty, and deliberate unsatisfactory performance (e.g., Employee refuses to improve deficient performance).
(g) Code means the Internal Revenue Code of 1986, as interpreted by regulations and rulings issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of the Code shall be deemed to include any rulings and regulations promulgated thereunder and reference to any successor provision thereto.
(h) Company means Clarios, LLC, and its successors as provided in Section 9.11.
(i) Distribution Date means each January 15 or July 15, or the first business day prior to such date if such date falls on a holiday or weekend.
(j) Effective Date means May 1, 2019.
(k) Employer means the Company or the Affiliate that employs a Participant.
(l) ERISA means the Employee Retirement Income Security Act of 1974, as interpreted by regulations and rulings issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of ERISA shall be deemed to include any rulings and regulations promulgated thereunder and reference to any successor provision thereto.
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(m) Measurement Funds means the investment options offered under the Savings Plan, and any other alternatives made available by the Administrator. These Measurement Funds are used solely to calculate the earnings that are credited to a Participants Account in accordance with Section 5.2 below, and do not represent any beneficial interest on the part of the Participant in any asset or other property of the Company or its Affiliates. The determination of an increase or decrease in the performance of each Measurement Fund shall be made by the Administrator in its reasonable discretion. Measurement Funds may be replaced, new funds may be added, or both, from time to time in the discretion of the Administrator; provided that if the Measurement Funds hereunder correspond with funds available for investment under the Savings Plan, then, unless the Administrator determines otherwise in its discretion, any addition, removal or replacement of investment funds under the Savings Plan shall automatically result in a corresponding change to the Measurement Funds hereunder.
(n) Participant means an employee of the Company or an Affiliate who is described in an applicable Appendix hereto; provided that the Administrator shall limit the foregoing group of eligible employees to a select group of management and highly compensated employees, as determined by the Administrator in accordance with ERISA. A Participant shall also mean a Transferred Business Employee (as defined in the Stock and Asset Purchase Agreement by and Between Johnson Controls International plc and BCP Acquisitions LLC, dated as of November 13, 2018) who had an account under one of the Prior Plans immediately prior to the Effective Date which account is assumed hereunder; provided that if such individual does not otherwise meet the requirements to be a Participant hereunder, such individuals rights under the Plan shall be limited to the rights related to such assumed account (such as the right to investments and distributions of such account). Where the context so requires, a Participant also means a former employee or Beneficiary entitled to receive a benefit hereunder.
(o) Prior Plans means the Johnson Controls International plc Retirement Restoration Plan, the Johnsons Controls International plc Executive Deferred Compensation Plan, and the Tyco Supplemental Savings and Retirement Plan, as in effect immediately prior to the Effective Date.
(p) Savings Plan means the Clarios Retirement Savings and Investment Plan and any successor to such plan maintained by the Company or an Affiliate.
(q) Separation from Service means a Participants cessation of service from the Company and all Affiliates within the meaning of Code Section 409A, as determined by the Administrator, subject to the following rules:
(i) | If a Participant takes a leave of absence from the Company or an Affiliate for purposes of military leave, sick leave or other bona fide leave of absence, the Participants service will be deemed to continue for the first six (6) months of the leave of absence, or if longer, for so long as the Participants right to reemployment is provided either by statute or by contract; provided that if the leave of absence is due to the Participants medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of six (6) months or more, and such impairment causes the |
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Participant to be unable to perform the duties of his or her position with the Company or an Affiliate or a substantially similar position of employment, then the leave period may be extended for up to a total of twenty-nine (29) months. If the period of the leave exceeds the time periods set forth above and the Participants right to reemployment is not provided by either statute or contract, the Participant will be considered to have incurred a Separation from Service on the first day following the end of the applicable time period set forth above. |
(ii) | A Participant will be presumed to have incurred a Separation from Service when the level of bona fide services preformed by the Participant for the Company and its Affiliates permanently decreases to a level equal to twenty percent (20%) or less of the average level of services performed by the Participant for the Company and its Affiliates during the immediately preceding thirty-six (36) month period (or such lesser period of service). |
(iii) | The Participant will be presumed not to have incurred a Separation from Service while the Participant continues to provide bona fide services to the Company or an Affiliate in any capacity (whether as an employee or independent contractor) at a level that at least fifty percent (50%) of the average level of services performed by the Participant for the Company and its Affiliates during the immediately preceding thirty-six (36) month period (or such lesser period of service). |
(iv) | If a Participant ceases to provide services as an employee to the Company or an Affiliate, but immediately thereafter continues to provide services as an independent contractor to any such entity without incurring a Separation from Service as described in the subparagraphs above, then such Participant will not incur a Separation from Service until the expiration of the contract (or, if applicable, all contracts) under which services are performed for the Company and any Affiliate if the expiration is a good-faith and complete termination of the contractual relationship. |
(r) Share means an ordinary share of Johnson Controls International plc.
(s) Trading Day means each day when the United States financial markets are open for business.
(t) Valuation Date means the day selected by the Administrator on which to value a Participants Account prior to a distribution. The Valuation Date may be any Trading Day within the one week prior to the date a distribution is made, as determined in the Administrators sole discretion.
ARTICLE 3
ADMINISTRATION
Section 3.1. Authority of the Administrator. The Administrator shall have discretionary authority and responsibility for the general operation and daily administration of
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the Plan, including, in addition to the authority specifically provided to the Administrator in this Plan, to (a) interpret and apply all of the Plans provisions, (b) prescribe forms for use with respect to the Plan, (c) reconcile inconsistencies or supply omissions in the Plans terms, (d) make appropriate determinations, including factual determinations, and calculations, (e) prepare all reports required by law, and (f) determine the eligibility of an employee to participate in the Plan.
Section 3.2. Delegation. The Administrator may, in its discretion, delegate any or all of its authority and responsibility to third parties. To the extent of any such delegation, any references herein to the Administrator shall be deemed references to such delegate.
Section 3.3. Interpretation; Decisions Binding. Interpretation of the Plan shall be within the sole discretion of the Administrator. If any delegate of the Administrator shall also be a Participant or Beneficiary, then such individual may not participate in any determinations affecting the individuals benefits under the Plan. The Administrators determinations shall be final and binding on all parties with an interest hereunder, unless determined to be arbitrary and capricious.
Section 3.4. Procedures for Administration. The Administrators determinations shall be made in accordance with such procedures it establishes.
Section 3.5. Accelerated Vesting. The Board (with respect to Participants who are officers of the Company) and an executive officer of the Company (with respect to Participants who are not officers of the Company) shall have the discretion to vest any Participant in his or her Account hereunder, in whole or in part, upon the Participants termination of employment from the Company and its Affiliates for any reason.
ARTICLE 4
PLAN BENEFITS
Section 4.1. Eligibility for and Amount of Benefits.
(a) In General. Participants shall be eligible for a benefit in accordance with the terms of the applicable Appendix.
(b) Employees Acquired in a Merger or Acquisition. In the event an individual becomes an employee of the Company or an Affiliate due to a merger or acquisition, such employee shall not be eligible to participate in the Plan until such time that participation is approved by the Company via amendment of the Plan, corporate resolution or pursuant to the terms of the applicable purchase agreement, even if such employee would otherwise be eligible to participate in the Plan under the terms of an Appendix.
Section 4.2. Payment of Benefits. Upon a Participants Separation from Service for any reason, the Participant shall be entitled to payment of the vested balance of the Participants Account in cash in the manner specified in the applicable Appendix.
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Section 4.3. Death Benefit.
(a) Payment upon Death. In the event of the Participants death prior to receiving all payments due under this Plan, the vested balance of the Participants Account shall be paid to the Participants Beneficiary in a cash lump sum on the first Distribution Date following the Participants death.
(b) Requirements for Payment. The timing of the payment(s) under Section 4.3(a) is dependent upon the Administrator receiving all information needed to authorize such payment (such as a copy of the Participants death certificate). To the extent the Administrator cannot make a payment because it has not received such information, the Administrator shall make such payment(s) to the Beneficiary as soon as practicable in accordance with Section 4.3(a) after it has received all information necessary to make such payment, provided that such payment(s) due from the date of death through December 31 of the year following the year of the Participants death must be completed by such December 31 in order to avoid additional taxes under Code Section 409A.
Section 4.4. Tax Withholding. The Employer that is liable to make a payment hereunder shall have the right to deduct from any deferral or payment made hereunder, or from any other amount due a Participant, the amount of cash sufficient to satisfy the Employers foreign, federal, state or local income tax withholding obligations with respect to any amount deferred hereunder, whether at the time of deferral, vesting or payment thereof. In addition, if prior to the date of distribution of any amount hereunder, the Federal Insurance Contributions Act (FICA) tax imposed under Code Sections 3101, 3121(a) and 3121(v)(2), where applicable, becomes due, then the Employer may distribute from the Participants Account vested balance the amount needed to pay the Participants portion of such tax, plus an amount equal to the withholding taxes due under federal, state or local law resulting from the payment of such FICA tax, and an additional amount to pay the additional income tax at source on wages attributable to the pyramiding of the section 3401 wages and taxes, but no greater than the aggregate of the FICA amount and the income tax withholding related to such FICA amount. Each Participant shall be responsible for the payment of all individual tax liabilities relating to any benefits under the Plan.
Section 4.5. Additional Payment Provisions.
(a) Acceleration of Payment. Notwithstanding the foregoing,
(i) | If an amount deferred under this Plan is required to be included in the income of a Participant under Code Section 409A prior to the date such amount is scheduled to be distributed, then such Participant shall receive a distribution, in a lump sum within ninety (90) days after the date the Plan fails to meet the requirements of Code Section 409A, of the amount required to be included in the Participants income as a result of such failure. |
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(ii) | If an amount under the Plan is required to be immediately distributed in a lump sum under a domestic relations order in accordance with Section 9.8, then such amount shall be distributed according to the terms of such order. |
(b) Delay in Payment. Notwithstanding the foregoing,
(i) | If a distribution required under the terms of this Plan would jeopardize the ability of the Company or an Affiliate to continue as a going concern, the Company or the Affiliate shall not be required to make such distribution. Rather, the distribution shall be delayed until the first date that making the distribution does not jeopardize the ability of the Company or an Affiliate to continue as a going concern. Any distribution delayed under this provision shall be treated as made on the date specified under the terms of this Plan. |
(ii) | If a distribution will violate the terms of any applicable law, then the distribution shall be delayed until the earliest date on which making the distribution will not violate such law. |
Section 4.6. Effect of Payment. The full payment of the applicable benefit under this Plan shall completely discharge all obligations on the part of the Employer to the Participant (and each Beneficiary) with respect to the operation of the Plan, and the Participants (and Beneficiarys) rights under the Plan shall terminate.
ARTICLE 5
MEASUREMENT FUNDS
Section 5.1. Investment Election.
(a) Making Elections. Unless otherwise determined by the Administrator, amounts credited to a Participants Account shall reflect the investment experience of the Measurement Funds selected by the Participant. The Participant may select Measurement Funds as follows:
(i) | The Participant may make an initial investment election at the time of enrollment in the Plan in whole increments of one percent (1%). |
(ii) | A Participant may elect to allocate any future amounts credited among the various Measurement Funds in whole increments of one percent (1%) from time to time as prescribed by the Administrator. |
(iii) | A Participant may elect to reallocate the balance of his or her Account into various Measurement Funds from time to time as prescribed by the Administrator. |
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Investment elections shall remain in effect until changed by the Participant or the Administrator. All investment elections shall become effective as soon as practicable after receipt of such election by the Administrator, and must be made in the form and manner and within such time periods as the Administrator prescribes in order to be effective.
Notwithstanding the foregoing, the following rules shall apply to an individual who becomes a Participant hereunder on the Effective Date:
(A) the Participants investment elections in effect under the Prior Plans, if any, as of immediately prior to the Effective Date, shall apply to the Participants Account hereunder on the Effective Date, without action by the Participant; provided that (1) a Participants investment election with respect to an Investment Option that is not offered under the Savings Plan on the Effective Date shall be automatically changed to the default fund or a like-kind fund, as determined by the Administrator, specified for the Savings Plan, and (2) a Participants election with respect to Share Units (as defined in the Prior Plan) will be automatically cancelled on the Effective Date, and such investment election shall be automatically changed to the default fund specified for the Savings Plan; and
(B) all amounts credited to a Participants Share Unit account under a Prior Plan shall be deemed transferred and re-invested, as of the Effective Date, into the default fund specified for the Savings Plan.
(b) Default Election. In the absence of an effective election, the Participants Account shall be deemed invested in the applicable default fund under the Savings Plan.
Section 5.2. Crediting of Earnings (or Losses). On each Trading Day, a Participants Account shall be credited with all deemed earnings (or losses) generated by the Measurement Funds in which such Participants Account is deemed invested. Notwithstanding that the rates of return credited to a Participants Account are based upon the actual performance of the corresponding Measurement Fund, the Company shall not be obligated to invest an amount credited to a Participants Account under the Plan in such Measurement Funds or in any other investment funds.
Section 5.3. Pro-rata Distribution. Any distribution made to or on behalf of a Participant from his or her Account in an amount which is less than the entire balance of his or her Account shall be made pro rata from each of the Measurement Funds to which such Account is then allocated.
ARTICLE 6
SPECIAL RULES APPLICABLE IN THE EVENT OF A
CHANGE OF CONTROL OF THE COMPANY
Section 6.1. Effect of a Change of Control.
Upon a change of control (within the meaning of Code Section 409A), the Company may, but shall not be required to, terminate the Plan and cause the Company or each Employer to distribute to each Participant or Beneficiary his or her Account balance (which shall
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be fully vested upon the date of such Plan termination) in a lump sum payment as soon as practicable (but not more than ninety (90) days) following the change of control.
Section 6.2. Special Rule for Amounts Accumulated Before 2017. Notwithstanding Section 6.1, each Participant (or any Beneficiary entitled to receive payments hereunder) shall receive a lump sum payment in cash of all amounts accumulated in such Participants Account with respect to periods through December 31, 2016 under the Prior Plan (as adjusted for earnings or losses thereon) within ninety (90) days following a Change of Control, as defined in the Pre-2018 Johnson Controls International plc Deferred Compensation Plan, provided, however, that the payment shall not be made prior to the date that is five (5) years after the occurrence of events that would have constituted a Change of Control as it was defined in the Prior Plan prior to January 1, 2016.
Section 6.3. Maximum Payment Limitation.
(a) Limit on Payments. Except as provided in subsection (b) below, if any portion of the payments or benefits described in this Plan or under any other agreement with or plan of the Company or an Affiliate (in the aggregate, Total Payments), would constitute an excess parachute payment, then the Total Payments to be made to the Participant shall be reduced such that the value of the aggregate Total Payments that the Participant is entitled to receive shall be one dollar ($1) less than the maximum amount which the Participant may receive without becoming subject to the tax imposed by Section 4999 of the Code or which the Company or an Affiliate may pay without loss of deduction under Section 280G(a) of the Code. The terms excess parachute payment and parachute payment shall have the meanings assigned to them in Section 280G of the Code, and such parachute payments shall be valued as provided therein. Present value shall be calculated in accordance with Section 280G(d)(4) of the Code. Within forty (40) days following delivery of notice by the Employer to the Participant of its belief that there is a payment or benefit due the Participant which will result in an excess parachute payment, the Participant and the Employer, at the Employers expense, shall obtain the opinion (which need not be unqualified) of nationally recognized tax counsel selected by the Companys independent auditors and acceptable to the Participant in his or her sole discretion (which may be regular outside counsel to the Company or an Affiliate), which opinion sets forth (1) the amount of the Base Period Income, (2) the amount and present value of Total Payments and (3) the amount and present value of any excess parachute payments determined without regard to the limitations of this Section. As used in this Section, the term Base Period Income means an amount equal to the Participants annualized includible compensation for the base period as defined in Section 280G(d)(1) of the Code. For purposes of such opinion, the value of any noncash benefits or any deferred payment or benefit shall be determined by the Companys independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code, which determination shall be evidenced in a certificate of such auditors addressed to the Employer and the Participant. Such opinion shall be addressed to the Employer and the Participant and shall be binding upon the Employer and the Participant. If such opinion determines that there would be an excess parachute payment, the payments hereunder that are includible in Total Payments or any other payment or benefit determined by such counsel to be includible in Total Payments shall be reduced or eliminated so that there will be no excess parachute payment by applying the following principles, in order: (1) the payment or benefit with the higher ratio of the parachute payment value to present economic value (determined
9
using reasonable actuarial assumptions) shall be reduced or eliminated before a payment or benefit with a lower ratio; (2) the payment or benefit with the later possible payment date shall be reduced or eliminated before a payment or benefit with an earlier payment date; and (3) cash payments shall be reduced prior to non-cash benefits; provided that if the foregoing order of reduction or elimination would violate Section 409A of the Code, then the reduction shall be made pro rata among the payment or benefits (on the basis of the relative present value of the parachute payments). If such legal counsel so requests in connection with the opinion required by this Section, the Participant and the Employer shall obtain, at the Employers expense, and the legal counsel may rely on in providing the opinion, the advice of a firm of recognized executive compensation consultants as to the reasonableness of any item of compensation to be received by the Participant. If the provisions of Sections 280G and 4999 of the Code are repealed without succession, then this Section shall be of no further force or effect.
(b) Employment Contract Governs. The provisions of subsection (a) above shall not apply to a Participant whose employment is governed by an employment contract that provides for Total Payments in excess of the limitation described in subsection (a) above.
ARTICLE 7
AMENDMENT OR TERMINATION
Section 7.1. Amendment. The Company may at any time amend the Plan, including but not limited to modifying the terms and conditions applicable to (or otherwise eliminating) allocations or deferrals to be made on or after the amendment date to the extent not prohibited by Code Section 409A; provided, however, that no amendment may reduce or eliminate any vested Account balance as of the date of such amendment (except as such Account balance may be reduced as a result of investment losses allocable to such account) without a Participants consent except as otherwise specifically provided herein. In addition, the Administrator may at any time amend the Plan to make administrative or ministerial changes or changes necessary to comply with applicable law.
Section 7.2. Termination. The Company may terminate the Plan at any time. Upon termination of the Plan, any deferral elections then in effect shall be cancelled to the extent permitted by Code Section 409A. Upon termination of the Plan, the Company may authorize the payment of the balance in all Accounts in a single sum payment without regard to any distribution election then in effect, only in the following circumstances:
(a) The Plan is terminated pursuant to Article 6.
(b) The Plan is terminated within twelve (12) months of a corporate dissolution taxed under Code Section 331, or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A). In such event, the single sum payment must be distributed by the latest of: (1) the last day of the calendar year in which the Plan termination occurs, (2) the first calendar year in which the amount is no longer subject to a substantial risk of forfeiture, or (3) the first calendar year in which payment is administratively practicable.
(c) The Plan is terminated at any other time, provided that such termination does not occur proximate to a downturn in the financial health of the Company or an Affiliate,
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and all other plans required to be aggregated with this Plan under Code Section 409A are also terminated and liquidated. In such event, the single sum payment shall be paid no earlier than twelve (12) months (and no later than twenty-four (24) months) after the date of the Plans termination. Notwithstanding the foregoing, any payment that would otherwise be paid during the twelve (12)-month period beginning on the Plan termination date pursuant to the terms of the Plan shall be paid in accordance with such terms. In addition, the Company or any Affiliate shall be prohibited from adopting a similar arrangement within three (3) years following the date of the Plans termination.
Section 7.3. Entitlement to Benefits. Nothing herein shall be construed in any way to limit the right of the sponsor of the Savings Plan to amend, modify or terminate such plan.
ARTICLE 8
CLAIMS PROCEDURES
Section 8.1. Claim. A Participant or Beneficiary (referred to as a claimant in this Article 9) who believes that he or she is being denied a benefit to which he or she is entitled under the Plan may file a written request for such benefit with the Administrator, setting forth his or her claim for benefits. Any such claim must be made within one year after the claimant knew, or exercising reasonable care should have known, of the circumstances giving rise to such claim. If the claimant does not file a claim within such one-year period, the claimant shall be barred and estopped from raising the claim. A claimants claim may also be filed by his or her duly authorized representative.
Section 8.2. Claim Decision. The Administrator shall reply to any claim that is timely filed under Section 8.1 within ninety (90) days of receipt, unless it determines to extend such reply period for an additional ninety (90) days for reasonable cause. If an extension of time is required for a hearing or other special circumstances, the claimant shall be notified prior to the end of the initial ninety (90) day period. If the claim is denied in whole or in part, such reply shall include a written explanation, using language calculated to be understood by the claimant, setting forth:
(a) the specific reason or reasons for such denial;
(b) the specific reference to relevant provisions of the Plan on which such denial is based;
(c) a description of any additional material or information necessary for the claimant to perfect his or her claim and an explanation why such material or such information is necessary;
(d) appropriate information as to the steps to be taken if the claimant wishes to submit the claim for review;
(e) the time limits for requesting a review under Section 8.3 and for review under Section 8.4 hereof;
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(f) the claimants right to bring an action for benefits under Section 502 of ERISA, if the claim is denied upon review; and
(g) any other information required by ERISA.
Section 8.3. Request for Review. Within sixty (60) days after the receipt by the claimant of the written explanation described above, the claimant (or his or her duly authorized representative) may request in writing that the Administrator review its determination. The claimant (or his or her duly authorized representative) may, but need not, review the relevant documents and submit issues and comment in writing for consideration by the Administrator. If the claimant does not request a review of the initial determination within such 60-day period, the claimant shall be barred and estopped from challenging the determination.
Section 8.4. Review of Decision. After considering all materials presented by the claimant, the Administrator will render a written decision, setting forth the specific reasons for the decision and containing specific references to the relevant provisions of the Plan on which the decision is based, and any other information required by ERISA. The decision on review shall normally be made within sixty (60) days after the Administrators receipt of the claimants request. If an extension of time is required for a hearing or other special circumstances, the Administrator shall notify the claimant and the time limit shall be 120 days. All decisions on review shall be final and shall bind all parties concerned.
Section 8.5. Limitation on Actions. Any action or other legal proceeding with respect to the Plan may be brought only after the claims procedures of this Article 6 are exhausted and only within the period ending on the earlier of (a) one year after the date claimant receives notice or deemed notice of a denial upon review under Section 8.4 or (b) the expiration of the applicable statute of limitations period under applicable federal law. Any action or other legal proceeding not adjudicated under ERISA must be arbitrated in accordance with the provisions of Section 8.6
Section 8.6. Arbitration. Notwithstanding any employee agreement in effect between a Participant and the Employer, if a Participant or Beneficiary brings a claim that relates to benefits under this Plan that is not covered under ERISA, and regardless of the basis of the claim (including but not limited to, actions under Title VII, wrongful discharge, breach of employment agreement, etc.), such claim shall be settled by final binding arbitration in accordance with the rules of the American Arbitration Association (AAA) and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Arbitration must be initiated by serving or mailing a written notice of the complaint to the other party. Normally, such written notice should be provided to the other party within one year (365 days) after the day the complaining party first knew or should have known of the events giving rise to the complaint. However, this time frame may be extended if the applicable statute of limitation provides for a longer period of time. If the complaint is not properly submitted within the appropriate time frame, all rights and claims that the complaining party has or may have against the other party shall be waived and void. Any notice sent to the Employer or Company under this Section shall be delivered to the Companys headquarters, with attention to the General Counsel of the Company.
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ARTICLE 9
MISCELLANEOUS
Section 9.1. Protective Provisions. Each Participant and Beneficiary shall cooperate with the Administrator by furnishing any and all information requested by the Administrator in order to facilitate the payment of benefits hereunder. If a Participant or Beneficiary refuses to cooperate with the Administrator, the Company and each Employer shall have no further obligation to the Participant or Beneficiary under the Plan, other than payment of the then-current balance of the Participants Account in accordance with prior elections and subject to Section 9.9.
Section 9.2. Designation of Beneficiary. Each Participant may designate in writing a Beneficiary or Beneficiaries (which Beneficiary may be an entity other than a natural person if approved by the Administrator in its sole discretion) to receive any payments which may be made under the Plan following the Participants death. A Beneficiary designation under the Plan may be separate from all other retirement-type plans sponsored by the Company. Such designation may be changed or canceled by the Participant at any time without the consent of any such Beneficiary. Any such designation, change or cancellation must be made in a form approved by the Administrator and shall not be effective until received by the Administrator or its designee prior to the date of the Participants death. If no Beneficiary has been named, or the designated Beneficiary or Beneficiaries shall have predeceased the Participant, then the Beneficiary shall be the Participants estate. If a Participant designates more than one Beneficiary, the interests of such Beneficiaries shall be paid in equal shares, unless the Participant has specifically designated otherwise. If the Beneficiary survives the Participant, but dies before receipt of payment hereunder, the Beneficiarys estate shall be entitled to the Beneficiarys share of the payment.
Section 9.3. Inability to Locate Participant or Beneficiary. In the event that the Administrator is unable to locate a Participant or Beneficiary within two years following the date the Participant or Beneficiary was to commence receiving payment, the entire amount allocated to the Participants Account shall be forfeited. If, after such forfeiture, the Participant or Beneficiary later claims such benefit, such benefit shall be reinstated without interest or earnings from the date payment was to commence pursuant to Error! Reference source not found., and the Participant or Beneficiary shall be responsible for all taxes and penalties under Code Section 409A.
Section 9.4. No Contract of Employment. Neither the establishment of the Plan, nor any modification thereof, nor the creation of any fund, trust or account, nor the payment of any benefits shall be construed as giving any Participant or any person whosoever, the right to be retained in the service of the Company or any Affiliate, and all Participants and other employees shall remain subject to discharge to the same extent as if the Plan had never been adopted.
Section 9.5. Obligations to Company. If a Participant becomes entitled to payment of benefits under the Plan, and if at such time the Participant has any outstanding debt, obligation, or other liability representing an amount owing to the Company or any Employer, then the Company or the Employer may offset such amount owed to it against the amount of
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benefits otherwise distributed; provided, however, that such deductions cannot exceed $5,000 in the aggregate to the extent needed to comply with Code Section 409A.
Section 9.6. No Liability; Indemnification. Neither the Company, any of its Affiliates nor any director, officer or employee of the Company or its Affiliates shall be responsible or liable in any manner to any Participant, Beneficiary or any person claiming through them for any benefit or action taken or omitted in connection with the granting of benefits, the continuation of benefits, or the interpretation and administration of Plan. Service as an Administrator shall constitute service as a director or officer of the Company so that the Administrator members shall be entitled to indemnification, limitation of liability and reimbursement of expenses with respect to their Administrator services to the same extent that they are entitled under the Companys charter documents and applicable law for their services as directors or officers of the Company.
Section 9.7. Nonalienation of Benefits; Domestic Relations Orders. Except as otherwise specifically provided herein, all amounts payable hereunder shall be paid only to the person or persons designated by the Plan and not to any other person or corporation. No part of a Participants Account shall be liable for the debts, contracts, or engagements of any Participant, his or her Beneficiary, or successors in interest, nor shall such accounts of a Participant be subject to execution by levy, attachment, or garnishment or by any other legal or equitable proceeding, nor shall any such person have any right to alienate, anticipate, commute, pledge, encumber, or assign any benefits or payments hereunder in any manner whatsoever. If any Participant, Beneficiary or successor in interest is adjudicated bankrupt or purports to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any payment from the Plan, voluntarily or involuntarily, the Administrator, in its discretion, may cancel such payment (or any part thereof) to or for the benefit of such Participant, Beneficiary or successor in interest in such manner as the Administrator shall direct. Notwithstanding the foregoing, all or a portion of a Participants Account may be awarded to an alternate payee (within the meaning of Section 206(d)(3)(K) of ERISA) if and to the extent so provided in a judgment, decree or order that, in the Administrators sole discretion, would meet the applicable requirements for qualification as a qualified domestic relations order (within the meaning of Section 206(d)(3)(B)(i) of ERISA) if the Plan were subject to the provisions of Section 206(d) of ERISA. Such amounts shall be payable to the alternate payee in the form of a lump sum distribution and shall be paid within ninety (90) days following the Administrators determination that the order satisfies the requirements to be a qualified domestic relations order.
Section 9.8. Liability for Benefit Payments. The obligation to pay or provide for payment of a benefit hereunder to any Participant or his or her Beneficiary shall be the sole and exclusive liability and responsibility of the Employer which employed the Participant during the period allocations were made to the Participants Account. No other Company or parent, affiliated, subsidiary or associated company shall be liable or responsible for such payment, and nothing in the Plan shall be construed as creating or imposing any joint or shared liability for any such payment. The fact that a Company or a parent, affiliated, subsidiary or associated company other than the Employer actually makes one or more payments to a Participant or Beneficiary shall not be deemed a waiver of this provision; rather, any such payment shall be deemed to have been made on behalf of and for the account of the Employer.
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Section 9.9. Unfunded Status of Plan. The Plan is intended to constitute an unfunded supplemental retirement compensation plan for Participants, with all benefits payable hereunder constituting an unfunded contractual payment obligation of the Employer and the Company. Nothing contained in the Plan, and no action taken pursuant to the Plan, shall create or be construed to create a trust of any kind. The Company or Employer shall reflect on its books the Participants interests hereunder, but no Participant or any other person shall under any circumstances acquire any property interest in any specific assets of the Company or Employer. Nothing contained in the Plan and no action taken pursuant hereto shall create or be construed to create a fiduciary relationship between the Company, an Employer, and any Participant or other person. A Participants right to receive payments under the Plan shall be no greater than the right of an unsecured general creditor of the Company or Employer. Except to the extent that the Company or Employer determines that a rabbi trust may be established in connection with the Plan, all payments shall be made from the general funds of the Company or Employer, and no special or separate fund shall be established and no segregation of assets shall be made to assure payment. The Companys or Employers obligations under the Plan are not assignable or transferable except to (a) any corporation or partnership which acquires all or substantially all of the Companys or Employers assets or (b) any corporation or partnership into which the Company or Employer may be merged or consolidated. The provisions of the Plan shall inure to the benefit of each Participant and the Participants Beneficiaries, heirs, executors, administrators or successors in interest.
Section 9.10. Governing Law. The Plan shall be construed in accordance with and governed by the laws of the State of Wisconsin to the extent not superseded by federal law, without reference to the conflict of laws principles thereof.
Section 9.11. Successors. All obligations of the Employer and the Company under the Plan shall be binding on any successor thereto, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business and/or assets of the Company or the Employer.
Section 9 .12. Severability of Provisions. If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included.
Section 9.13. Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.
Section 9.14. Gender; Singular and Plural. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may require. As the context may require, the singular may read as the plural and the plural as the singular.
Section 9.15. Notice. Any notice or filing required or permitted to be given under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to (a) except as provided in Section 9.6, the Companys headquarters, with
15
attention to the Secretary of the Company, if the notice or filing is to be made to the Administrator, Company, or Employer or (b) the Participants or Beneficiarys address on file with the Employer, if the notice or filing is to be made to such individual. Such notice shall be deemed given as of the date of delivery, or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.
Section 9.16. Delay of Payment for Specified Employees. Notwithstanding any provision of the Plan to the contrary, in the case of any Participant who is a specified employee within the meaning of Code Section 409 A as of the date of such Participants Separation from Service, no distribution under the Plan may be made, or may commence, before the date which is six months after the date of such Participants Separation from Service (or, if earlier, the date of the Participants death).
Section 9.17. Application of Plan Provisions During the TSA. Notwithstanding anything in this Plan to the contrary, and in accordance with the TSA (as defined below), during the period the United States human resources transition services provisions of the TSA are in effect, the authority, responsibility, or rights of the Company, any fiduciary or administrator of this Plan, or any officer or delegate of the Company or such fiduciary or administrator, shall vest in and be exercisable solely by Johnson Controls International plc, and its officers, ERISA plan fiduciaries, administrators, and delegates thereof. Notwithstanding the foregoing provisions of this Section 9.17, the Company may exercise any or all such authority while such provisions of the TSA are in effect, but only if such action will be effective following the expiration of such provisions of the TSA. For purposes hereof, the term TSA means the Transition Services Agreement by and between Johnson Controls International plc and BCP Acquisitions LLC.
IN WITNESS WHEREOF, the undersigned, on behalf of the Company, has executed this Plan as of June 30, 2021.
Clarios, LLC | ||
By: | /s/ Wendy S. Radtke | |
Title: | Chief Human Resources Officer |
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APPENDIX A RESTORATION PLAN
GRANDFATHERED OFFICERS
1. | Eligibility. This Appendix A covers employees of the Company or its Affiliates (a) who are participants in the Savings Plan, (b) whose benefits under the Savings Plan are limited as described in Section 1.1, and (c) who either (i) were a participant in Appendix A of the Johnson Controls International plc Retirement Restoration Plan as of April 30, 2019, or (ii) is selected by the Company to participate under this Appendix A of the Plan. |
2. | Definitions. |
(a) Annual Enrollment Period means the period designated by the Administrator in its sole discretion during which deferral elections can be made. Notwithstanding the foregoing, in all cases, the Annual Enrollment Period will end no later than December 31 of the year immediately preceding the calendar year for which such enrollment is effective.
(b) Disability means that a Participant either (i) has been determined to be eligible for Social Security disability benefits or (ii) is eligible to receive benefits under the Companys long-term disability program as in effect at the time of disability.
3. | Retirement Plan Supplement Contributions. |
(a) Before-Tax Contributions Allocation. For each calendar year, during the Annual Enrollment Period, each Participant may elect that, in the event the Participants ability to make Before-Tax Matched Contributions (as defined under the Participants Retirement Plan) is limited by reason of Sections 401(k), 402(g) or 415 of the Code and/or the limit on considered compensation under Section 401(a)(17) of the Code, then the difference between the amount of Before-Tax Matched Contributions that the Participant could have made under the Savings Plan for that calendar year (assuming the Participant elected the maximum amount of Before-Tax Matched Contributions for the calendar year and did not change his or her election during the calendar year) and the amount that would have been contributed as Before-Tax Matched Contributions but for such limits, shall be credited at such time or times as may be determined by the Administrator in its sole discretion, but in no event less frequently than annually as of December 31, to the Participants Account. A Participants election shall be made according to procedures established by the Administrator, which may include making an election by electronic means. A Participants election shall be effective only for the calendar year to which the election relates, and shall not carry over from year to year unless otherwise allowed by the Administrator in its sole discretion. An election under this subsection (a) shall constitute an election by the Participant to reduce the Participants salary by the amount determined under this subsection.
Notwithstanding the foregoing, the election made by a Participant under the Johnson Controls International plc Retirement Restoration Plan with respect to calendar year 2019 shall automatically apply hereunder on the Effective Date.
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(b) Matching Contributions Allocation. If a Participant makes a before tax contribution under (a), then a Participants Account shall also be credited at such time or times as may be determined by the Administrator in its sole discretion, but in no event less frequently than annually as of December 31, with an amount equal to the difference between the amount of Matching Contributions actually credited to the Participants Savings Plan account for the year and the amount of Matching Contributions that would have been so credited if the amount determined under subsection (a) had actually been contributed to the Participants Savings Plan (determined without regard to the limitations imposed by Sections 401(m) and 415 of the Code), but only with respect to the period the Participant is covered by this Plan; provided the Participant has met the eligibility requirements to receive a Matching Contribution under the Participants Savings Plan for such year. With respect to the 2019 calendar year, the reference to the Savings Plan shall be deemed to include the Johnson Controls Select Hourly Retirement Savings and Investment Plan and the Johnson Controls Corporate Retirement Savings and Investment Plan, as in effect on April 30, 2019.
(c) Retirement Income Allocation. A Participants Account also shall be credited at such time or times as may be determined by the Administrator in its sole discretion, but in no event less frequently than annually as of December 31, with an amount equal to the difference between the amount of Retirement Income Contributions (as defined in the Savings Plan) or other employer non-matching contributions actually credited to the Participants Savings Plan account for the year and the amount of Retirement Income Contributions or other employer non-matching contributions that would have been so credited if the limit on considered compensation under Section 401 (a)(17) of the Code did not apply; provided the Participant has met the eligibility requirements to receive a Retirement Income Contribution or other employer non-matching contribution under the Participants Savings Plan for such year. With respect to the 2019 calendar year, the reference to the Savings Plan shall be deemed to include the Johnson Controls Select Hourly Retirement Savings and Investment Plan and the Johnson Controls Corporate Retirement Savings and Investment Plan, as in effect on April 30, 2019.
(d) Modification of Compensation. Notwithstanding the foregoing, when determining a Participants compensation for purposes of subsections (a), (b) and (c), (1) the only bonus that may be included is the amount a Participant receives (or would receive but for a deferral election) under an annual cash incentive award granted under a plan of the Company or the Employer for the calendar year, and (2) for purposes of determining the amount of the deferral and/or allocations to be made, base compensation shall be determined on a gross basis (i.e., without regard to any nonqualified deferral elections made under a plan of the Company or the Employer).
(e) Cancellation of Deferral Elections. Notwithstanding any other provision of the Plan to the contrary, if the Participant elects to cancel his or her deferral election(s) due to a Disability, then the Participants deferral election(s) shall be cancelled to the extent permitted under Code Section 409A. A Participant whose deferral election(s) are cancelled pursuant to this subsection (e) may make a new deferral election
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under subsection (a), and pursuant to the requirements of Code Section 409A, with respect to future calendar years, unless otherwise prohibited by the Administrator.
4. | Vesting. |
(a) Before-Tax Contributions. Subject to Section 6, a Participant shall always be 100% vested in his or her Before-Tax Contributions described in Section 3(a).
(b) Matching Contributions. Subject to Section 6, the portion of the Participants Account attributable to Matching Contributions credited under Section 3(b) shall be vested as follows:
Years of Vesting Service* |
Vested Percentage | |||
Less than 1 |
0 | % | ||
1 |
20 | % | ||
2 |
40 | % | ||
3 |
60 | % | ||
4 |
80 | % | ||
5 or more |
100 | % |
* | Vesting Service has the meaning given in the Savings Plan. Service credited under the Johnson Controls International plc Retirement Restoration Plan as of April 30, 2019, shall also be credited hereunder. |
(c) Retirement Income Contributions. Subject to Section 6, the portion of the Participants s Account attributable to Retirement Income Contributions or other employer non-matching contributions credited under Section 3(c) shall be vested as follows:
Years of Vesting Service* |
Vested Percentage | |||
Less than 1 |
0 | % | ||
1 |
20 | % | ||
2 |
40 | % | ||
3 |
60 | % | ||
4 |
80 | % | ||
5 or more |
100 | % |
* | Vesting Service has the meaning given in the Savings Plan. Service credited under the Johnson Controls International plc Retirement Restoration Plan as of April 30, 2019, shall also be credited hereunder. |
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5. | Distribution Elections. |
(a) A Participants distribution election under the Johnson Controls International plc Retirement Restoration Plan as of April 30, 2019 shall automatically apply to his or her Account hereunder. Otherwise, the following provisions shall apply.
(b) If a Participant was previously participating under Appendix B, then the portion of the Participants Account that is credited under Appendix B (plus earnings thereon) shall be paid in a lump sum.
(c) If an individual will become a Participant effective on January 1 of a given year, then the Participant may elect the manner of distribution of the Participants Account by submitting a distribution election no later than the December 31 preceding the Participants first year of participation. Such election shall be made in such form and manner as the Administrator may prescribe. The election shall specify whether distributions shall be made in a single lump sum or in annual installments of from two (2) to ten (10) years. Such election shall be irrevocable. If no valid election is in effect, distribution shall be made in ten (10) annual installments.
(d) If an individual first becomes a Participant hereunder on a date other than a January 1, then the amounts deferred hereunder in the first year of participation (and earnings thereon), if any, shall be paid in a lump sum. With respect to amounts deferred for the second year of participation and thereafter, the Participant may elect the manner of distribution of the Participants Account with respect to those deferrals (and earnings thereon) by filing a distribution election no later than December 31 of the first year of participation. Such election shall be made in such form and manner as the Administrator may prescribe. The election shall specify whether distributions shall be made in a single lump sum or in annual installments of from two (2) to ten (10) years. Such election shall be irrevocable. If no valid election is in effect, distribution shall be made in ten (10) annual installments.
6. | Distribution Payments. |
(a) Lump Sum. With respect to the amount that a Participant has elected (or been deemed elected) to receive in a lump sum, such lump sum shall be paid on the first Distribution Date following the six-month anniversary of the Participants Separation from Service. The lump sum payment shall equal the vested balance of the Participants Account (or sub-account, if applicable) as of the Valuation Date.
(b) Installments. With respect to the amount that a Participant has elected to receive in annual installments, the first annual payment shall be paid on the first Distribution Date following the six-month anniversary of the Participant Separation from Service. All subsequent installments shall be made on the anniversary of such first Distribution Date. The amount of the first annual payment shall equal the value of 1/10th (or 1/9th, 1/8th, 1/7th, etc. depending on the number of installments elected) of the vested balance of the Participants Account (or sub-account, if applicable) as of the Valuation Date. All subsequent annual payments shall be in an amount equal to the value of 1/9th
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(or 1/8th, 1/7th, 1/6th, etc. depending on the number of installments elected, and the number of installments remaining) of the vested balance of the Participants Account (or sub-account, if applicable) as of the Valuation Date, except that the final annual installment payment shall equal the then remaining vested balance of such Account (or sub-account) as of the Valuation Date. |
(c) Cash-Out Payments. Notwithstanding any distribution election made under this Appendix A, if the balance of a Participants Account as of any Valuation Date preceding a Distribution Date is $50,000 or less, when combined with the Participants Account under Appendix B, then the entire remaining vested balance of the Participants Account shall be paid in a lump sum on such Distribution Date.
7. | Forfeiture. |
(a) Termination for Reasons Other than Cause. If the Participant is terminated for reasons other than Cause, then his or her unvested Account balance shall be immediately forfeited and not payable hereunder. Such unvested Account balance shall not be restored upon any subsequent re-employment with the Company or Employer. Notwithstanding the foregoing, the Administrator may restore an unvested Account balance to an individual upon re-employment.
(b) Termination for Cause. If the Participant is terminated for Cause (or if the Administrator determines that a Participant who was terminated other than for Cause engaged in conduct prior to his or her termination which would have constituted Cause), then the Administrator may determine in its sole discretion that the portion of the Participants Account credited on or after January 1, 2018 shall be forfeited and not payable hereunder.
8. | Administrative Error Correction. The Administrator may permit an Administrative Error (as defined below) to be corrected by allowing a Participants deferral election to be processed as soon as practicable after December 31 (and any related payroll discrepancy to be corrected) to the extent permitted under Code Section 409A. Administrative Error shall mean (a) an error by a Participant to file a deferral election according to Section 2(a) of this Appendix with the Administrator, following a good faith attempt, or (b) the failure of the Administrator to properly process a Participants deferral election. |
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APPENDIX B - RESTORATION PLAN
HIGHLY COMPENSATED EMPLOYEES (RIC)
1. | Eligibility. This Appendix B covers an employee (a) whose Retirement Income Contributions (as defined in the Savings Plan) or other employer non-matching contributions under his or her Savings Plan are limited by reason of the application of Code Section 401(a)(17) and (b) who is not covered by Appendix A. |
2. | Participation Date. An eligible employee shall become a Participant on the date the Participants compensation first exceeds the Code Section 401(a)(17) limit. For this purpose, the only bonus that may be included in compensation is the amount a Participant receives (or would receive but for a deferral election) under an annual cash incentive award granted under a plan of the Company or the Employer for the calendar year. For clarity, any individual who had become a Participant under Appendix B of the Johnson Controls International plc Retirement Restoration Plan prior to May 1, 2019 shall automatically be treated as a Participant hereunder on May 1, 2019. |
3. | Retirement Income Allocation. A Participants Account shall be credited at such time or times as may be determined by the Administrator in its sole discretion, but in no event less frequently than annually as of December 31, with an amount equal to the difference between the amount of Retirement Income Contributions or other employer non-matching contributions actually credited to the Participants Savings Plan account for the year and the amount of Retirement Income Contributions or other employer non-matching contributions that would have been so credited if the limit on considered compensation under Section 401(a)(17) of the Code did not apply and by including (a) all amounts of cash compensation which the Participant would have received under an annual cash incentive award granted under a plan of the Company or Employer for the year but for a deferral election and (b) the Participants gross base compensation (i.e., without regard to any nonqualified deferral elections made under a plan of the Company or any Employer); provided the Participant has met the eligibility requirements to receive a Retirement Income Contribution or other employer non-matching contributions under the Participants Savings Plan for such year. With respect to the 2019 calendar year, the reference to the Savings Plan shall be deemed to include the Johnson Controls Select Hourly Retirement Savings and Investment Plan and the Johnson Controls Corporate Retirement Savings and Investment Plan, as in effect on April 30, 2019. |
4. | Vesting. The Retirement Income Contributions or other employer non-matching contributions credited to a Participant under this Appendix B shall be shall be vested as follows: |
Years of Vesting Service* |
Vested Percentage | |||
Less than 1 |
0 | % | ||
1 |
20 | % | ||
2 |
40 | % | ||
3 |
60 | % | ||
4 |
80 | % | ||
5 or more |
100 | % |
B-1
* | Vesting Service has the meaning given in the underlying Savings Plan. Service credited under the Prior Plan as of April 30, 2019, shall also be credited hereunder. |
Notwithstanding the foregoing, if the Participant is terminated for Cause (or if the Administrator determines that a Participant who was terminated other than for Cause engaged in conduct prior to his or her termination which would have constituted Cause), then the Administrator may determine in its sole discretion that the portion of the Participants Account accumulated on or after January 1, 2018 shall be forfeited and not payable hereunder. |
5. | Manner of Distribution. Amounts credited under this Appendix B (as adjusted for earnings or losses thereon) shall be paid in a cash lump sum on the first Distribution Date following the six-month anniversary of the Participants Separation from Service. The lump sum payment shall equal the vested balance of the Participants Account as of the Valuation Date. |
6. | Cash-Out Payments. Notwithstanding any distribution election made under this Appendix B, if the balance of a Participants Account as of any Valuation Date preceding a Distribution Date is $50,000 or less, when combined with Participants Account under Appendix A, then the entire remaining vested balance of the Participants Account shall be paid in a lump sum on such Distribution Date. |
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APPENDIX C DEFERRED COMPENSATION PLAN
RULES APPLICABLE TO ACCOUNT BALANCES TRANSFERRED FROM THE
JOHNSON CONTROLS INTERNATIONAL PLC EXECUTIVE DEFERRED
COMPENSATION PLAN
1. Participation. A Participant who is subject to this Appendix C is an individual whose Account was assumed hereunder from the Johnson Controls International plc Executive Deferred Compensation Plan (the Prior Deferred Compensation Plan). All references to Account hereunder refer to such assumed Account, as adjusted after the Effective Date for gains and losses thereon, and distributions therefrom.
2. Distribution of Accounts.
(c) Form of Distribution. A Participant, at the time he made an initial deferral election under the Prior Deferred Compensation Plan, was permitted to elect the form of distribution with respect to each of the following sub-accounts, which continue to be maintained hereunder:
(i) Annual Incentive Deferrals,
(ii) Long-Term Incentive Deferrals,
(iii) Share Deferrals,
(iv) Other Incentive Compensation Deferrals.
The election specified whether distributions shall be made in a single lump sum or from two (2) to ten (10) annual installments. In the absence of a distribution election with respect to a particular subaccount, payment shall be made in ten (10) annual installments. Such elections continue to apply to the Accounts hereunder.
(d) Distribution Payment.
(i) Lump Sum. If payment is to be made in a lump sum, such lump sum shall be paid on the first Distribution Date following the six-month anniversary of the Participants Separation from Service. The lump sum payment shall equal the balance of the Participants Account as of the Valuation Date.
(ii) Installments. If payment is to be made in annual installments, the first annual payment shall be paid on the first Distribution Date following the six-month anniversary of the Participants Separation from Service. All subsequent installments shall be made on the anniversary of such first Distribution Date. The amount of the first annual payment shall equal the value of 1/10th (or 1/9th, 1/8th, 1/7th, etc. depending on the number of installments elected) of the balance of the Participants Account as of the Valuation Date. All subsequent annual payments shall be in an amount equal to the value of 1/9th (or 1/8th, 1/7th, 1/6th, etc. depending on the number of installments elected) of the balance of the Participants Account as of the
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Valuation Date. The final annual installment payment shall equal the then remaining balance of such Account as of the Valuation Date. Notwithstanding the foregoing provisions, if the balance of a Participants Account under this Appendix C as of the Valuation Date preceding a Distribution Date is $50,000 or less, when combined with the Participants account under the Clarios Senior Executive Deferred Compensation Plan, then the entire remaining balance of the Participants Account shall be paid in a lump sum on such Distribution Date.
(e) Distribution of Remaining Account Following Participants Death. In the event of the Participants death prior to receiving all payments due under this Section 2, the balance of the Participants Account shall be paid to the Participants Beneficiary in a lump sum on the first Distribution Date following the Participants death. Notwithstanding the foregoing, in lieu of such lump sum death benefit, a Participant who has an installment payment election in effect may have, prior to his or her termination of employment, elected to have any remaining installment payments continue to his or her Beneficiary in the event the Participant dies after beginning to receive such installment payments, provided that such election shall be given effect only if it was filed at least twelve (12) months prior to the date of the Participants death.
3. Special Rules Applicable in the Event of a Change of Control of the Company.
(a) Acceleration of Payments. Notwithstanding any other provision of this Plan to the contrary, each Participant (or any Beneficiary thereof entitled to receive payments hereunder), including Participants (or Beneficiaries) receiving installment payments hereunder, shall receive a lump sum payment in cash of all amounts accumulated in such Participants Account with respect to deferrals made pursuant to elections filed prior to September 2, 2016 under the Prior Deferred Compensation Plan as soon as practicable (but not more than ninety (90) days) following a Change of Control (as defined below); provided, however, that if a Change of Control occurs on or after January 1, 2017, then the payment shall not be made prior to the date that is five (5) years after the occurrence of events that would have constituted a Change of Control as it was defined in the Prior Deferred Compensation Plan as in effect immediately prior to January 1, 2016.
(b) Definition of a Change of Control. A Change of Control under this Appendix C means any of the following events, provided that each such event would constitute a change in control event within the meaning of Code Section 409A:
(i) The acquisition by any Person (as defined below) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, as defined below) of thirty-five percent (35%) or more of either (A) the then-outstanding shares (the Outstanding Company Shares) of the Company or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the Outstanding Company Voting Securities); provided, however, that the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company or (4) any acquisition by any corporation pursuant to a transaction that complies with Section 3(b)(iii)(1)-(3);
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(ii) Any time at which individuals who, as of the Effective Date, constitute the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Companys shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;
(iii) Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each, a Business Combination), in each case unless, following such Business Combination, (1) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Shares and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of the then-outstanding ordinary or common shares and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Companys assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Shares and the Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or an Affiliated Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, thirty-five percent (35%) or more of, respectively, the then-outstanding ordinary or common shares of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
4. For purposes hereof:
(a) Exchange Act means the Securities Exchange Act of 1934.
(b) Person means any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act).
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APPENDIX D SUPPLEMENTAL SAVINGS AND RETIREMENT PLAN
RULES APPLICABLE TO ACCOUNT BALANCES TRANSFERRED FROM THE
TYCO SUPPLEMENTAL SAVINGS AND RETIREMENT PLAN
1. Participation. A Participant who is subject to this Appendix D is an individual whose Account was assumed hereunder from the Tyco Supplemental Savings and Retirement Plan (the Prior Supplemental Plan). All references to Account hereunder refer to such assumed Account, as adjusted after the Effective Date for gains and losses thereon, and distributions therefrom.
2. Vesting. All Prior Supplemental Plan Account balances are 100% vested.
3. Distribution of Accounts
(a) Form of Distribution. A Participant, at the time he or she made an initial deferral election under the Prior Supplemental Plan and each Plan Year thereafter, was permitted to elect the time and from of distribution with respect to each of the following sub-accounts for a Plan Year, which continue to be maintained hereunder:
(i) Compensation Deferrals,
(ii) Matching Credits,
(iii) Company Credits, and
(iv) Discretionary Credits.
The election specified whether distributions shall be made following the Participants Separation from Service (a Separation Payment), or at a specified date, without reference to the Participants Separation from Service (an In-Service Payment), and in a single lump sum or from two (2) to fifteen (15) annual installments. In the absence of a distribution election with respect to a particular subaccount, payment shall be made as a lump sum Separation Payment.
(b) Distribution Payment.
(i) Lump Sum. If a Separation Payment is to be made in a lump sum, such lump sum shall be paid on the Payment Date (as defined in Section 4, below) occurring in the year following the year of the Participants Separation from Service. If an In-Service Payment is to be made in a lump sum, such lump sum shall be paid on the Payment Date during the payment year designated by the Participant. The lump sum payment shall equal the balance of the Participants Account as of the Valuation Date (as defined in Section 4, below).
(ii) Installments. If a Separation Payment is to be made in annual installments, the first annual payment shall be made on the Payment Date occurring in the year
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following the year of the Participants Separation from Service. If an In-Service Payment is to be made in annual installments, the first annual payment shall occur on the Payment Date occurring during the payment year designated by the Participant. All subsequent installments shall be made on the anniversary of such first Payment Date. The amount of the first annual payment shall equal the value of 1/15th (or 1/14th, 1/13th, 1/12th, etc. depending on the number of installments elected) of the balance of the Participants Account as of the Valuation Date. All subsequent annual payments shall be in an amount equal to the value of 1/14th (or 1/13th, 1/12th, 1/11th, etc. depending on the number of installments elected) of the balance of the Participants Account as of the Valuation Date. The final annual installment payment shall equal the then remaining balance of such Account as of the Valuation Date.
(c) Changes to Prior Elections. A Participant may change the payment year and/or the form of an existing In-Service Payment election for a Plan Year by filing a new payment election, in the form specified by the Plan Administrator, at least 12 months prior to the original payment year (in the case of installment payments, the year of the first scheduled installment payment), provided that such new election delays the payment year by at least five years from the original payment year, and provided, further, that such change in election shall not be effective until 12 months from the date it is filed. Notwithstanding the foregoing, no change in the form of payment may accelerate In-Service Payments. No change in payment year or form of payment may be made with respect to a Separation Payment once elected. In addition, a Participants reemployment following the commencement of installment payments shall not cause any suspension or interruption in such installment payments.
(d) Cash-Out Payments. Notwithstanding the foregoing provisions, if the balance of a Participants Account under this Appendix D on the first day of the Plan Year following the year of his or her Separation from Service is $5,000 or less when combined with all account balance plans (as defined in Treas. Reg. Section 1.409A-1(c)(2)(A)(1)-(2)), then the entire remaining balance of the Participants Account shall be paid in a lump sum on the Payment Date of the year following the year in which the Participants Separation from Service occurs.
(e) Death or Disability Benefit. Upon the death or Disability of a Participant, the Participant or the Participants Beneficiary, as applicable, shall be paid the balance in his or her Account in the form of a lump sum payment, with such payment to be made within 90 days of the date of the Participants death or Disability. Such payment shall be in an amount equal to the value of the Participants Account of the last day of the calendar quarter following the Participants death or Disability, with the Measurement Funds being deemed to have been liquidated on that date to make the payment.
(f) Unforeseeable Emergency. In the event that the Plan Administrator, upon written request of a Participant, determines that the Participant has suffered an Unforeseeable Emergency, the Participant shall be paid from that portion of his or her Account resulting from his or her Compensation Deferrals, within 90 days following such determination, an amount necessary to meet the Unforeseeable Emergency need, after deduction of any and all withholding taxes as may be required by law.
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3. Forfeiture for Cause. Notwithstanding any other provision of the Plan, if a Participant Separates from Service for Cause (as defined below), or if the Plan Administrator determines that a Participant Separates from Service for any other reason had engaged in conduct prior to his or her separation which would have constituted Cause, then the Plan Administrator may determine in its sole discretion that such Participants Account under the Plan shall be forfeited and shall not be payable hereunder.
4. Definitions. Wherever used in this Appendix D, the following terms shall have the meanings set forth below and, where the meaning is intended, the initial letter of the word is capitalized:
(a) Cause. Cause means a Participants (i) substantial failure or refusal to perform duties and responsibilities of his or her job as required by the Company, (ii) violation of any fiduciary duty owed to the Company, (iii) conviction of a felony or misdemeanor, (iv) dishonesty, (v) theft, (vi) violation of Company rules or policy, or (vii) other egregious conduct, that has or could have a serious and detrimental impact on the Company and its employees. The Plan Administrator, in its sole and absolute discretion, shall determine Cause. Examples of Cause may include, but are not limited to, excessive absenteeism, misconduct, insubordination, violation of Company policy, dishonesty, and deliberate unsatisfactory performance (e.g., Employee refuses to improve deficient performance).
(b) Disability. Disability means that a Participant either (i) has been determined to be eligible for Social Security disability benefits or (ii) is eligible to receive benefits under the Companys long-term disability program as in effect at the time of disability.
(c) Payment Date. Payment Date means the time period beginning on March 1 and ending on March 15 in each respective Plan Year.
(d) Valuation Date. Valuation Date means February 28 for distributions paid on the Payment Date. If February 28 is not a business day on which the New York Stock Exchange is open, the Valuation Date shall be the first prior business day on which the New York Stock Exchange is open. For distributions that are paid after the Payment Date either due to the delay for set forth in Section 9.16 or due to an administrative error that is corrected within the same Plan Year, the Valuation Date shall be the date immediately prior to the date that the distributions are processed.
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Exhibit 10.33
CLARIOS
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective May 1, 2019
Amended and Restated June 30, 2021
ARTICLE 1
PURPOSE AND DURATION
Section 1.1. Purpose. The Clarios Senior Executive Deferred Compensation Plan (formerly known as the Power Solutions Senior Executive Deferred Compensation Plan) (the Plan) permits certain employees of the Company and its Affiliates to defer certain compensation under plans or programs maintained by the Company or an Affiliate with respect to periods on and after the Effective Date, except as provided herein. The Plan also assumed certain liabilities from the Johnson Controls International plc Senior Executive Deferred Compensation Plan as of May 1, 2019, as described herein.
Section 1.2. Duration. The Plan is effective May 1, 2019 (the Effective Date). Notwithstanding the effective date of this Plan, the Administrator may implement the administration of the Plan prior to the effective date as necessary to effectuate the Plan. The Plan was amended and restated effective June 30, 2021 to incorporate a prior Plan amendment that reflected a change to the name of the Company and the Plan. The Plan shall remain in effect until terminated pursuant to Article 10.
ARTICLE 2
DEFINITIONS
Section 2.1. Definitions. Wherever used in the Plan, the following terms shall have the meanings set forth below and, where the meaning is intended, the initial letter of the word is capitalized:
(a) Account means the record keeping account or accounts maintained to record the interest of each Participant under the Plan. An Account is established for record keeping purposes only and not to reflect the physical segregation of assets on the Participants behalf, and may consist of such subaccounts or balances as the Administrator may determine to be necessary or appropriate. On the Effective Date, each individual who becomes a Participant on such date shall have a beginning Account balance equal to the balance credited to a Participant under the Prior Plan as of immediately prior to the Effective Date.
(b) Administrator means the person(s) or entity appointed by the Company to administer the Plan.
(c) Affiliate means each entity that is required to be included in the Companys controlled group of corporations within the meaning of Code Section 414(b), or that is under common control with the Company within the meaning of Code Section 414(c);
provided that for purposes of determining when a Participant has incurred a Separation from Service, the phrase at least 50 percent shall be used in place of the phrase at least 80 percent in each place that phrase appears in the regulations issued thereunder.
(d) Annual Enrollment Period means the period designated by the Administrator in its sole discretion during which deferral elections can be made. Notwithstanding the foregoing, in all cases, the Annual Enrollment Period will end no later than December 31 of the year immediately preceding the calendar year for which such enrollment is effective.
(e) Beneficiary means the person or persons designated by the Participant to receive payments under the Plan in the event of the Participants death as provided in Section 11.2.
(f) Board means the Board of Directors of the Company.
(g) Code means the Internal Revenue Code of 1986, as interpreted by regulations and rulings issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of the Code shall be deemed to include any rulings and regulations promulgated thereunder, and reference to any successor provision thereto.
(h) Company means Clarios, LLC and its successors as provided in Section 11.11.
(i) Deferrable Compensation means the following types of compensation that may be deferred under the Plan:
(1) | Base Salary: Up to fifty percent (50%) of a Participants base salary. |
(2) | Annual Incentive Award: Up to ninety-five percent (95%) of a Participants performance cash award made under a plan of the Company or an Employer, or with the consent of the Administrator, any other cash bonus awarded to a Participant. |
(3) | Shares: For only those Participants that previously made a deferral election with respect to equity awards on or before January 1, 2018 under the Prior Plan, any Shares or cash that would otherwise be issued to such Participant under any equity award (other than share options or share appreciation rights) granted under any plan of Johnson Controls International plc. |
(4) | Other Incentive Compensation: Any other incentive award or compensation that the Administrator designates is eligible for deferral hereunder. |
All compensation amounts shall be determined before any reduction for any amounts deferred by the Participant pursuant to Section 401(k) or Section 125 of the Code, or pursuant to the Plan or any other non-qualified plan which permits the voluntary deferral of compensation.
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(j) Deferral means the amount credited, in accordance with a Participants election, to the Participants Account in lieu of the payment in cash thereof, or the issuance of Shares with respect thereto. Deferrals include the following:
(1) | Base Salary Deferrals: A deferral of a portion of a Participants base salary, as described in subsection (i)(1). |
(2) | Annual Incentive Award Deferrals: A deferral of a portion of a Participants cash bonus, as described in subsection (i)(2). |
(3) | Share Deferrals: A deferral of Shares, as described in subsection (i)(3). |
(4) | Other Incentive Compensation: A deferral of any other type of Deferrable Compensation, as described in subsection (i)(4). |
(k) Disability means that a Participant either (1) has been determined to be eligible for Social Security disability benefits or (2) is eligible to receive benefits under the Companys long-term disability program as in effect at the time of disability.
(1) Distribution Date means each January 15 or July 15, or the first business day prior such date if such date falls on a holiday or weekend.
(m) Employer means the Company or the Affiliate that employs a Participant.
(n) ERISA means the Employee Retirement Income Security Act of 1974, as interpreted by regulations and rulings issued pursuant thereto, all as amended and in effect from time to time. Any reference to a specific provision of ERISA shall be deemed to include any rulings and regulations promulgated thereunder and reference to any successor provision thereto.
(o) Measurement Funds means the investment options offered under the Savings Plan, and any other alternatives made available by the Administrator. These Measurement Funds are used solely to calculate the earnings that are credited to a Participants Account in accordance with Section 6.2 below, and do not represent any beneficial interest on the part of the Participant in any asset or other property of the Company or its Affiliates. The determination of an increase or decrease in the performance of each Measurement Fund shall be made by the Administrator in its reasonable discretion. Measurement Funds may be replaced, new funds may be added, or both, from time to time in the discretion of the Administrator; provided that if the Measurement Funds hereunder correspond with funds available for investment under the Savings Plan, then, unless the Administrator determines otherwise in its discretion, any addition, removal or replacement of investment funds under the Savings Plan shall automatically result in a corresponding change to the Measurement Funds hereunder.
(p) Participant means (i) an employee of the Company or any Affiliate who is employed in the United States and was eligible to participate in the Prior Plan as of April 30, 2019, or (ii) an employee of the Company or any Affiliate selected by the Company to be a Participant in the Plan. Notwithstanding the foregoing, the Administrator shall limit the
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foregoing group of eligible employees to a select group of management and highly compensated employees, as determined by the Committee in accordance with ERISA. A Participant shall also mean a Transferred Employee (as defined in the Stock and Asset Purchase Agreement by and Between Johnson Controls International plc and BCP Acquisitions LLC, dated as of November 13, 2018) who had an account under the Prior Plan immediately prior to the Effective Date which account is assumed hereunder; provided that if such individual does not otherwise meet the requirements to be a Participant hereunder, such individuals rights under the Plan shall be limited to the rights related to such assumed account (such as the right to investments and distributions of such account). Where the context so requires, a Participant also means a former employee or Beneficiary entitled to receive a benefit hereunder.
(q) Prior Plan means the Johnson Controls International plc Senior Executive Deferred Compensation Plan.
(r) Savings Plan means the Clarios Retirement Savings and Investment Plan and any successor to such plan maintained by the Company or an Affiliate.
(s) Separation from Service means a Participants cessation of service from the Company and all Affiliates within the meaning of Code Section 409A, as determined by the Administrator, subject to the following rules:
(1) | If a Participant takes a leave of absence from the Company or an Affiliate for purposes of military leave, sick leave or other bona fide leave of absence, the Participants employment will be deemed to continue for the first six (6) months of the leave of absence, or if longer, for so long as the Participants right to reemployment is provided by either by statute or by contract; provided that if the leave of absence is due to the Participants medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of six (6) months or more, and such impairment causes the Participant to be unable to perform the duties of his or her position with the Company or an Affiliate or a substantially similar position of employment, then the leave period may be extended for up to a total of twenty-nine (29) months. If the period of the leave exceeds the time periods set forth above and the Participants right to reemployment is not provided by either statute or contract, the Participant will be considered to have incurred a Separation from Service on the first day following the end of the applicable time period set forth above. |
(2) | A Participant will be presumed to have incurred a Separation from Service when the level of bona fide services performed by the Participant for the Company and its Affiliates permanently decreases to a level equal to twenty percent (20%) or less of the average level of services performed by the Participant for the Company or its Affiliates during the immediately preceding thirty-six (36) month period (or such lesser period of service). |
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(3) | The Participant will be presumed not to have incurred a Separation from Service while the Participant continues to provide bona fide services to the Company or an Affiliate in any capacity (whether as an employee or independent contractor) at a level that is at least fifty percent (50%) or more of the average level of services performed by the Participant for the Company or its Affiliates during the immediately preceding thirty-six (36) month period (or such lesser period of service). |
(4) | If a Participant ceases to provide services as an employee to the Company or an Affiliate, but immediately thereafter continues to provide services as an independent contractor to any such entity without incurring a Separation from Service as described in the subparagraphs above, then such Participant will not incur a Separation from Service until the expiration of the contract (or, if applicable, all contracts) under which services are performed for the Company and any Affiliate if the expiration is a good-faith and complete termination of the contractual relationship. |
(t) Share means an ordinary share of Johnson Controls International plc.
(u) Trading Day means each day when the United States financial markets are open for business.
(v) Valuation Date means the day selected by the Administrator on which to value a Participants Account prior to a distribution. The Valuation Date may be any Trading Day within the one week prior to Distribution Date, as determined in the Administrators sole discretion.
ARTICLE 3
ADMINISTRATION
Section 3.1. Authority of the Administrator. The Administrator shall have discretionary authority and responsibility for the general operation and daily administration of the Plan, including, in addition to the authority specifically provided to the Administrator in this Plan, to (a) interpret and apply all of the Plans provisions, (b) prescribe forms for use with respect to the Plan, (c) reconcile inconsistencies or supply omissions in the Plans terms, (d) make appropriate determinations, including factual determinations, and calculations, (e) prepare all reports required by law, and (f) determine the eligibility of an employee to participate in the Plan.
Section 3.2. Delegation. The Administrator may, in its discretion, delegate any or all of its authority and responsibility to third parties. To the extent of any such delegation, any references herein to the Administrator, as applicable, shall be deemed references to such delegate.
Section 3.3. Interpretation; Decisions Binding. Interpretation of the Plan shall be within the sole discretion of the Administrator with respect to their respective duties hereunder. If any delegate of the Administrator shall also be a Participant or Beneficiary, then such individual may not participate in any determinations affecting the individuals benefits
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under the Plan. The Administrators determinations shall be final and binding on all parties with an interest hereunder, unless determined to be arbitrary and capricious.
Section 3.4. Procedures for Administration. The Administrators determinations shall be made in accordance with such procedures it establishes.
ARTICLE 4
PARTICIPATION
Section 4.1. Timing. Each employee of the Company or an Affiliate who qualifies as a Participant shall automatically become a Participant on the date he or she makes (or is deemed to make) a deferral election under Article 5. Each employee of the Company or an Affiliate who had a deferral election in effect under the Prior Plan shall automatically become a Participant hereunder on the Effective Date.
Section 4.2. Employees Acquired in Mergers and Acquisitions. In the event an individual becomes an employee of the Company or an Affiliate due to a merger or acquisition, such employee shall not be eligible to participate in the Plan until such time that participation is approved by the Company via amendment of the Plan, corporate resolution or pursuant to the terms of the applicable purchase agreement, even if such employee would otherwise be eligible to participate in the Plan.
ARTICLE 5
DEFERRALS OF COMPENSATION
Section 5.1. Deferral Elections. A Participant may elect to defer all or part of his or her deferrable compensation during the Annual Enrollment Period by filing a deferral election according to the procedures established by the Administrator, which may include making an election by electronic means. A Participants election to defer compensation shall be effective only for the calendar year to which the election relates, and shall not carry over from year to year unless otherwise allowed by the Administrator in its sole discretion. As of the end of the applicable Annual Enrollment Period, the Participants deferral election shall be irrevocable except as provided in Section 5.2. A Participant may make a deferral election at such other times not described above as may be permitted by the Administrator consistent with the requirements of Code Section 409A.
Notwithstanding the foregoing, the deferral elections made by a Participant under the Prior Plan prior to January 1, 2019 shall automatically apply hereunder on the Effective Date.
Section 5.2. Cancellation of Deferral Elections.
(a) Permitted Cancelations. Notwithstanding any other provision of the Plan to the contrary, (1) if the Administrator determines that a Participants deferral election(s) must be cancelled in order for the Participant to receive a hardship distribution under the Savings Plan or any other 401(k) plan maintained by the Company or an Affiliate or (2) if the Participant elects to cancel his or her deferral election(s) due to a Disability, then the Participants deferral election(s) shall be cancelled to the extent permitted under Code Section 409A.
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(b) Effect of Cancellation. A Participant whose deferral election(s) are cancelled pursuant to this Section 5.2 may make a new deferral election under Section 5.1, and pursuant to the requirements of Code Section 409A, with respect to future compensation, unless otherwise prohibited by the Administrator.
Section 5.3. Administration of Deferral Elections. All deferral elections must be made in the form and manner and within such time periods as the Administrator prescribes in order to be effective.
ARTICLE 6
MEASUREMENT FUNDS
Section 6.1. Investment Election.
(a) Making Elections. Unless otherwise determined by the Administrator, amounts credited to a Participants Account shall reflect the investment experience of the Measurement Funds selected by the Participant. The Participant may select Measurement Funds as follows:
(1) | The Participant may make an initial investment election at the time of enrollment in the Plan in whole increments of one percent (1%). |
(2) | A Participant may elect to allocate any future Deferrals among the various Measurement Funds in whole increments of one percent (1%) from time to time as prescribed by the Administrator. |
(3) | A Participant may elect to reallocate the balance of his or her Account into various Measurement Funds from time to time as prescribed by the Administrator. |
Investment elections shall remain in effect until changed by the Participant. All investment elections shall become effective as soon as practicable after receipt of such election by the Administrator, and must be made in the form and manner and within such time periods as the Administrator prescribes in order to be effective.
Notwithstanding the foregoing, the following rules shall apply to an individual who becomes a Participant hereunder on the Effective Date:
(A) the Participants investment elections in effect under the Prior Plan, if any, as of immediately prior to the Effective Date, shall apply to the Participants Account hereunder on the Effective Date, without action by the Participant; provided that (1) a Participants investment election with respect to an investment option that is not offered under the Savings Plan on the Effective Date shall be automatically changed to the default fund or a like-kind fund, as determined by the Administrator, specified for the Savings Plan, and (2) a Participants election with respect to Share Units (as defined in the Prior Plan) will be automatically cancelled on the Effective Date, and such investment election shall be automatically changed to the default fund specified for the Savings Plan; and
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(B) all amounts credited to a Participants Share Unit account under the Prior Plan shall be deemed transferred and re-invested, as of the Effective Date, into the default fund specified for the Savings Plan.
(b) Default Election. In the absence of an effective election, the Participants Account shall be deemed invested in the default fund specified for the Savings Plan.
Section 6.2. Crediting of Earnings (or Losses). All Deferrals will be deemed invested in a Measurement Fund as of the date on which the deferrals would have otherwise been paid to the Participant. On each Trading Day, a Participants Account shall be credited with all deemed earnings (or losses) generated by the Measurement Funds in which such Participants Account is deemed invested. Notwithstanding that the rates of return credited to a Participants Account are based upon the actual performance of the corresponding Measurement Fund, the Company shall not be obligated to invest an amount credited to a Participants Account under the Plan in such Measurement Funds or in any other investment funds.
Section 6.3. Pro-rata Distribution. Any distribution made to or on behalf of a Participant from his or her Account in an amount which is less than the entire balance of his or her Account shall be made pro rata from each of the Measurement Funds to which such Account is then allocated.
ARTICLE 7
DISTRIBUTION OF ACCOUNTS
Section 7.1. Distribution Event. Except as otherwise provided in this Article 7, a Participants Account shall be distributed, according to his or her distribution election made pursuant to Section 7.2, upon the Participants Separation from Service.
Section 7.2. Annual Election. During the Annual Enrollment Period preceding each calendar year, a Participant may elect the form of distribution with respect to each of the following sub-accounts established for such calendar year:
(a) | Base Salary Deferrals, including interest, earnings or losses thereon. |
(b) | Annual Incentive Deferrals, including interest, earnings or losses thereon. |
(c) | Other Incentive Compensation Deferrals, including interest, earnings or losses thereon. |
Such election shall be made in such form and manner as the Administrator may prescribe, which may include electronic means. The election shall specify whether distributions shall be made in a single lump sum or from two (2) to ten (10) annual installments. In the absence of a valid distribution election for any given year with respect to a particular subaccount, payment shall be made in a single lump sum. Once the form of distribution is elected with respect to a particular year, such election shall be irrevocable.
Notwithstanding the foregoing, a Participants distribution election(s) made under the Prior Plan as of April 30, 2019 shall automatically apply to his or her sub-accounts hereunder that were
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established for calendar years 2019 and earlier (which sub-accounts may include a former Share Deferral sub-account).
Section 7.3. Manner of Distribution. The Participants Account shall be paid in cash in the following manner:
(a) Lump Sum. With respect to each sub-account for which a Participant has elected to receive a lump sum, the balance of such sub-account (as of the Valuation Date) shall be paid on the first Distribution Date following the six-month anniversary of the Participants Separation from Service.
(b) Installments. With respect to each sub-account for which a Participant has elected to receive annual installments, the first annual payment shall be paid on the first Distribution Date following the six-month anniversary of the Participant Separation from Service. All subsequent installments shall be made on the anniversary of such first Distribution Date. The amount of the first annual payment shall equal the value of 1/10th (or 1/9th, 1/8th, 1/7th, etc. depending on the number of installments elected) of the balance of the sub-account as of the Valuation Date. All subsequent annual payments shall be in an amount equal to the value of 1/9th (or 1/8th, 1/7th, 1/6th, etc. depending on the number of installments elected, and the number of installments remaining) of the balance of the sub-account as of the Valuation Date, except that the final annual installment payment shall equal the then remaining balance of such sub-account as of the Valuation Date.
Section 7.4. Distribution of Remaining Account Following Participants Death.
(a) Payment Upon Death. In the event of the Participants death prior to receiving all payments due under this Article 7, the balance of the Participants Account shall be paid to the Participants Beneficiary in a lump sum. If the Participants death occurs between January 1 and June 30, payment will be made to the Participants Beneficiary between July 1 and September 30 of the same year. If the Participants death occurs between July 1 and December 31, payment will be made to the Participants Beneficiary between January 1 and March 31 of the following year.
(b) Requirements for Payment. The timing of the payment(s) under Section 7.4(a) is dependent upon the Administrator receiving all information needed to authorize such payment (such as a copy of the Participants death certificate). To the extent the Administrator cannot make a payment because it has not received such information, then the Administrator shall make such payment(s) to the Beneficiary as soon as practicable in accordance with Section 7.4(a) after it has received all information necessary to make such payment, provided that such payment(s) due from the date of death through December 31 of the year following the year of the Participants death must be completed by such December 31 in order to avoid additional taxes under Code Section 409 A.
Section 7.5. Tax Withholding. The Employer that is liable to make a payment hereunder shall have the right to deduct from any deferral or payment made hereunder, or from any other amount due a Participant, the amount of cash sufficient to satisfy the Employers foreign, federal, state or local income tax withholding obligations with respect to any amount
9
deferred hereunder, whether at the time of deferral, vesting or payment thereof. In addition, if prior to the date of distribution of any amount hereunder, the Federal Insurance Contributions Act (FICA) tax imposed under Code Sections 3101, 3121(a) and 3121(v)(2), where applicable, becomes due, then the Employer may distribute from the Participants Account balance the amount needed to pay the Participants portion of such tax, plus an amount equal to the withholding taxes due under federal, state or local law resulting from the payment of such FICA tax, and an additional amount to pay the additional income tax at source on wages attributable to the pyramiding of the Code Section 3401 wages and taxes, but no greater than the aggregate of the FICA tax amount and the income tax withholding related to such FICA tax amount. Each Participant shall be responsible for the payment of all individual tax liabilities relating to any benefits under the Plan.
Section 7.6. Additional Payment Provisions.
(a) Acceleration of Payment. Notwithstanding the foregoing:
(1) | If an amount deferred under this Plan is required to be included in a Participants income under Code Section 409A prior to the date such amount is scheduled to be distributed, such Participant shall receive a distribution, in a lump sum within ninety (90) days after the Plan fails to meet the requirements of Code Section 409A, of the amount required to be included in the Participants income as a result of such failure. |
(2) | If an amount under the Plan is required to be immediately distributed in a lump sum under a domestic relations order in accordance with Section 11.7, then such amount shall be distributed according to the terms of such order. |
(b) Delay in Payment. Notwithstanding the foregoing:
(1) | If a distribution required under the terms of this Plan would jeopardize the ability of the Company or an Affiliate to continue as a going concern, the Company or the Affiliate shall not be required to make such distribution. Rather, the distribution shall be delayed until the first date that making the distribution does not jeopardize the ability of the Company or of an Affiliate to continue as a going concern. Any distribution delayed under this provision shall be treated as made on the date specified under the terms of this Plan. |
(2) | If the distribution will violate any applicable law, then the distribution shall be delayed until the earliest date on which making the distribution will not violate such law. |
Section 7.7. Effect of Payment. The full payment of the applicable benefit under this Article 7 shall completely discharge all obligations on the part of the Employer to the Participant (and each Beneficiary) with respect to the operation of the Plan, and the Participants (and Beneficiarys) rights under the Plan shall terminate.
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ARTICLE 8
SPECIAL RULES APPLICABLE IN THE EVENT OF A
CHANGE OF CONTROL OF THE COMPANY
Section 8.1. Effect of a Change of Control. Upon a change of control of the Company (within the meaning of Code Section 409A), the Company may, but shall not be required to, terminate the Plan and distribute to each Participant or Beneficiary his or her Account balance in a lump sum payment as soon as practicable (but not more than ninety (90) days) following such change of control.
Section 8.2. Maximum Payment Limitation.
(a) Limit on Payments. Except as provided in subsection (b) below, if any portion of the payments or benefits described in this Plan or under any other agreement with or plan of the Company or an Affiliate (in the aggregate, Total Payments), would constitute an excess parachute payment, then the Total Payments to be made to the Participant shall be reduced such that the value of the aggregate Total Payments that the Participant is entitled to receive shall be one dollar ($1) less than the maximum amount which the Participant may receive without becoming subject to the tax imposed by Section 4999 of the Code or which the Company or an Affiliate may pay without loss of deduction under Section 280G(a) of the Code. The terms excess parachute payment and parachute payment shall have the meanings assigned to them in Section 280G of the Code, and such parachute payments shall be valued as provided therein. Present value shall be calculated in accordance with Section 280G(d)(4) of the Code. Within forty (40) days following delivery of notice by the Employer to the Participant of its belief that there is a payment or benefit due the Participant which will result in an excess parachute payment, the Participant and the Employer, at the Employers expense, shall obtain the opinion (which need not be unqualified) of nationally recognized tax counsel selected by the Companys independent auditors and acceptable to the Participant in his or her sole discretion (which may be regular outside counsel to the Company or an Affiliate), which opinion sets forth (1) the amount of the Base Period Income, (2) the amount and present value of Total Payments and (3) the amount and present value of any excess parachute payments determined without regard to the limitations of this Section. As used in this Section, the term Base Period Income means an amount equal to the Participants annualized includible compensation for the base period as defined in Section 280G(d)(1) of the Code. For purposes of such opinion, the value of any noncash benefits or any deferred payment or benefit shall be determined by the Companys independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code, which determination shall be evidenced in a certificate of such auditors addressed to the Employer and the Participant. Such opinion shall be addressed to the Employer and the Participant and shall be binding upon the Employer and the Participant. If such opinion determines that there would be an excess parachute payment, the payments hereunder that are includible in Total Payments or any other payment or benefit determined by such counsel to be includible in Total Payments shall be reduced or eliminated so that there will be no excess parachute payment by applying the following principles, in order: (1) the payment or benefit with the higher ratio of the parachute payment value to present economic value (determined using reasonable actuarial assumptions) shall be reduced or eliminated before a payment or benefit with a lower ratio; (2) the payment or benefit with the later possible payment date shall be reduced or eliminated before a payment or benefit with an earlier payment date; and (3) cash
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payments shall be reduced prior to non-cash benefits; provided that if the foregoing order of reduction or elimination would violate Section 409A of the Code, then the reduction shall be made pro rata among the payment or benefits (on the basis of the relative present value of the parachute payments). If such legal counsel so requests in connection with the opinion required by this Section, the Participant and the Employer shall obtain, at the Employers expense, and the legal counsel may rely on in providing the opinion, the advice of a firm of recognized executive compensation consultants as to the reasonableness of any item of compensation to be received by the Participant. If the provisions of Sections 280G and 4999 of the Code are repealed without succession, then this Section shall be of no further force or effect.
(b) Employment Contract Governs. The provisions of subsection (a) above shall not apply to a Participant whose employment is governed by an employment contract that provides for Total Payments in excess of the limitation described in subsection (a) above.
ARTICLE 9
AMENDMENT OR TERMINATION
Section 9.1. Amendment. The Company may at any time amend the Plan, including but not limited to modifying the terms and conditions applicable to (or otherwise eliminating) deferrals to be made on or after the Effective Date to the extent not prohibited by Code Section 409A; provided, however, that no amendment may reduce or eliminate any vested Account balance as of the date of such amendment (except as such Account balance may be reduced as a result of investment losses allocable to such Account) without a Participants consent except as otherwise specifically provided herein. In addition, the Administrator may at any time amend the Plan to make administrative changes and changes necessary to comply with applicable law.
Section 9.2. Termination. The Company may terminate the Plan at any time. Upon termination of the Plan, any deferral elections then in effect shall be cancelled to the extent permitted by Code Section 409A. Upon termination of the Plan, the Company may authorize the payment of all amounts accrued under the Plan in a single lump sum payment without regard to any distribution election then in effect, only in the following circumstances:
(a) The Plan is terminated pursuant to Article 8.
(b) The Plan is terminated within twelve (12) months of a corporate dissolution taxed under Code Section 331, or with the approval of a bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A). In such event, the single lump sum payment must be distributed by the latest of: (1) the last day of the calendar year in which the Plan termination occurs, (2) the first calendar year in which the amount is no longer subject to a substantial risk of forfeiture, or (3) the first calendar year in which payment is administratively practicable.
(c) The Plan is terminated at any other time, provided that such termination does not occur proximate to a downturn in the financial health of the Company or an Affiliate, and all other plans required to be aggregated with this Plan under Code Section 409A are also terminated and liquidated. In such event, the single lump sum payment shall be paid no earlier than twelve (12) months (and no later than twenty-four (24) months) after the date of the Plans
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termination. Notwithstanding the foregoing, any payment that would otherwise be paid during the twelve (12)-month period beginning on the Plan termination date pursuant to the terms of the Plan shall be paid in accordance with such terms. In addition, the Company or any Affiliate shall be prohibited from adopting a similar arrangement within three (3) years following the date of the Plans termination.
ARTICLE 10
CLAIMS PROCEDURE
Section 10.1. Claim. A Participant or Beneficiary (referred to as a claimant in this Article 10) who believes that he or she is being denied a benefit to which he or she is entitled under the Plan may file a written request for such benefit with the Administrator, setting forth his or her claim for benefits. Any such claim must be made within one year after the claimant knew, or exercising reasonable care should have known, of the circumstances giving rise to such claim. If the claimant does not file a claim within such one-year period, the claimant shall be barred and estopped from raising the claim. A claimants claim may also be filed by his or her duly authorized representative.
Section 10.2. Claim Decision. The Administrator shall reply to any claim that is timely filed under Section 10.1 within ninety (90) days of receipt, unless it determines to extend such reply period for an additional ninety (90) days for reasonable cause. If an extension of time is required for a hearing or other special circumstances, the claimant shall be notified prior to the end of the initial ninety (90) day period. If the claim is denied in whole or in part, such reply shall include a written explanation, using language calculated to be understood by the claimant, setting forth:
(a) the specific reason or reasons for such denial;
(b) the specific reference to relevant provisions of the Plan on which such denial is based;
(c) a description of any additional material or information necessary for the claimant to perfect his or her claim and an explanation why such material or such information is necessary;
(d) appropriate information as to the steps to be taken if the claimant wishes to submit the claim for review;
(e) the time limits for requesting a review under Section 10.3 and for review under Section 10.4 hereof;
(f) the claimants right to bring an action for benefits under Section 502 of ERISA, if the claim is denied upon review; and
(g) any other information required by ERISA.
Section 10.3. Request for Review. Within sixty (60) days after the receipt by the claimant of the written explanation described above, the claimant (or his or her duly authorized
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representative) may request in writing that the Administrator review its determination. The claimant (or his or her duly authorized representative) may, but need not, review the relevant documents and submit issues and comment in writing for consideration by the Administrator. If the claimant does not request a review of the initial determination within such 60-day period, the claimant shall be barred and estopped from challenging the determination.
Section 10.4. Review of Decision. After considering all materials presented by the claimant, the Administrator will render a written decision, setting forth the specific reasons for the decision and containing specific references to the relevant provisions of the Plan on which the decision is based, and any other information required by ERISA. The decision on review shall normally be made within sixty (60) days after the Administrators receipt of the claimants request. If an extension of time is required for a hearing or other special circumstances, the Administrator shall notify the claimant and the time limit shall be 120 days. All decisions on review shall be final and shall bind all parties concerned.
Section 10.5. Limitation on Actions. Any action or other legal proceeding with respect to the Plan may be brought only after the claims procedures of this Article 10 are exhausted and only within the period ending on the earlier of (a) one year after the date claimant receives notice or deemed notice of a denial upon review under Section 10.4 or (b) the expiration of the applicable statute of limitations period under applicable federal law. Any action or other legal proceeding not adjudicated under ERISA must be arbitrated in accordance with the provisions of Section 10.6.
Section 10.6. Arbitration. Notwithstanding any employee agreement in effect between a Participant and the Employer, if a Participant or Beneficiary brings a claim that relates to benefits under this Plan that is not covered under ERISA, and regardless of the basis of the claim (including but not limited to, actions under Title VII, wrongful discharge, breach of employment agreement, etc.), such claim shall be settled by final binding arbitration in accordance with the rules of the American Arbitration Association (AAA) and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Arbitration must be initiated by serving or mailing a written notice of the complaint to the other party. Normally, such written notice should be provided to the other party within one year (365 days) after the day the complaining party first knew or should have known of the events giving rise to the complaint. However, this time frame may be extended if the applicable statute of limitation provides for a longer period of time. If the complaint is not properly submitted within the appropriate time frame, all rights and claims that the complaining party has or may have against the other party shall be waived and void. Any notice sent to the Employer or Company under this Section shall be delivered to the Companys headquarters, with attention to the General Counsel of the Company.
ARTICLE 11
MISCELLANEOUS
Section 11.1. Protective Provisions. Each Participant and Beneficiary shall cooperate with the Administrator by furnishing any and all information requested by the Administrator in order to facilitate the payment of benefits hereunder. If a Participant or Beneficiary refuses to cooperate with the Administrator, the Company and each Employer shall
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have no further obligation to the Participant or Beneficiary under the Plan, other than payment of the then-current balance of the Participants Account in accordance with prior elections and subject to Section 11.9.
Section 11.2. Designation of Beneficiary. Each Participant may designate in writing a Beneficiary or Beneficiaries (which Beneficiary may be an entity other than a natural person if approved by the Administrator in its sole discretion) to receive any payments which may be made under the Plan following the Participants death. A Beneficiary designation under the Plan may be separate from all other retirement-type plans sponsored by the Company. Such designation may be changed or canceled by the Participant at any time without the consent of any such Beneficiary. Any such designation, change or cancellation must be made in a form approved by the Administrator and shall not be effective until received by the Administrator or its designee prior to the date of the Participants death. If no Beneficiary has been named, or the designated Beneficiary or Beneficiaries shall have predeceased the Participant, then the Beneficiary shall be the Participants estate. If a Participant designates more than one Beneficiary, the interests of such Beneficiaries shall be paid in equal shares, unless the Participant has specifically designated otherwise. If the Beneficiary survives the Participant, but dies before receipt of payment hereunder, the Beneficiarys estate shall be entitled to the Beneficiarys share of the payment.
Section 11.3. Inability to Locate Participant or Beneficiary. In the event that the Administrator is unable to locate a Participant or Beneficiary within two years following the date the Participant or Beneficiary was to commence receiving payment, the entire amount allocated to the Participants Account shall be forfeited. If, after such forfeiture, the Participant or Beneficiary later claims such benefit, such benefit shall be reinstated without interest or earnings from the date payment was to commence pursuant to Article 8, and the Participant or Beneficiary shall be responsible for all taxes and penalties under Code Section 409A.
Section 11.4. No Contract of Employment. Neither the establishment of the Plan, nor any modification thereof, nor the creation of any fund, trust or account, nor the payment of any benefits shall be construed as giving any Participant or any person whosoever, the right to be retained in the service of the Company or any Affiliate, and all Participants and other employees shall remain subject to discharge to the same extent as if the Plan had never been adopted.
Section 11.5. Obligations to Company. If a Participant becomes entitled to payment of benefits under the Plan, and if at such time the Participant has any outstanding debt, obligation, or other liability representing an amount owing to the Company or any Employer, then the Company or the Employer may offset such amount owed to it against the amount of benefits otherwise distributed; provided, however, that such deductions cannot exceed $5,000 in the aggregate to the extent needed to comply with Code Section 409 A.
Section 11.6. No Liability; Indemnification. Neither the Company or any of its Affiliates, nor any director, officer or employee of the Company or its Affiliates shall be responsible or liable in any manner to any Participant, Beneficiary or any person claiming through them for any benefit or action taken or omitted in connection with the granting of benefits, the continuation of benefits, or the interpretation and administration of Plan. Service as
15
an Administrator shall constitute service as a director or officer of the Company so that the Administrator members shall be entitled to indemnification, limitation of liability and reimbursement of expenses with respect to their Administrator services to the same extent that they are entitled under the Companys charter documents and applicable law for their services as directors or officers of the Company.
Section 11.7. Nonalienation of Benefits; Domestic Relations Orders. Except as otherwise specifically provided herein, all amounts payable hereunder shall be paid only to the person or persons designated by the Plan and not to any other person or corporation. No part of a Participants Account shall be liable for the debts, contracts, or engagements of any Participant, his or her Beneficiary, or successors in interest, nor shall such accounts of a Participant be subject to execution by levy, attachment, or garnishment or by any other legal or equitable proceeding, nor shall any such person have any right to alienate, anticipate, commute, pledge, encumber, or assign any benefits or payments hereunder in any manner whatsoever. If any Participant, Beneficiary or successor in interest is adjudicated bankrupt or purports to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any payment from the Plan, voluntarily or involuntarily, the Administrator, in its discretion, may cancel such payment (or any part thereof) to or for the benefit of such Participant, Beneficiary or successor in interest in such manner as the Administrator shall direct. Notwithstanding the foregoing, all or a portion of a Participants Account may be awarded to an alternate payee (within the meaning of Section 206(d)(3)(K) of ERISA) if and to the extent so provided in a judgment, decree or order that, in the Administrators sole discretion, would meet the applicable requirements for qualification as a qualified domestic relations order (within the meaning of Section 206(d)(3)(B)(i) of ERISA) if the Plan were subject to the provisions of Section 206(d) of ERISA. Such amounts shall be payable to the alternate payee in the form of a lump sum distribution and shall be paid within ninety (90) days following the Administrators determination that the order satisfies the requirements to be a qualified domestic relations order.
Section 11.8. Liability for Benefit Payments. The obligation to pay or provide for payment of a benefit hereunder to any Participant or his or her Beneficiary shall be the sole and exclusive liability and responsibility of the Employer which employed the Participant during the period allocations were made to the participants Account. No other Company or parent, affiliated, subsidiary or associated company shall be liable or responsible for such payment, and nothing in the Plan shall be construed as creating or imposing any joint or shared liability for any such payment. The fact that a Company or a parent, affiliated, subsidiary or associated company other than the Employer actually makes one or more payments to a Participant or his or her Beneficiary shall not be deemed a waiver of this provision; rather, any such payment shall be deemed to have been made on behalf of and for the account of the Employer.
Section 11.9. Unfunded Status of Plan. The Plan is intended to constitute an unfunded deferred compensation plan for Participants, with all benefits payable hereunder constituting an unfunded contractual payment obligation of the Employer and the Company. Nothing contained in the Plan, and no action taken pursuant to the Plan, shall create or be construed to create a trust of any kind. The Company or Employer shall reflect on its books the Participants interests hereunder, but no Participant or any other person shall under any circumstances acquire any property interest in any specific assets of the Company or Employer. Nothing contained in the Plan and no action taken pursuant hereto shall create or be construed to
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create a fiduciary relationship between the Company, an Employer, and any Participant or other person. A Participants right to receive payments under the Plan shall be no greater than the right of an unsecured general creditor of the Company or Employer. Except to the extent that the Company or Employer determines that a rabbi trust may be established in connection with the Plan, all payments shall be made from the general funds of the Company or Employer, and no special or separate fund shall be established and no segregation of assets shall be made to assure payment. The Companys or Employers obligations under the Plan are not assignable or transferable except to (a) any corporation or partnership which acquires all or substantially all of the Companys or Employers assets or (b) any corporation or partnership into which the Company or Employer may be merged or consolidated. The provisions of the Plan shall inure to the benefit of each Participant and the Participants Beneficiaries, heirs, executors, administrators or successors in interest.
Section 11.10. Governing Law. The Plan shall be construed in accordance with and governed by the laws of the State of Wisconsin to the extent not superseded by federal law, without reference to the conflict of laws principles thereof.
Section 11.11. Successors. All obligations of the Employer and the Company under the Plan shall be binding on any successor thereto, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business and/or assets of the Company or the Employer.
Section 11.12. Severability of Provisions. If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included.
Section 11.13. Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.
Section 11.14. Gender; Singular and Plural. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may require. As the context may require, the singular may read as the plural and the plural as the singular.
. Section 11.15. Notice. Any notice or filing required or permitted to be given under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to (a) except as provided in Section 10.6, the Companys headquarters, with attention to the Secretary of the Company, if the notice or filing is to be made to the Administrator, Company, or Employer or (b) the Participants or Beneficiarys address on file with the Employer, if the notice or filing is to be made to such individual. Such notice shall be deemed given as of the date of delivery, or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.
Section 11.16. Administrative Error Correction. The Administrator may permit an Administrative Error (as defined below) to be corrected by allowing a Participants deferral
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election to be processed as soon as practicable after December 31 (and any related payroll discrepancy to be corrected) to the extent permitted under Code Section 409A. Administrative Error shall mean (a) an error by a Participant to file a deferral election with the Administrator, following a good faith attempt, or (b) the failure of the Administrator to properly process a Participants deferral election.
Section 11.17. Delay of Payment for Specified Employees. Notwithstanding any provision of the Plan to the contrary, in the case of any Participant who is a specified employee within the meaning of Code Section 409A as of the date of such Participants Separation from Service, no distribution under the Plan may be made, or may commence, before the date which is six months after the date of such Participants Separation from Service (or, if earlier, the date of the Participants death).
Section 11.18. Application of Plan Provisions During the TSA. Notwithstanding anything in this Plan to the contrary, and in accordance with the TSA (as defined below), during the period the United States human resources transition services provisions of the TSA are in effect, the authority, responsibility, or rights of the Company, any fiduciary or administrator of this Plan, or any officer or delegate of the Company or such fiduciary or administrator, shall vest in and be exercisable solely by Johnson Controls International plc, and its officers, ERISA plan fiduciaries, administrators, and delegates thereof. Notwithstanding the foregoing provisions of this Section 11.18, the Company may exercise any or all such authority while such provisions of the TSA are in effect, but only if such action will be effective following the expiration of such provisions of the TSA. For purposes hereof, the term TSA means the Transition Services Agreement by and between Johnson Controls International plc and BCP Acquisitions LLC.
IN WITNESS WHEREOF, the undersigned, on behalf of the Company, has executed this Plan as of June 30, 2021.
Clarios, LLC | ||
By: | /s/ Wendy S. Radtke | |
Title: | Chief Human Resources Officer |
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Exhibit 10.34
THIS DIRECTOR FEE AGREEMENT dated July 1, 2021 (the Agreement)
BETWEEN:
(1) | Brookfield Asset Management Private Institutional Capital Adviser (Private Equity), L.P., a limited partnership formed under the laws of Manitoba (Brookfield); and |
(2) | Clarios International, Inc., a corporation formed under the laws of the State of Delaware (Clarios, and together with Brookfield, the Parties and each, a Party). |
RECITALS:
WHEREAS pursuant to a stockholders agreement effective on or about July 1, 2021 (the Stockholders Agreement) between Clarios and the Sponsor Group (as such term is defined in the Stockholders Agreement), the Sponsor Group has negotiated certain rights to appoint members of the Board of Directors of Clarios;
WHEREAS from time to time, pursuant to the Stockholders Agreement, certain of Brookfields employees, or the employees of one or more of its institutional partners in respect of its investment in Clarios, may be elected to serve as directors of Clarios (the Brookfield Directors);
WHEREAS directors of Clarios are entitled to an annual director retainer and to be reimbursed for reasonable expenses incurred by them in their capacity as directors, as further described in Section 1.1 below (collectively, the Director Fees);
WHEREAS the internal policies of Brookfield and those of its institutional partners, respectively, prohibit employees who are Brookfield Directors from personally receiving the Director Fees from Clarios;
WHEREAS the Parties wish to enter into this Agreement on the terms set forth below to arrange for the provision of the director services by the Brookfield Directors in exchange for the payment of the Director Fees payable for the services of the Brookfield Directors (the Subject Fees) by Clarios directly to Brookfield.
NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged by each Party, the Parties agree as follows:
1 | Remuneration and Expenses |
1.1 | Clarios shall pay to Brookfield the Subject Fees at the times and on the other terms consistent with payment practice for the other members of the board of directors of Clarios. For greater certainty, the Subject Fees shall consist of the following amounts, payable in cash from the date of the closing of the initial public offering of Clarios on the New York Stock Exchange: |
(a) | the annual director retainer for each Brookfield Director, initially set at US$230,000; |
(b) | to the extent a Brookfield Director serves in the capacity of: (i) Chair of the Board; (ii) Chair of a Committee or (iii) Committee Members, the additional fees payable for such service; |
(c) | any other compensation awarded to or payable to the Brookfield Directors as decided by the Governance and Compensation Committee of the Board of Directors of Clarios from time to time; and |
(d) | As set out in Clarios corporate policies, reasonable out-of-pocket and documented expenses incurred by a Brookfield Director with respect to the attendance by such director at meetings of the Board and its Committees and/or in their respective capacity as directors, that are not reimbursed directly by Clarios to the Brookfield Director. |
1.2 | The payment of the Subject Fees to Brookfield shall be by wire transfer to an account designated in writing by Brookfield substantially concurrent with the payment to other Directors of Clarios. |
1.3 | For the avoidance of doubt, the fee arrangements set forth in this Agreement shall apply only to members of the Board of Directors of Clarios who are employed by Brookfield, its affiliates or its institutional partners in respect of its investment in Clarios, and not to any other member of the Board of Directors of Clarios put forward by Brookfield or its affiliates, each of whom shall be entitled to receive Director Fees directly in accordance with Clarios director compensation policies and procedures. |
2 | Record-Keeping |
2.1 | Brookfield will advise Clarios from time to time which members of the Board of Directors are Brookfield Directors for purposes of the fee arrangements set forth in this Agreement. |
2.2 | The initial Brookfield Directors, along with the Subject Fees owing to Brookfield on an annual basis, are set forth in Schedule A hereto. |
3 | Share Ownership Requirements |
3.1 | The Parties agree that no Brookfield Director will be subject to the provisions of any share ownership policies or guidelines of Clarios that requires members of the Board of Directors of Clarios to own common shares or common share equivalents in Clarios. |
4 | Term and Termination |
4.1 | The term of this Agreement shall continue until there is no longer any Brookfield Director serving on the Board of Directors of Clarios, at which time this Agreement shall be automatically terminated. |
4.2 | Brookfield may terminate this Agreement immediately at any time by giving 30 days notice in writing to Clarios, following which Clarios will commence paying the Director Fees to any Brookfield Directors in the ordinary course, unless otherwise agreed with the Brookfield Directors. |
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5 | Notices |
5.1 | Any notice required or desired to be delivered under this Agreement shall be in writing and delivered by mail or electronic mail addressed to: |
(a) | If to Clarios: |
5757 N Green Bay Ave Florist Tower, Milwaukee, WI 53209
E-mail: claudio.morfe@clarios.com
Attention: Claudio Morfe
(b) | If to Brookfield: |
Brookfield Place
181 Bay Street, Suite 300
Toronto, Ontario M5J 2T3
E-mail: aj.silber@brookfield.com
Attention: A.J. Silber
6 | Counterparts |
This Agreement may be executed by the parties hereto in separate counterparts each of which when executed and delivered shall constitute an original and shall together constitute one and the same agreement.
7 | Severance |
If any provision in this Agreement is determined to be void or unenforceable in whole or in part for any reason whatsoever such invalidity or unenforceability shall not affect the remaining provisions of this Agreement and such void or unenforceable provisions shall be deemed to be severable from any other provision of this Agreement.
8 | Amendment |
No amendment of this Agreement shall be effective unless made in writing and signed by the Parties.
9 | Successors and Assigns |
This Agreement shall enure to the benefit of, and be binding on, the Parties and their respective successors and permitted assigns. Neither Party may assign or transfer, whether absolutely, by way of security or otherwise, all or any part of its respective rights or obligations under this Agreement without the prior written consent of the other Party.
10 | Entire Agreement |
This Agreement constitutes the entire agreement between the Parties pertaining to the subject matter of this Agreement and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written.
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11 | Governing Law and Jurisdiction |
This Agreement and any dispute, claim, suit, action or proceeding of whatever nature arising out of or in any way related to it or its formation (including any non-contractual disputes or claims) are governed by, and construed in accordance with, the laws of the State of Delaware without regard to its rules of conflict of laws.
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In witness whereof the parties hereto have entered into this Agreement on the day and year first above written.
CLARIOS INTERNATIONAL INC. | ||||
By: | /s/ Claudio Morfe | |||
Name: | Claudio Morfe | |||
Title: | Vice President, General Counsel & Corporate Secretary |
BROOKFIELD ASSET MANAGEMENT PRIVATE INSTITUTIONAL CAPITAL ADVISER (PRIVATE EQUITY), L.P. by its general partner, BROOKFIELD CAPITAL PARTNERS LTD. | ||||
By: | /s/ A.J. Silber | |||
Name: | A.J. Silber | |||
Title: | Senior Vice President |
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SCHEDULE A
Summary of Subject Fees
Name of Director |
Board Annual Retainer |
Additional Committee Chair Retainer |
Total ($) | |||||||||
John Barkhouse |
$ | 230,000 | $ | 15,000 | $ | 245,000 | ||||||
Mark Weinberg |
$ | 230,000 | | $ | 230,000 | |||||||
Justin Shaw |
$ | 230,000 | | $ | 230,000 | |||||||
Bertrand Villon |
$ | 230,000 | | $ | 230,000 | |||||||
TOTAL ($) |
$ | 920,000 | $ | 935,000 |
Exhibit 10.35
Florist Tower 5757 N. Green Bay Avenue, Glendale, WI 53209 www.Clarios.com |
June , 2021
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Dear ,
I am pleased to formally confirm our offer to you to join the Board of Directors (the Board) of Clarios International Inc., a Delaware corporation (the Company), as a member of the Board (Director) and the Committee of the Board. We are excited about adding your experience and depth of knowledge to the leadership of the Company. Your appointment to the Board and the Committee of the Board will commence on July 1, 2021, shortly prior to the initial public offering of the Company (IPO), expected to be completed in July 2021.
During the period of your service, you agree to make reasonable efforts to attend all meetings of the Board and the Committee and any other committee of the Board on which you may serve (either in person or, as an alternative if not possible, virtually or by telephone) and to devote a reasonable amount of your business time to your services to the Company commensurate with your role as a Director and member of the Committee of the Board.
The basic responsibility of a Director is one of oversight. You are required to exercise a duty of care, duty of undivided loyalty and duty of candor to the Company and its stockholders, which includes the exercise of your business judgment in good faith, on a reasonably informed basis and in a manner that you reasonably believe to be in the best interests of the Company and its stockholders. In discharging this responsibility, you are entitled to rely on the honesty and integrity of officers, employees, counsel, advisors and auditors.
You are expected to attend Board meetings and meetings of committees on which you serve, to spend the time needed and meet as frequently as necessary to properly discharge your responsibilities and to ensure that other existing or future commitments do not materially interfere with your responsibilities as a Director. Management will distribute (electronically, to the extent practicable) to you at least one week (or, if that is not feasible, as soon as practicable) before each meeting information that would reasonably be expected to be important to understanding the business to be conducted at the meeting. You are expected to review this information before the meeting.
In connection with your service as a Director and member of the Committee of the Board, you will receive an annual retainer of $ (the Retainer). The Retainer will be paid in the form of cash only on a pro-rated basis from July 1, 2021 until closing of the IPO, whenever that occurs. From the time of the IPO (subject to amendment by the Board), the Retainer shall be paid as follows:
June , 2021
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i. | $85,000 in cash for your membership on the Board and the Governance and Compensation Committee, with payments to be made in equal quarterly installments in arrears and prorated for your partial year of service during the 2021 fiscal year; |
ii. | $ ,000 in cash for your membership [chairmanship of] in the Committee, with payments to be made in equal quarterly installments in arrears and prorated for your partial year of service during the 2021 fiscal year; and |
iii. | $145,000 in the form of deferred stock units (valued upon grant), with the first grant made at the time of the IPO and priced at the same price as the IPO and all subsequent grants made as of the first business day following the date of the Annual Meeting of the Companys shareholders (starting with the Annual Meeting that occurs during the 2022 fiscal year). |
All deferred stock units granted will have a one-year vesting schedule, and vest in full at each Annual Meeting of the Companys shareholders, with the initial grant made at the time of the IPO vesting in full at the Annual Meeting that occurs during the 2022 fiscal year.
At your option, you may elect to receive up to the entire Retainer amount of $ in the form of deferred stock units by contacting the Corporate Secretary of the Board, Claudio Morfe, at claudio.morfe@clarios.com. This election must be made prior to the issuance of deferred stock units, initially at the time of the IPO, and at each Annual Meeting thereafter.
You will also be reimbursed for all reasonable out-of-pocket business expenses, consistent with the Companys policies.
As a member of the Board, you will be covered by the Companys directors liability insurance on the same basis as the other members of the Board and will be covered by the directors indemnification provisions contained in the Companys organizational documents. During the period of your service as a member of the Board, you agree to observe and comply with all lawful rules, regulations, policies and procedures established by the Company from time to time and all applicable laws, rules and regulations that relate to your appointment. During your Board service, you will not undertake any outside activity, whether or not competitive with the business of the Company or its affiliates, that could reasonably give rise to a conflict of interest or otherwise interfere with any of your duties or obligations to the Company or any of its affiliates.
This letter agreement sets forth the entire agreement between the parties and supersedes and terminates all prior and contemporaneous communications, agreements and understandings, written or oral, with respect to the terms and conditions of your engagement by the Company. This letter agreement may not be modified or amended, and no breach shall be deemed to be waived, unless agreed to in writing by you and a duly authorized representative of the Company.
Nothing in this offer should be construed to interfere with or otherwise restrict in any way the rights of the Company and its shareholders to remove any individual from the Board at any time in accordance with the provisions of applicable law and the Companys organizational documents.
June , 2021
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This letter agreement shall be construed and enforced under and be governed in all respects by the laws of Delaware without regard to any conflict of law principles that would result in the application of the laws of any other jurisdiction.
We are very excited to have you join our team and are very confident that you will find your position at the Company both professionally and personally rewarding. If the terms of the offer are acceptable to you, please indicate your acceptance of the foregoing terms by signing the enclosed copy of this letter and returning it to me.
CLARIOS INTERNATIONAL INC. | ||
By: |
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Name: | John Barkhouse | |
Title: | Director |
AGREED AND ACCEPTED: |
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Exhibit 10.36
CLARIOS INTERNATIONAL INC.
2021 LONG-TERM INCENTIVE PLAN
Section 1. Purpose. The purpose of the Clarios International Inc. 2021 Long-Term Incentive Plan (as amended from time to time, the Plan) is to motivate and reward employees and other individuals to perform at the highest level and contribute significantly to the success of Clarios International Inc. (the Company), thereby furthering the best interests of the Company and its shareholders.
Section 2. Definitions. Certain capitalized terms applicable to the Plan are set forth in Appendix A.
Section 3. Administration.
(a) Administration of the Plan. The Plan shall be administered by the Committee. All decisions of the Committee shall be final, conclusive and binding upon all parties, including the Company, its stockholders, Eligible Persons and any Beneficiaries thereof. The Committee may issue rules and regulations for administration of the Plan.
(b) Composition of Committee. To the extent necessary or desirable to comply with applicable regulatory regimes, any action by the Committee shall require the approval of Committee members who are (i) independent, within the meaning of and to the extent required by applicable rulings and interpretations of the applicable stock market or exchange on which the Common Shares are quoted or traded; and (ii) non-employee Directors within the meaning of Rule 16b-3 under the Exchange Act. The Board may designate one or more Directors as alternate members of the Committee who may replace any absent or disqualified member at any meeting of the Committee. To the extent permitted by applicable law, including under Section 157(c) of the Delaware General Corporation Law, the Committee may delegate to one or more officers of the Company some or all of its authority under the Plan, including the authority to grant Awards (except that such delegation shall not be applicable to any Award for a Person then covered by Section 16 of the Exchange Act), and the Committee may delegate to one or more committees of the Board (which may consist of solely one Director) some or all of its authority under the Plan, including the authority to grant all types of Awards, in accordance with applicable law.
(c) Authority of Committee. Subject to the terms of the Plan and applicable law, the Committee (or its delegate) shall have full discretion and authority to: (i) designate Eligible Persons; (ii) determine the type or types of Awards (including Substitute Awards) to be granted to each Eligible Person under the Plan; (iii) determine the number of Common Shares to be covered by (or with respect to which payments, rights or other matters are to be calculated in connection with) Awards; (iv) determine the terms and conditions of any Award and prescribe the form of each Award Agreement which need not be identical for each Participant; (v) determine whether, to what extent and under what circumstances Awards may be settled or exercised in cash, Common Shares, other Awards, other property, net settlement, or any combination thereof, or
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canceled, forfeited or suspended, and the method or methods by which Awards may be settled, exercised, canceled, forfeited or suspended; (vi) determine whether, to what extent and under what circumstances cash, Common Shares, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) amend or waive terms or conditions (including vesting conditions) of any outstanding Awards; (viii) correct any defect, supply any omission and reconcile any inconsistency in the Plan or any Award, in the manner and to the extent it shall deem desirable to carry the Plan into effect; (ix) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (x) establish, amend, suspend or waive such rules and regulations and appoint such agents, trustees, brokers, depositories and advisors and determine such terms of their engagement as it shall deem appropriate for the proper administration of the Plan and due compliance with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations; and (xi) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan and due compliance with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations. Notwithstanding anything to the contrary contained herein, the Board may, in its sole discretion, at any time and from time to time, grant Awards or administer the Plan. In any such case, the Board shall have all of the authority and responsibility granted to the Committee herein.
Section 4. Participation.
Consistent with the purposes of the Plan, the Committee shall have exclusive power to select the Eligible Persons who may participate in the Plan and be granted Awards under the Plan. Eligible Persons may be selected individually or by groups or categories, as determined by the Committee in its discretion.
Section 5. Shares Available for Award.
(a) Share Reserve.
(i) Subject to adjustment as provided in Section 5(b) and except for Substitute Awards, the maximum number of Common Shares available for issuance under the Plan shall not exceed [●] Common Shares. The maximum number of Common Shares available for issuance with respect to Incentive Stock Options shall be [●]1. Common Shares underlying Substitute Awards and Common Shares remaining available for grant under a plan of an acquired company or of a company with which the Company combines (whether by way of amalgamation, merger, sale and purchase of shares or other securities or otherwise), appropriately adjusted to reflect the acquisition or combination transaction, shall not reduce the number of Common Shares remaining available for grant hereunder.
1 | To equal the number of Common Shares in the general share pool. |
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(ii) If any Award, in whole or in part, is forfeited, cancelled, expires, terminates or otherwise lapses, or is settled in cash without the delivery of Common Shares, or if Common Shares are withheld by the Company in respect of taxes on Awards other than Options or Stock Appreciation Rights, then the corresponding Common Shares shall again be available for grant under the Plan. For the avoidance of doubt, any Common Shares tendered or withheld to pay the exercise price of Options, or that are covered by a Stock Appreciation Right (to the extent that it is settled in Common Shares, without regard to the number of Shares that are actually issued upon exercise), will not again become available for issuance under the Plan.
(iii) Common Shares issued pursuant to the Plan may be either authorized but unissued shares, treasury shares, reacquired shares or any combination thereof.
(b) Adjustments. In the event that the Committee determines that, as a result of any dividend or other distribution (other than an ordinary dividend or distribution), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, separation, rights offering, split-up, spin-off, combination, repurchase or exchange of Common Shares or other securities of the Company, issuance of warrants or other rights to purchase Common Shares or other securities of the Company, issuance of Common Shares pursuant to the anti-dilution provisions of securities of the Company, or other similar corporate transaction or event affecting the Common Shares, or changes in applicable laws, regulations or accounting principles, an adjustment is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, subject to compliance with Section 409A of the Code and other applicable law, adjust equitably so as to ensure no undue enrichment or harm (including, without limitation, by payment of cash) any or all of:
(i) the number and type of Common Shares (or other securities) which thereafter may be made the subject of Awards, including the aggregate limits specified in Section 5(a);
(ii) the number and type of Common Shares (or other securities) subject to outstanding Awards;
(iii) the grant, purchase, exercise or hurdle price with respect to any Award or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award; and
(iv) the terms and conditions of any outstanding Awards, including the performance criteria of any Performance Awards.
provided, however, that the number of Common Shares subject to any Award denominated in Common Shares shall always be a whole number.
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(c) Non-Employee Director Limits. The maximum number of Common Shares subject to Awards granted during a single fiscal year of the Company to any non-employee Director, taken together with any cash fees paid during the fiscal year to the non-employee Director, in respect of the Directors service as a member of the Board during such year (including service as a member or chair of any committees of the Board), shall not exceed $800,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards for financial reporting purposes). The independent Directors may make exceptions to this limit for a non-executive chair of the Board, provided that the non-employee Director receiving such additional compensation may not participate in the decision to award such compensation.
Section 6. Awards under the Plan.
(a) Types of Awards. Awards under the Plan may include, but need not be limited to, one or more of the following types, either alone or in any combination thereof: (i) Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv) Restricted Stock Units, (v) Performance Awards, (vi) Other Cash-Based Awards and (vii) Other Stock-Based Awards.
(b) Rights with Respect to Common Shares and Other Securities. Except as provided in Section 9(c) with respect to Awards of Restricted Stock and unless otherwise determined by the Committee in its discretion, a Participant to whom an Award is made (and any Person succeeding to such a Participants rights pursuant to the Plan) shall have no rights as a stockholder with respect to any Common Shares or as a holder with respect to other securities, if any, issuable pursuant to any such Award until the date a stock certificate evidencing such Common Shares or other evidence of ownership is issued to such Participant or until Participants ownership of such Common Shares shall have been entered into the books of the registrar in the case of uncertificated shares.
(c) Award Agreements. Each Award granted or sold under the Plan shall be evidenced by an Award Agreement in such form as the Committee shall prescribe from time to time in accordance with the Plan and shall comply with the applicable terms and conditions of the Plan and applicable law, and with such other terms and conditions, including, but not limited to, treatment of the Award upon a Separation from Service and restrictions upon the Option or the Common Shares issuable upon exercise thereof, as the Committee, in its discretion, shall establish.
Section 7. Options. The Committee may grant Options to Eligible Persons with the following terms and conditions and with such additional terms and conditions, in each case, not inconsistent with the provisions of the Plan, as the Committee shall determine; provided that an Incentive Stock Option may be granted only to Eligible Persons who are employees of the Company or any parent or subsidiary of the Company within the meaning of Sections 424(e) and (f) of the Code, including a subsidiary which becomes such after adoption of the Plan.
(a) The Committee shall determine the number of Common Shares to be subject to each Option and the exercise price per Common Share subject to each Option.
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Except in the case of Substitute Awards, the exercise price of an Option shall not be less than the Fair Market Value of the Common Shares subject to such Option on the date of grant, as determined by the Committee; provided, however, if an Incentive Stock Option is granted to a Ten Percent Employee, such exercise price shall not be less than 110% of such Fair Market Value at the time the Option is granted.
(b) Any Option may be exercised during its term only at such time or times and in such installments as the Committee may establish.
(c) An Option shall not be exercisable:
(i) in the case of any Incentive Stock Option granted to a Ten Percent Employee, after the expiration of five years from the date it is granted, and, in the case of any other Option, after the expiration of ten years from the date it is granted; and
(ii) no shares shall be issued unless payment in full is made for the shares being acquired under such Option at the time of exercise as provided in Section 7(e).
(d) In the case of an Incentive Stock Option, the amount of the aggregate Fair Market Value of Common Shares (determined at the time of grant of the Option) with respect to which Incentive Stock Options are exercisable for the first time by an employee of the Company or a Subsidiary during any calendar year (under all such plans of his or her employer corporation and its parent and subsidiary corporations within the meaning of Sections 424(e) and (f) of the Code) shall not exceed $100,000 or such other amount as is specified in the Code. An Incentive Stock Option that is exercised at a time that is beyond the time an Incentive Stock Option may be exercised in order to qualify as such under the Code shall cease to be an Incentive Stock Option.
(e) The Committee shall determine the method or methods by which, and the form or forms in which payment of the exercise price with respect thereto may be made or deemed to have been made, including cash, Common Shares, other Awards, other property, net settlement, broker-assisted cashless exercise or any combination thereof, having a Fair Market Value on the exercise date equal to the exercise price of the Common Shares as to which the Option shall be exercised. The Committee may provide in the applicable Award Agreement that, to the extent an Option is not previously exercised as to all of the Common Shares subject thereto, and, if the Fair Market Value of one Common Share is greater than the exercise price then in effect, then the Option shall be deemed automatically exercised immediately before its expiration.
(f) No grant of Options may be accompanied by a tandem award of dividend equivalents or provide for dividends, dividend equivalents or other distributions to be paid on such Options.
(g) If the exercise of an Option is prevented by Section 19(f), the Option shall remain exercisable until thirty days after the date such exercise first would no longer be
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prevented by such provision, but in any event no later than the expiration date of such Option.
Section 8. Stock Appreciation Rights. The Committee may grant Stock Appreciation Rights to Eligible Persons with the following terms and conditions, and with such additional terms and conditions in each case not inconsistent with the provisions of the Plan, as the Committee shall determine.
(a) Stock Appreciation Rights may be granted under the Plan to Eligible Persons either alone or in addition to other Awards granted under the Plan and may, but need not, relate to a specific Option granted under Section 7.
(b) The Committee shall determine the number of Common Shares to be subject to each Award of Stock Appreciation Rights and the exercise or hurdle price per Common Share subject to each Stock Appreciation Right. Except in the case of Substitute Awards, Stock Appreciation Rights shall have an exercise or hurdle price no less than the Fair Market Value of the Common Shares subject to such Stock Appreciation Right on the date of grant, as determined by the Committee.
(c) Any Stock Appreciation Right may be exercised during its term only at such time or times and in such installments as the Committee may establish and shall not be exercisable after the expiration of ten years from the date it is granted.
(d) An Award of Stock Appreciation Rights shall entitle the holder to exercise such Award and to receive from the Company in exchange thereof, without payment to the Company, that number of Common Shares or cash or some combination thereof having an aggregate value equal to the excess of the Fair Market Value of one Common Share, at the time of such exercise, over the exercise or hurdle price, times the number of Common Shares subject to the Award, or portion thereof, that is so exercised or surrendered, as the case may be. The Committee may provide in the applicable Award Agreement that, to the extent a Stock Appreciation Right is not previously exercised as to all of the Common Shares subject thereto, and, if the Fair Market Value of one Common Share is greater than the exercise or hurdle price then in effect, then the Stock Appreciation Right shall be deemed automatically exercised immediately before its expiration.
(e) No grant of Stock Appreciation Rights may be accompanied by a tandem award of dividend equivalents or provide for dividends, dividend equivalents or other distributions to be paid on such Stock Appreciation Rights.
(f) If the exercise of a Stock Appreciation Right is prevented by Section 19(f), the Stock Appreciation Right shall remain exercisable until thirty days after the date such exercise first would no longer be prevented by such provision, but in any event no later than the expiration date of such Stock Appreciation Right.
Section 9. Restricted Stock and Restricted Stock Units. The Committee is authorized to grant Awards of Restricted Stock and Restricted Stock Units to Eligible Persons with the following terms and conditions and with such additional terms and
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conditions, in each case not inconsistent with the provisions of the Plan, as the Committee shall determine.
(a) The Committee shall determine the number of Common Shares to be issued to a Participant pursuant to the Award of Restricted Stock or Restricted Stock Units, and the extent, if any, to which they shall be issued in exchange for cash, other consideration, or both. The Award Agreement shall specify the vesting schedule and such other applicable conditions and restrictions and, with respect to Restricted Stock Units, shall specify the delivery schedule (which may include deferred delivery later than the vesting date).
(b) Until the expiration of such period as the Committee shall determine from the date on which the Award is granted and subject to such other terms and conditions as the Committee, in its discretion, shall establish (the Restricted Period), a Participant to whom an Award of Restricted Stock is made shall be issued, but shall not be entitled to the delivery of, a stock certificate or other evidence of ownership representing the Common Shares subject to such Award.
(c) Unless otherwise determined by the Committee in its discretion, a Participant to whom an Award of Restricted Stock has been made (and any Person succeeding to such a Participants rights pursuant to the Plan) shall have, after issuance of a certificate for the number of Common Shares awarded (or after the Participants ownership of such Common Shares shall have been entered into the books of the registrar in the case of uncertificated shares) and prior to the expiration of the Restricted Period, ownership of such Common Shares, including the right to vote such Common Shares and to receive dividends or other distributions made or paid with respect to such Common Shares, provided that, such Common Shares, and any new, additional or different shares, or other Company securities or property, or other forms of consideration that the Participant may be entitled to receive with respect to such Common Shares as a result of a stock split, stock dividend or any other change in the corporation or capital structure of the Company, shall be subject to the restrictions set forth in the Award and the Plan. A Restricted Stock Unit shall not convey to the Participant the rights and privileges of a stockholder with respect to the Common Shares subject to the Restricted Stock Unit, such as the right to vote or the right to receive dividends, unless and until a Common Share is issued to the Participant to settle the Restricted Stock Unit.
(d) The Committee may, in its discretion, specify in the applicable Award Agreement that any or all dividends, dividend equivalents or other distributions, as applicable, paid on Awards of Restricted Stock or Restricted Stock Units prior to vesting or settlement, as applicable, be paid either in cash or in additional Common Shares and that such dividends, dividend equivalents or other distributions may be reinvested in additional Common Shares, which may be subject to the same restrictions as the underlying Awards. Notwithstanding the foregoing, dividends, dividend equivalents or other distributions with respect to Restricted Stock and Restricted Stock Units shall vest only if and to the extent that the underlying Restricted Stock or Restricted Stock Units vest, as determined by the Committee.
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(e) The Committee may determine the form or forms (including cash, Common Shares, other Awards, other property or any combination thereof) in which payment of the amount owing upon settlement of any Restricted Stock Unit may be made.
(f) The Committee may provide in an Award Agreement that an Award of Restricted Stock is conditioned upon the Participant making or refraining from making an election with respect to the Award under Section 83(b) of the Code. If a Participant makes an election pursuant to Section 83(b) of the Code with respect to an Award of Restricted Stock, such Participant shall be required to file within the time period required by Section 83(b) of the Code a copy of such election with the Company and the applicable Internal Revenue Service office.
Section 10. Performance Awards. The Committee is authorized to grant Performance Awards to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
(a) Performance Awards may be denominated as a cash amount, number of Common Shares or units or a combination thereof, and may be earned upon achievement or satisfaction of performance conditions specified by the Committee (including, without limitation, cash flow, earnings (including EBITDA or some variation thereof), earnings per share, debt, return on investment, stock price, total or relative increases to stockholder return, operating income or net operating income, gross margin, operating margin or profit margin, and other financial or non-financial operating and management performance objectives). The Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions. Subject to the terms of the Plan, the performance goals to be achieved during any Performance Period, the length of any Performance Period, the amount of any Performance Award granted and the amount of any payment or transfer to be made pursuant to any Performance Award shall be determined by the Committee.
(b) Performance criteria may be measured on an absolute (e.g., plan or budget) or relative basis, and may be established on a corporate-wide basis, with respect to one or more business units, divisions, Subsidiaries or business segments, or on an individual basis. If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which the Company conducts its business, or other events or circumstances render the performance objectives unsuitable, the Committee may modify the performance objectives or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate and equitable such that it does not provide any undue enrichment or harm. Performance measures may vary from Performance Award to Performance Award and from Participant to Participant, and may be established on a stand-alone basis, in tandem or in the alternative. The Committee shall have the power to impose such other restrictions on Awards subject to this Section 10(b) as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements of any applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations.
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(c) Performance Awards may be settled in cash, Common Shares, other Awards, other property, or any combination thereof, and at such times, as determined in the discretion of the Committee.
(d) A Performance Award shall not convey to a Participant the rights and privileges of a shareholder with respect to any Common Shares subject to such Performance Award, such as the right to vote (except as relates to Restricted Stock) or the right to receive dividends, unless and until and to the extent Common Shares are issued to such Participant to settle such Performance Award. The Committee may, in its discretion, specify in the applicable Award Agreement that any or all dividends, dividend equivalents or other distributions, as applicable, paid on a Performance Award during the period that such Performance Award is outstanding, be paid either in cash or in additional Common Shares and that such dividends, dividend equivalents or other distributions may be reinvested in additional Common Shares, which may be subject to the same restrictions as the underlying Awards. Notwithstanding the foregoing, dividends, dividend equivalents or other distributions with respect to Performance Awards shall vest only if and to the extent that the underlying Performance Award vests, as determined by the Committee.
(e) The Committee may, in its discretion, increase or reduce the amount of a settlement otherwise to be made in connection with a Performance Award.
Section 11. Other Cash-Based Awards and Other Stock-Based Awards. The Committee may grant Other Cash-Based Awards (either independently or as an element of or supplement to any other Award under the Plan) and Other Share-Based Awards to Eligible Persons with the following terms and conditions and with such additional terms and conditions, in each case not inconsistent with the provisions of the Plan, as the Committee shall determine, which shall consist of any right that is (i) not an Award described in Sections 7 through 10 above and (ii) an Award of Common Shares or cash or an Award denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Common Shares (including, without limitation, securities convertible into Common Shares), as deemed by the Committee to be consistent with the purposes of the Plan. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions of any such Other Cash-Based Award or Other Share-Based Award.
Section 12. Effect of Separation from Service or a Change in Control on Awards.
(a) The Committee may provide, by rule or regulation or in any applicable Award Agreement, or may determine in any individual case, the circumstances in which, and the extent to which, an Award may be exercised, settled, vested, paid or forfeited in the event of the Participants Separation from Service prior to the end of a Performance Period or vesting, exercise or settlement of such Award.
(b) The Committee may determine, in its discretion, whether, and the extent to which, (i) an Award will vest during a leave of absence, (ii) a reduction in service level
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(for example, from full-time to part-time employment) will cause a reduction, or other change, to an Award and (iii) a leave of absence or reduction in service will be deemed a Separation from Service, in each case subject to the provisions of Section 409A.
(c) In the event of a Change in Control, the Committee may, in its sole discretion, and on such terms and conditions as it deems appropriate, take any one or more of the following actions with respect to any outstanding Award, which need not be uniform with respect to all Participants and/or Awards:
(i) continuation or assumption of such Award by the Company (if it is the surviving entity) or by the successor or surviving corporation or its parent; or
(ii) substitution or replacement of such Award by the successor or surviving entity or its parent with cash, securities, rights or other property to be paid or issued, as the case may be, by the successor or surviving entity (or a parent or subsidiary thereof), with substantially the same terms and value as such Award (including, without limitation, any applicable performance targets or criteria with respect thereto).
(d) Except as otherwise provided in a Participants employment or service agreement or in an Award Agreement, if (i) a Change in Control occurs, (ii) a Participant holds Awards that are continued, assumed, substituted or replaced in accordance with Section 12(c) and (iii) within twelve (12) months following such Change in Control such Participants employment or service is terminated by the Company without Cause, such Awards held by such Participant shall become fully vested (and, in the case of any such Award that is an Option or a Stock Appreciation Right, shall be immediately exercisable); provided that the level of vesting for any such Award that is a Performance Award shall be calculated as if the applicable performance conditions had been achieved at target.
(e) Except as otherwise provided in a Participants employment or service agreement or in an Award Agreement, if (i) a Change in Control occurs and (ii) a Participant holds Awards that are not continued, assumed, substituted or replaced in accordance with Section 12(c), then such Awards shall be cancelled in consideration of a payment, with the form, amount and timing of such payment determined by the Committee in its sole discretion, subject to the following: (A) such payment shall be made in cash, securities, rights and/or other property, (B) the amount of such payment shall equal the value of such Award (or, in the case of a Performance Award, the target value of such Award), as determined by the Committee in its sole discretion; provided that, in the case of an Option or Stock Appreciation Right, if such value equals the Intrinsic Value of such Award, such value shall be deemed to be valid; provided further that, if the Intrinsic Value of an Option or Stock Appreciation Right is equal to or less than zero, the Committee may, in its sole discretion, provide for the cancellation of such Award without payment of any consideration therefor, and (C) such payment shall be made promptly following such Change in Control or on a specified date or dates following such Change in Control; provided that the timing of such payment shall comply with Section 409A.
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Section 13. Section 409A. Notwithstanding any provision of the Plan or an Award Agreement to the contrary, if any Award provided under the Plan is subject to the provisions of Section 409A, the provisions of the Plan and any applicable Award Agreement shall be administered, interpreted and construed in a manner necessary in order to comply with Section 409A or an exception thereto (or disregarded to the extent such provision cannot be so administered, interpreted or construed), and the following provisions shall apply, as applicable and as required by Section 409A:
(a) If a Participant is a specified employee under Section 409A and a payment subject to Section 409A (and not excepted therefrom) to the Participant is due upon Separation from Service, such payment shall be delayed for a period of six (6) months after the date the Participant Separates from Service (or, if earlier, the death of the Participant). Any payment that would otherwise have been due or owing during such six-month period will be paid immediately following the end of the six-month period unless another compliant date is specified in the applicable agreement. If an Award includes a series of installment payments (within the meaning of Treas. Reg. § 1.409A-2(b)(2)(iii)), a Participants right to such series of installment payments shall be treated as a right to a series of separate payments and not as a right to a single payment, and if an Award includes dividend equivalents (within the meaning of Treas. Reg. § 1.409A-3(e)), a Participants right to such dividend equivalents shall be treated separately from the right to other amounts under the Award.
(b) For purposes of Section 409A, and to the extent applicable to any Award under the Plan, it is intended that distribution events qualify as permissible distribution events for purposes of Section 409A and shall be interpreted and construed accordingly. Whether a Participant has Separated from Service will be determined by the Committee based on all of the facts and circumstances and, to the extent applicable to any Award, in accordance with the guidance issued under Section 409A.
(c) The grant of Non-Qualified Stock Options, Stock Appreciation Rights and other stock rights subject to Section 409A are intended to be granted under terms and conditions consistent with Treas. Reg. § 1.409A-1(b)(5) such that any such Award does not constitute a deferral of compensation under Section 409A.
Section 14. Deferred Payment of Awards. The Committee, in its discretion, may specify the conditions under which the payment of all or any portion of any cash compensation, or Common Shares or other form of payment under an Award, may be deferred until a later date. Deferrals shall be for such periods or until the occurrence of such events, and upon such terms and conditions, as the Committee shall determine in its discretion, in accordance with the provisions of Section 409A; provided, however, that no deferral shall be permitted with respect to Options or Stock Appreciation Rights.
Section 15. Transferability of Awards. Except pursuant to the laws of descent and distribution, a Participants rights and interest under the Plan or any Award may not be assigned or transferred, hypothecated or encumbered in whole or in part, including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner; provided, however, the Committee may permit such
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transfer to a Permitted Transferee; and provided, further, that, unless otherwise permitted by the Code, any Incentive Stock Option granted pursuant to the Plan shall not be transferable other than by will or by the laws of descent and distribution, and shall be exercisable during the Participants lifetime only by a Participant.
Section 16. Amendment or Substitution of Awards under the Plan.
(a) The terms of any outstanding Award under the Plan may be amended or modified from time to time after grant by the Committee in its discretion in any manner that it deems appropriate (including, but not limited to, acceleration of the date of exercise of any Award and/or payments under any Award) in accordance with the terms of the Plan. Subject to Section 5(b) and Section 12, no such amendments or acceleration shall adversely affect in a material manner any right of a Participant under the Award without his or her written consent, except (x) to the extent necessary to conform the provisions of the Award with Section 409A or any other provision of the Code or other applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations, or (y) to impose any clawback or recoupment provisions on any Awards (including any amounts or benefits arising from such Awards) in accordance with Section 19(o). The Committee may, in its discretion, permit holders of Awards under the Plan to surrender outstanding Awards in order to exercise or realize the rights under other Awards, or in exchange for the grant of new Awards, or require holders of Awards to surrender outstanding Awards as a condition precedent to the grant of new Awards under the Plan.
(b) No Repricing. Notwithstanding the foregoing, except as provided in Section 5(b), no action shall directly or indirectly, through cancellation and regrant or any other method, reduce, or have the effect of reducing, the exercise or hurdle price of any out of the money Award established at the time of grant thereof without approval of the Companys stockholders, including (i) amending or modifying the terms of the Award to lower the exercise or hurdle price; (ii) cancelling the Award and granting either (A) replacement Options, Stock Appreciation Rights or similar Awards having a lower exercise or hurdle price or (B) Restricted Stock, Restricted Stock Units, Performance Awards or Other Share-Based Awards in exchange; or (iii) cancelling or repurchasing the out of the money Options, Stock Appreciation Rights or similar Awards for cash or other securities.
Section 17. Termination of a Participant. For all purposes under the Plan, the Committee shall determine whether a Participant has Separated from Service, terminated employment with, or terminated the performance of services for, the Company or any Subsidiary; provided, however, an absence or leave approved by the Company, to the extent permitted by applicable provisions of the Code, shall not be considered an interruption of employment or performance of services for any purpose under the Plan.
Section 18. Designation of Beneficiary by Participant. A Participant may name a beneficiary to receive any payment to which such Participant may be entitled with respect to any Award under the Plan in the event of his or her death, on a written form to be provided by and filed with the Committee, and in a manner determined by the
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Committee in its discretion (a Beneficiary). The Committee reserves the right to review and approve Beneficiary designations. A Participant may change his or her Beneficiary from time to time in a manner determined by the Committee in its discretion, unless such Participant has made an irrevocable designation. Any designation of a Beneficiary under the Plan (to the extent it is valid and enforceable under applicable law) shall be controlling over any other disposition, testamentary or otherwise, as determined by the Committee in its discretion. If no designated Beneficiary survives the Participant and is living on the date on which any amount becomes payable to such a Participants Beneficiary, such payment will be made to the legal representatives of the Participants estate, and the term Beneficiary as used in the Plan shall be deemed to include such Person or Persons. If there are any questions as to the legal right of any Beneficiary to receive a distribution under the Plan, the Committee in its discretion may determine that the amount in question be paid to the legal representatives of the estate of the Participant, in which event the Company, the Board, the Committee, the designated administrator (if any), and the members thereof, will have no further liability to anyone with respect to such amount.
Section 19. Miscellaneous Provisions.
(a) Any proceeds from Awards shall constitute general funds of the Company.
(b) No fractional shares may be delivered under an Award, but in lieu thereof a cash or other adjustment may be made as determined by the Committee in its discretion.
(c) No Eligible Person or other Person shall have any claim or right to be granted an Award under the Plan. Determinations made by the Committee under the Plan need not be uniform and may be made selectively among Eligible Persons under the Plan, whether or not such Eligible Persons are similarly situated. Neither the Plan nor any action taken under the Plan shall be construed as giving any Eligible Person any right to continue to be employed by or perform services for the Company, and the Company specifically reserves the right to terminate the employment of, or performance of services by, Eligible Persons at any time and for any reason.
(d) No Participant or other Person shall have any right with respect to the Plan or the Common Shares reserved for issuance under the Plan or in any Award, contingent or otherwise, until written evidence of the Award shall have been delivered to the Participant and all the terms, conditions and provisions of the Plan and the Award applicable to such Participant (and each Person claiming under or through him or her) have been met.
(e) No payment pursuant to the Plan shall be taken into account in determining any benefits under any severance, pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Affiliate, except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
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(f) Notwithstanding anything to the contrary contained in the Plan or in any Award agreement, each Award shall be subject to the requirement, if at any time the Committee shall determine, in its sole discretion, that such requirement shall apply, that the listing, registration or qualification of any Award under the Plan, or of the Common Shares, other Company securities or property or other forms of payment issuable pursuant to any Award under the Plan, on any stock exchange or other market quotation system or under any federal or state law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Award or the exercise or settlement thereof, such Award shall not be granted, exercised or settled in whole or in part until such listing, registration, qualification, consent or approval shall have been effected, obtained and maintained free of any conditions not acceptable to the Committee. Notwithstanding anything to the contrary contained in the Plan or in any Award agreement, no Common Shares, other Company securities or property or other forms of payment shall be issued under the Plan with respect to any Award unless the Committee shall be satisfied that such issuance will be in compliance with applicable law and any applicable rules of any stock exchange or other market quotation system on which such Common Shares are listed. If the Committee determines that the exercise of any Option or Stock Appreciation Right would fail to comply with any applicable law or any applicable rules of any stock exchange or other market quotation system on which Common Shares are listed, the Participant holding such Option or Stock Appreciation Right shall have no right to exercise such Option or Stock Appreciation Right until such time as the Committee shall have determined that such exercise will not violate any applicable law or any such applicable rule.
(g) Although it is the intent of Company that the Plan and Awards hereunder, to the extent the Committee deems appropriate and to the extent applicable, comply with Rule 16b-3 and Sections 409A and 422; (i) the Company does not warrant that any Award under the Plan will qualify for favorable tax treatment under any provision of federal, state, local or non-United States law; and (ii) in no event shall any member of the Committee or the Company (or its employees, officers or directors) have any liability to any Participant (or any other Person) due to the failure of an Award to satisfy the requirements of Rule 16b-3 or Section 409A or 422 or, as applicable, for any tax, interest, or penalties the Participant might owe as a result of the grant, holding, vesting, exercise, or payment of any Award under the Plan.
(h) The Company shall have the right to deduct from any payment made under the Plan any federal, state, local or foreign income or other taxes required by law to be withheld with respect to such payment. It shall be a condition to the obligation of Company to issue Common Shares, other securities or property, or other forms of payment, or any combination thereof, upon exercise, settlement or payment of any Award under the Plan, that the Participant (or any Beneficiary or Person entitled to act) pay to Company, upon its demand, such amount as may be required by the Company for the purpose of satisfying any liability to withhold federal, state, local or foreign income or other taxes. If the amount requested is not paid, Company may refuse to issue Common Shares, other securities or property, or other forms of payment, or any combination thereof. Notwithstanding anything in this Plan to the contrary, the Committee may, in its
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discretion, permit an Eligible Person (or any Beneficiary or Person entitled to act) to elect to pay a portion or all of the amount requested by the Company for such taxes with respect to such Award, at such time and in such manner as the Committee shall deem to be appropriate (including, but not limited to, by authorizing the Company to withhold, or agreeing to surrender to the Company on or about the date such tax liability is determinable, Common Shares, other securities or property, or other forms of payment, or any combination thereof, owned by such Person or a portion of such forms of payment that would otherwise be distributed, or have been distributed, as the case may be, pursuant to such Award to such Person, having a market value equal to the amount of such taxes); provided, however, that any broker-assisted cashless exercise shall comply with the requirements of Financial Accounting Standards Board, Accounting Standards Codification, Topic 718, and any withholding satisfied through a net-settlement of an Award shall be limited to the maximum statutory withholding requirements.
(i) The expenses of the Plan shall be borne by the Company; provided, however, the Company may recover from a Participant or his or her Beneficiary, heirs or assigns any and all damages, fees, expenses and costs incurred by the Company arising out of any actions taken by a Participant in breach of the Plan or any applicable Award Agreement.
(j) The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Award under the Plan, and rights to the payment of Awards shall be no greater than the rights of the Companys general creditors.
(k) By accepting any Award or other benefit under the Plan, each Participant (and each Person claiming under or through him or her) shall be conclusively deemed to have indicated his or her acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Board, the Committee or the designated administrator (if applicable).
(l) Records of the Company shall be conclusive for all purposes under the Plan or any Award, unless determined by the Committee to be incorrect.
(m) If any provision of the Plan or any Award is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Plan or any Award, but such provision shall be fully severable, and the Plan or Award, as applicable, shall be construed and enforced as if the illegal or invalid provision had never been included in the Plan or Award, as applicable.
(n) The terms of the Plan shall govern all Awards under the Plan and in no event shall the Committee have the power to grant any Award under the Plan that is contrary to any of the provisions of the Plan.
(o) The Committee may specify in an Award Agreement that a Participants rights, payments and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in
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addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include a Separation from Service with or without cause (and, in the case of any cause that is resulting from an indictment or other non-final determination, the Committee may provide for such Award to be held in escrow or abeyance until a final resolution of the matters related to such event occurs, at which time the Award shall either be reduced, cancelled or forfeited (as provided in such Award Agreement) or remain in effect, depending on the outcome), violation of material policies, breach of non-competition, non-solicitation, confidentiality or other restrictive covenants, or requirements to comply with minimum share ownership requirements, that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company and/or its Affiliates. The Committee shall have full authority to implement any policies and procedures necessary to comply with Section 10D of the Exchange Act and any rules promulgated thereunder and any other regulatory regimes. Notwithstanding anything to the contrary contained herein, any Awards granted under the Plan (including any amounts or benefits arising from such Awards) shall be subject to any clawback or recoupment arrangements or policies the Company has in place from time to time, and the Committee may, to the extent permitted by applicable law and stock exchange rules or by any applicable Company policy or arrangement, and shall, to the extent required, cancel or require reimbursement of any Awards granted to the Participant or any Common Shares issued or cash received upon vesting, exercise or settlement of any such Awards or sale of Common Shares underlying such Awards.
(p) The Committee may from time to time establish sub-plans under the Plan for purposes of satisfying securities, tax or other laws of various jurisdictions in which the Company intends to grant Awards. Any sub-plans shall contain such limitations and other terms and conditions as the Committee determines are necessary or desirable. All sub-plans shall be deemed a part of the Plan, but, if applicable, each sub-plan shall apply only to the Participants in the jurisdiction for which the sub-plan was designed. Awards may be granted to Participants who are non-United States nationals or employed or providing services outside the United States, or both, on such terms and conditions different from those applicable to Awards to Participants who are employed or providing services in the United States as may, in the judgment of the Committee, be necessary or desirable to recognize differences in local law, tax policy or custom.
(q) All certificates, if any, for Common Shares and/or other securities delivered under the Plan pursuant to any Award or the exercise or settlement thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Securities and Exchange Commission, any stock market or exchange upon which such Common Shares or other securities are then quoted, traded or listed, and any applicable securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
(r) The Company will not be obligated to deliver any Common Shares under the Plan or remove restrictions from Common Shares previously delivered under the Plan until (i) all Award conditions have been met or removed to the Committees satisfaction, (ii) as determined by the Committee, all other legal matters regarding the issuance and
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delivery of such Common Shares have been satisfied, including any applicable securities laws, stock market or exchange rules and regulations or accounting or tax rules and regulations and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Committee deems necessary or appropriate to satisfy any applicable laws. The Companys inability to obtain authority from any regulatory body having jurisdiction, which the Committee determines is necessary to the lawful issuance and sale of any Common Shares, will relieve the Company of any liability for failing to issue or sell such Common Shares as to which such requisite authority has not been obtained.
(s) The Committee may impose restrictions on any Award with respect to non-competition, non-solicitation, confidentiality and other restrictive covenants, or requirements to comply with minimum share ownership requirements, as it deems necessary or appropriate in its sole discretion, which such restrictions may be set forth in any applicable Award Agreement or otherwise.
Section 20. Effective Date. The Plan shall be effective on the Effective Date, provided that the Board and the Companys stockholders may approve the Plan prior to such date.
Section 21. Amendment or Termination.
(a) Plan Amendment or Termination. Except to the extent prohibited by applicable law, the Plan may be amended, suspended, discontinued or terminated in whole or in part at any time and/or from time to time by the Committee; provided that no such amendment, suspension, discontinuation or termination shall be made without stockholder approval if such approval is necessary to qualify for or comply with any tax or regulatory requirement, other applicable law or the rules of the stock market or exchange, if any, on which the Common Shares are principally quoted or traded for which the Committee deems it necessary or desirable to qualify or comply. No amendment of the Plan shall adversely affect in a material manner any right of any Participant with respect to any Award previously granted without such Participants written consent, except as permitted under Section 5(b) and Section 12. Notwithstanding the foregoing or any provision of the Plan to the contrary, the Committee may at any time (without the consent of any Participant) modify, amend or terminate any or all of the provisions of the Plan to the extent necessary to conform the provisions of the Plan with Section 409A or any other provision of the Code or other applicable law, the regulations issued thereunder or an exception thereto, regardless of whether such modification, amendment or termination of the Plan shall adversely affect the rights of a Participant.
(b) Dissolution or Liquidation. In the event of the dissolution or liquidation of the Company, each Award shall terminate immediately prior to the consummation of such action, unless otherwise determined by the Committee.
Section 22. Term of the Plan. No Awards shall be granted under the Plan after earlier of the following dates or events to occur:
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(a) upon the adoption of a resolution of the Board terminating the Plan;
(b) the tenth anniversary of the Effective Date; or
(c) the maximum number of Common Shares available for issuance under the Plan has been issued.
However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee to amend, alter, adjust, suspend, discontinue or terminate any such Award, or to waive any conditions or rights under any such Award, and the authority of the Committee to amend the Plan, shall extend beyond such date.
Section 23. Governing Law. The Plan and any Award granted under the Plan as well as any determinations made or actions taken under the Plan shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Delaware without regard to its choice or conflicts of laws principles.
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APPENDIX A
The following terms shall have the meaning indicated:
Affiliate means any entity that, directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Company.
Award means an award of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Awards, Other Cash-Based Awards or Other Stock-Based Awards under the Plan.
Award Agreement means any agreement, contract or other instrument or document (including in electronic form) evidencing any Award granted under the Plan, which may, but need not, be executed or acknowledged by a Participant.
Beneficial Owner has the meaning ascribed to such term in Rule 13d-3 under the Exchange Act.
Beneficiary has the meaning set forth in Section 18.
Board means the Board of Directors of the Company.
Cause has the meaning ascribed to such term in a Participants employment or service agreement, if any, or if not so defined, means the Participants (i) willful failure to properly carry out his or her duties or to comply with the rules and policies of the Company and its Affiliates or any instruction or directive of the Company or its Affiliates, that is not cured, if deemed curable in the discretion of the Company, within ten (10) days after the Company gives the Participant written notice thereof, (ii) acting dishonestly or fraudulently, or willful misconduct or gross negligence in the course of the Participants employment or service, that is not cured, if deemed curable in the discretion of the Company, within ten (10) days after the Company gives the Participant written notice thereof, (iii) making (or any member of the Participants family making) any personal profit arising out of or in connection with any transaction to which the Company or any of its Affiliates is a party or with which the Company or any of its Affiliates is associated without making disclosure to and obtaining the prior written consent of the Company (other than respecting any trading in Common Shares), (iv) conviction for, or a guilty plea (or a plea of nolo contendere) to, any criminal offense that is a felony or that may reasonably be considered to be likely to adversely affect the Company or its Affiliates or the Participants ability to perform his or her duties, including for the avoidance of doubt, any offense involving fraud, theft, embezzlement, forgery, willful misappropriation of funds or property, dishonest acts or moral turpitude or (v) engaging in conduct (done either intentionally or unintentionally) that is materially detrimental to the reputation, character, or standing of the Company or its Affiliates. An opportunity to cure any of the above Cause grounds may be provided to the Participant only where specified in subsections (i) and (ii) above.
Change in Control means the occurrence of any one or more of the following events:
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(i) any Person, other than (A) any employee plan established by the Company or any Subsidiary, (B) the Company or any of its Affiliates (including, for the avoidance of doubt, Brookfield Asset Management Inc. and its Affiliates), (C) an underwriter temporarily holding securities pursuant to an offering of such securities, or (D) an entity owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company, is (or becomes, during any 12-month period) the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates other than in connection with the acquisition by the Company or its Affiliates of a business) representing 50% or more of the total voting power of the stock of the Company; provided that the provisions of this subsection (i) are not intended to apply to or include as a Change in Control any transaction that is specifically excepted from the definition of Change in Control under subsection (iii) below;
(ii) a change in the composition of the Board such that, during any 12-month period, the individuals who, as of the beginning of such period, constitute the Board (the Existing Board) cease for any reason to constitute at least 50% of the Board; provided, however, that any individual becoming a member of the Board subsequent to the beginning of such period whose election, or nomination for election by the Companys stockholders, was approved by a vote of at least a majority of the Directors immediately prior to the date of such appointment or election shall be considered as though such individual were a member of the Existing Board; provided further, that, notwithstanding the foregoing, no individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 or Regulation 14A promulgated under the Exchange Act or successor statutes or rules containing analogous concepts) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or Person other than the Board, shall in any event be considered to be a member of the Existing Board;
(iii) the consummation of a merger, amalgamation or consolidation of the Company with any other corporation or other entity, or the issuance of voting securities in connection with such a transaction pursuant to applicable stock exchange requirements; provided that immediately following such transaction the voting securities of the Company outstanding immediately prior thereto do not continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity of such merger or consolidation or parent entity thereof) 50% or more of the total voting power of the Companys stock (or, if the Company is not the surviving entity of such transaction, 50% or more of the total voting power of the stock of such surviving entity or parent entity thereof); and provided, further, that such a transaction effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any
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securities acquired directly from the Company or its Affiliates other than in connection with the acquisition by the Company or its Affiliates of a business) representing 50% or more of either the then-outstanding Common Shares or the combined voting power of the Companys then-outstanding voting securities shall not be considered a Change in Control; or
(iv) the sale or disposition by the Company of the Companys assets in which any Person acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person) assets from the Company that have a total gross fair market value equal to more than 50% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions.
Notwithstanding the foregoing, (A) no Change in Control shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of the Common Shares immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns substantially all of the assets of the Company immediately prior to such transaction or series of transactions, and (B) no Change in Control shall be deemed to have occurred upon the acquisition of additional control of the Company by any Person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company. Notwithstanding the foregoing or any provision of any Award Agreement to the contrary, for any Award that provides for accelerated distribution on a Change in Control of amounts that constitute deferred compensation (as defined in Section 409A of the Code), if the event that constitutes such Change in Control does not also constitute a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the Companys assets (in either case, as defined in Section 409A of the Code), such amount shall not be accelerated on such Change in Control but instead shall vest as of such Change in Control and shall be distributed on the scheduled payment date specified in the applicable Award Agreement, except to the extent that earlier distribution would not result in the Participant who holds such Award incurring interest or additional tax under Section 409A of the Code.
Code shall mean the Internal Revenue Code of 1986, as it now exists or may be amended from time to time, and the rules and regulations promulgated thereunder, as they may exist or may be amended from time to time.
Committee shall mean the compensation committee of the Board unless another committee is designated by the Board. If there is no compensation committee of the Board and the Board does not designate another committee, references herein to the Committee shall refer to the Board.
Common Shares means shares of common stock, par value $0.01 per share, of the Company and stock of any other class into which such shares may thereafter be changed.
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Consultant means any individual, including an advisor, who is providing services to the Company or any Subsidiary or who has accepted an offer of service or consultancy from the Company or any Subsidiary.
Director means any member of the Board.
Effective Date means the date on which the registration statement covering the initial public offering of the Common Shares is declared effective by the Securities and Exchange Commission.
Eligible Person(s) means those persons who are (i) full or part-time employees or Consultants of the Company or any Subsidiary or (ii) other individuals who perform services for the Company or any Subsidiary, including, without limitation, Directors who are not employees of the Company or any Subsidiary, in each case to the extent that an offer or receipt of an Award to such person is permitted by applicable law and stock market or exchange rules and regulations.
Exchange Act means the Securities Exchange Act of 1934, as it now exists or may be amended from time to time, and the rules promulgated thereunder, as they may exist or may be amended from time to time.
Fair Market Value means, except as otherwise determined by the Committee, (i) with respect to the Common Shares, as of any date (A) if the Companys Common Shares are listed on any established stock exchange, system or market, the closing market price of the Common Shares as quoted in such exchange, system or market on the applicable date of determination (or, if such date is not a trading day, the trading day immediately preceding such date of determination) as reported in the Wall Street Journal or such other source as the Committee deems reliable or (B) in the absence of an established market for the Common Shares, as determined in good faith by the Committee or (ii) with respect to property other than Common Shares, the value of such property, as determined by the Committee, in its sole discretion.
Incentive Stock Option means an Option that is an incentive stock option as defined in Section 422 of the Code.
Intrinsic Value with respect to an Option or Stock Appreciation Right means (i) the excess, if any, of the price or implied price per Common Share in a Change in Control or other event over (ii) the exercise or hurdle price of such Award multiplied by (iii) the number of Common Shares covered by such Award.
Non-Qualified Stock Option means an Option that is not an Incentive Stock Option.
Option means an Incentive Stock Option or a Non-Qualified Stock Option.
Other Cash-Based Award means an Award granted pursuant to Section 11, including cash awarded as a bonus or upon the attainment of specified performance criteria or otherwise as permitted under the Plan.
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Other Stock-Based Award means an Award granted pursuant to Section 11 that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Common Shares or factors that may influence the value of Common Shares, including convertible or exchangeable debt securities, other rights convertible or exchangeable into Common Shares, purchase rights for Common Shares, dividend rights or dividend equivalent rights or Awards with a value and payment contingent upon performance of the Company or business units thereof or any other factors designated by the Committee.
Participant means an Eligible Person to whom an Award has been granted under the Plan.
Performance Award means an Award subject, in part, to the terms, conditions and restrictions described in Section 10, pursuant to which the recipient may become entitled to receive cash, Common Shares or other securities or property issuable under the Plan, or any combination thereof, as determined by the Committee.
Performance Period means the period established by the Committee with respect to any Performance Award during which the performance goals specified by the Committee with respect to such Award are to be measured.
Permitted Transferee means (i) any person defined as an employee in the Instructions to Registration Statement Form S-8 promulgated by the Securities and Exchange Commission, as such form may be amended from time to time, which persons include, as of the date of adoption of the Plan, executors, administrators or beneficiaries of the estates of deceased Participants, guardians or members of a committee for incompetent former Participants, or similar persons duly authorized by law to administer the estate or assets of former Participants, and (ii) Participants family members who acquire Awards from the Participant other than for value, including through a gift or a domestic relations order. For purposes of this definition, family member includes any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Participants household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty percent of the voting interests. For purposes of this definition, neither (i) a transfer under a domestic relations order in settlement of marital property rights, nor (ii) a transfer to an entity in which more than fifty percent of the voting or beneficial interests are owned by family members (or the Participant) in exchange for an interest in that entity is considered a transfer for value.
Person has the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a group as defined in Section 13(d) thereof.
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Restricted Period has the meaning set forth in Section 9(b).
Restricted Stock means an Award of Common Shares that are issued subject, in part, to the terms, conditions and restrictions described in Section 9.
Restricted Stock Units means an Award of the right to receive either (as the Committee determines) Common Shares or cash equal to the Fair Market Value of a Common Share on the payment date, issued subject, in part, to the terms, conditions and restrictions described in Section 9.
Rule 16b-3 means Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act and any successor rule.
Section 409A means Section 409A of the Code, any rules or regulations promulgated thereunder, as they may exist or may be amended from time to time, or any successor to such section.
Section 422 means Section 422 of the Code, any rules or regulations promulgated thereunder, as they may exist or may be amended from time to time, or any successor to such section.
Separation from Service and Separate from Service means the Participants death, retirement or other termination of employment or service with the Company (including all persons treated as a single employer under Sections 414(b) and 414(c) of the Code) that constitutes a separation from service (within the meaning of Section 409A).
Stock Appreciation Right means an Award of a right to receive (without payment to the Company) cash, Common Shares or other property, or other forms of payment, or any combination thereof, as determined by the Committee, based on the increase in the Fair Market Value of the number of Common Shares specified in the Stock Appreciation Right. Stock Appreciation Rights are subject, in part, to the terms, conditions and restrictions described in Section 8.
Subsidiary means an entity of which the Company directly or indirectly holds at least a majority of the value of the outstanding equity interests of such entity or a majority of the voting power with respect to the voting securities of such entity.
Substitute Award means an Award granted in assumption of, or in substitution for, an outstanding award previously granted by a company or other business acquired by the Company or with which the Company combines.
Ten Percent Employee means an employee of the Company or any Subsidiary who owns stock representing more than ten percent of the voting power of all classes of stock of the Company or any parent or subsidiary of the Company within the meaning of Sections 424(e) and (f) of the Code.
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Exhibit 10.37
Clarios International Inc.
DIRECTOR RESTRICTED STOCK UNIT AWARD AGREEMENT
This Director Restricted Stock Unit Award Agreement (Agreement) is entered into by and between Clarios International Inc. (the Company) and the participant whose name appears below (the Participant) in order to set forth the terms and conditions of Director Restricted Stock Units (the DRSUs) granted to the Participant under the Clarios International Inc. 2021 Long-Term Incentive Plan (the Plan).
Participants Name:
Award Type |
Date of Grant |
Number of DRSUs |
Vesting Schedule | |||
DRSUs |
[●] | [●] | The DRSUs shall become fully vested on the first to occur of (i) the date of the annual general meeting of the Companys shareholders occurring in the year following the year of the Date of Grant and (ii) the first anniversary of the Date of Grant.1 |
Subject to the attached Terms and Conditions and the terms of the Plan, which are incorporated herein by reference, the Company hereby grants to the Participant, on the Date of Grant, the number of DRSUs, with the Vesting Schedule as set forth above. Capitalized terms used but not otherwise defined herein or in the attached Terms and Conditions shall have the meanings ascribed to such terms in the Plan.
IN WITNESS WHEREOF, the Company has duly executed and delivered this Agreement as of the Date of Grant.
CLARIOS INTERNATIONAL INC. | PARTICIPANT | |||||
By: |
|
| ||||
Name: [●] | Name: [●] | |||||
Title: [●] |
PLEASE RETURN ONE SIGNED COPY OF THIS AGREEMENT TO:
Clarios International Inc.
5757 N Green Bay Avenue
Florist Tower
1 | For the IPO grants, to vest at the first annual stockholder meeting following the IPO. |
Milwaukee, WI 53209
Attn: [●]
2
Clarios International Inc.
CLARIOS INTERNATIONAL INC. 2021 LONG-TERM INCENTIVE PLAN
Terms and Conditions of DRSU Grant
1. | GRANT OF DRSUs. The DRSUs have been granted to the Participant as an incentive for the Participant to continue to provide services to the Company and its Subsidiaries, and to align the Participants interests with those of the Company. Each DRSU corresponds to one Common Share. Each DRSU constitutes a contingent and unsecured promise by the Company to deliver the cash equivalent of one Common Share on the settlement date, as set forth in Section 3. |
2. | VESTING; FORFEITURE. The DRSUs shall vest in accordance with the Vesting Schedule, subject to the Participants continuous service with the Company and its Subsidiaries through the applicable vesting date; provided, that the DRSUs shall vest upon the earliest of (i) the Participants Separation from Service due to the Participants death or physical or mental incapacity to perform his or her usual duties, with such condition likely to remain continuously and permanently, as determined by the Company and (ii) a Change in Control. All unvested DRSUs shall otherwise be immediately forfeited upon the Participants Separation from Service for any reason. All DRSUs, whether vested or unvested, shall be immediately forfeited upon the Participants breach of any restrictive covenants to which the Participant is subject with respect to the Company or its Affiliates. |
3. | SETTLEMENT. Except as otherwise set forth in the Plan, vested DRSUs will be settled in cash, with the amount of cash delivered determined using the Fair Market Value of the Common Shares on the date the DRSUs are settled. The vested DRSUs shall be settled on the date that is no later than forty-five (45) days following the earlier of (i) the Participants Separation from Service and (ii) a Change in Control (provided that such Change in Control constitutes a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the Companys assets (in either case, as defined in Section 409A of the Code)), as determined in the Committees sole discretion. |
4. | DIVIDEND EQUIVALENT PAYMENTS. Until the DRSUs settle in cash, if the Company pays a dividend on Common Shares, the Participant will be entitled to a payment in the same amount as the dividend the Participant would have received if he or she held Common Shares in respect of his or her vested and unvested DRSUs held but not previously forfeited immediately prior to the record date of the dividend (a Dividend Equivalent). No such Dividend Equivalents will be paid to the Participant with respect to any DRSU that is thereafter cancelled or forfeited prior to the applicable vesting date. The Committee will determine the form of payment in its sole discretion and may pay Dividend Equivalents in Common Shares, cash or a combination thereof. The Company will pay the Dividend Equivalents on vested DRSUs within forty-five (45) days following the earlier of (i) the Participants Separation from Service and (ii) a Change in Control (provided that such Change in Control constitutes a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the Companys assets (in either case, as defined in Section 409A of the Code)), as determined in the Committees sole discretion. |
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5. | NONTRANSFERABILITY. No portion of the DRSUs may be sold, assigned, transferred, encumbered, hypothecated, or pledged by the Participant, other than to the Company as a result of forfeiture of the DRSUs as provided herein, unless otherwise provided by the Committee. |
6. | TAXES. The Participant shall be solely responsible for any applicable taxes (including, without limitation, income and excise taxes) and penalties, and any interest that accrues thereon, that the Participant incurs in connection with the receipt, vesting or settlement of any DRSUs granted hereunder. |
7. | RIGHTS AS STOCKHOLDER. The Participant will not have any rights as a stockholder in the Common Shares corresponding to the DRSUs. |
8. | MISCELLANEOUS. |
(a) | No Right To Continued Service. This Agreement shall not confer upon the Participant any right to continue in the service of the Company or a Subsidiary or to be entitled to any remuneration or benefits not set forth in this Agreement or the Plan nor interfere with or limit the right of the Company or a Subsidiary to modify the terms of or terminate the Participants service at any time. |
(b) | No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Participants participation in the Plan. The Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan or the DRSUs. |
(c) | Cancellation/Clawback. The Participant hereby acknowledges and agrees that the Participant and the DRSUs are subject to the terms and conditions of Section 19(o) of the Plan (regarding reduction, cancellation, forfeiture or recoupment of Awards upon the occurrence of certain specified events). |
(d) | Plan to Govern. This Agreement and the rights of the Participant hereunder are subject to all of the terms and conditions of the Plan as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for the administration of the Plan. |
(e) | Amendment. Subject to the restrictions set forth in the Plan, the Company may from time to time suspend, modify or amend this Agreement or the Plan. Subject to the Companys rights pursuant to Sections 5(b), 13 and 21 of the Plan, no amendment of the Plan or this Agreement may, without the consent of the Participant, adversely affect the rights of the Participant in a material manner with respect to the DRSUs granted pursuant to this Agreement. |
(f) | Severability. In the event that any provision of this Agreement shall he held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of this Agreement, and this Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. |
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(g) | Entire Agreement. This Agreement and the Plan contain all of the understandings between the Company and the Participant concerning the DRSUs granted hereunder and supersede all prior agreements and understandings. |
(h) | Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the Participants death, acquire any rights hereunder in accordance with this Agreement or the Plan. |
(i) | Governing Law. To the extent not preempted by federal law, this Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to any conflicts or choice of law, rule or principle that might otherwise refer the interpretation of the award to the substantive law of another jurisdiction. |
(j) | Compliance with Section 409A of the Internal Revenue Code. The DRSUs are intended to comply with Section 409A of the Code (Section 409A) to the extent subject thereto, and shall be interpreted in accordance with Section 409A and treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Date of Grant. The Company reserves the right to modify the terms of this Agreement, including, without limitation, the payment provisions applicable to the DRSUs, to the extent necessary or advisable to comply with Section 409A and reserves the right to make any changes to the DRSUs so that the DRSUs do not become deferred compensation under Section 409A. |
For purposes of this Agreement, each amount to be paid or benefit to be provided shall be construed as a separate identified payment for purposes of Section 409A.
Notwithstanding any provision in the Plan or this Agreement to the contrary, if the Participant is a specified employee and a payment subject to Section 409A (and not excepted therefrom) to the Participant is due upon Separation from Service, such payment shall be delayed for a period of six (6) months after the date the Participant Separates from Service (or, if earlier, the death of the Participant). Any payment that would otherwise have been due or owing during such six-month period will be paid immediately following the end of the six-month period unless another compliant date is specified in the applicable agreement. If the DRSUs include a series of installment payments (within the meaning of Treas. Reg. § 1.409A-2(b)(2)(iii)), the Participants right to such series of installment payments shall be treated as a right to a series of separate payments and not as a right to a single payment, and if the DRSUs include dividend equivalents (within the meaning of Treas. Reg. § 1.409A-3(e)), the Participants right to such dividend equivalents shall be treated separately from the right to other amounts under the DRSUs.
Notwithstanding any provision of the Plan or this Agreement to the contrary, in no event shall the Company or an Affiliate be liable to the Participant on account of failure of the DRSUs to (i) qualify for favorable U.S. or foreign tax treatment or
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(ii) avoid adverse tax treatment under U.S. or foreign law, including, without limitation, under Section 409A.
6
Exhibit 10.38
Clarios International Inc.
RESTRICTED STOCK UNIT AWARD AGREEMENT
(For Employees)
This Restricted Stock Unit Award Agreement (Agreement) is entered into by and between Clarios International Inc. (the Company) and the participant whose name appears below (the Participant) in order to set forth the terms and conditions of Restricted Stock Units (the RSUs) granted to the Participant under the Clarios International Inc. 2021 Long-Term Incentive Plan (the Plan).
Participants Name:
Award Type |
Date of Grant |
Number of RSUs |
Vesting Schedule | |||
RSUs |
[●] | [●] | [●] |
Subject to the attached Terms and Conditions and the terms of the Plan, which are incorporated herein by reference, the Company hereby grants to the Participant, on the Date of Grant, the number of RSUs, with the Vesting Schedule as set forth above. Capitalized terms used but not otherwise defined herein or in the attached Terms and Conditions shall have the meanings ascribed to such terms in the Plan.
IN WITNESS WHEREOF, the Company has duly executed and delivered this Agreement as of the Date of Grant.
CLARIOS INTERNATIONAL INC. | PARTICIPANT | |||||
By: |
|
| ||||
Name: [●] | Name: [●] | |||||
Title: [●] |
PLEASE RETURN ONE SIGNED COPY OF THIS AGREEMENT TO:
Clarios International Inc.
5757 N Green Bay Avenue
Florist Tower
Milwaukee, WI 53209
Attn: [●]
Clarios International Inc.
CLARIOS INTERNATIONAL INC. 2021 LONG-TERM INCENTIVE PLAN
Terms and Conditions of RSU Grant
1. | GRANT OF RSUs. The RSUs have been granted to the Participant as an incentive for the Participant to continue to provide services to the Company and its Subsidiaries, including the Subsidiary employing the Participant (the Employer), and to align the Participants interests with those of the Company. Each RSU corresponds to one Common Share. Each RSU constitutes a contingent and unsecured promise by the Company to deliver one Common Share on the settlement date, as set forth in Section 3. |
2. | VESTING; FORFEITURE. The RSUs shall vest in accordance with the Vesting Schedule, subject to the Participants continuous service with the Company and its Subsidiaries through each applicable vesting date. All unvested RSUs shall be immediately forfeited upon the Participants Separation from Service for any reason. All RSUs, whether vested or unvested, shall be immediately forfeited upon the Participants (i) Separation from Service due to the Participants termination by the Company or its Subsidiaries for Cause or (ii) breach of any restrictive covenants to which the Participant is subject with respect to the Company or its Affiliates (including, without limitation, those set forth in the Restrictive Covenant Agreement (as defined below)). |
3. | SETTLEMENT. Except as otherwise set forth in the Plan, the RSUs will be settled in Common Shares, and the Participant shall receive the number of Common Shares that corresponds to the number of RSUs that have become vested as of the applicable vesting date, which Common Shares shall be delivered on the date that is no later than forty-five (45) days following the applicable vesting date, as determined in the Committees sole discretion. |
4. | DIVIDEND EQUIVALENT PAYMENTS. Until the RSUs settle in Common Shares, if the Company pays a dividend on Common Shares, the Participant will be entitled to a payment in the same amount as the dividend the Participant would have received if he or she held Common Shares in respect of his or her vested and unvested RSUs held but not previously forfeited immediately prior to the record date of the dividend (a Dividend Equivalent). No such Dividend Equivalents will be paid to the Participant with respect to any RSU that is thereafter cancelled or forfeited prior to the applicable vesting date. The Committee will determine the form of payment in its sole discretion and may pay Dividend Equivalents in Common Shares, cash or a combination thereof. The Company will pay the Dividend Equivalents within forty-five (45) days of the vesting date of the RSUs to which such Dividend Equivalents relate. |
5. | NONTRANSFERABILITY. No portion of the RSUs may be sold, assigned, transferred, encumbered, hypothecated, or pledged by the Participant, other than to the Company as a result of forfeiture of the RSUs as provided herein, unless and until payment is made in respect of vested RSUs in accordance with the provisions hereof and the Participant has become the holder of record of the vested Common Shares issuable hereunder, unless otherwise provided by the Committee. |
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6. | TAX AND WITHHOLDING. Pursuant to rules and procedures that the Company or the Employer establishes, federal, state, local or foreign income or other tax or other withholding obligations arising upon settlement of the RSUs may be satisfied, in the Committees sole discretion, by having the Company or the Employer withhold Common Shares, by having the Participant tender Common Shares or by having the Company or the Employer withhold cash if the Company provides for a cash withholding option, in each case in an amount sufficient to satisfy the tax or other withholding obligations. Common Shares withheld or tendered will be valued using the Fair Market Value of the Common Shares on the date the RSUs are settled. Any withholding or tendering of Common Shares shall comply with the requirements of Financial Accounting Standards Board, Accounting Standards Codification, Topic 718, and any withholding satisfied through a net-settlement of the RSUs shall be limited to the maximum statutory withholding requirements. The Participant acknowledges that, if he or she is subject to taxes in more than one jurisdiction, the Company or the Employer may be required to withhold or account for taxes in more than one jurisdiction. |
7. | RIGHTS AS STOCKHOLDER. The Participant will not have any rights as a stockholder in the Common Shares corresponding to the RSUs prior to settlement of the RSUs. |
8. | SECURITIES LAW COMPLIANCE. The Company may, if it determines it is appropriate, affix any legend to the stock certificates representing Common Shares issued upon settlement of the RSUs and any stock certificates that may subsequently be issued in substitution for the original certificates. The Company may advise the transfer agent to place a stop order against such Common Shares if it determines that such an order is necessary or advisable. |
9. | COMPLIANCE WITH LAW. Any sale, assignment, transfer, pledge, mortgage, encumbrance or other disposition of Common Shares issued upon settlement of the RSUs (whether directly or indirectly, whether or not for value and whether or not voluntary) must be made in compliance with any applicable constitution, rule, regulation or policy of any of the exchanges, associations or other institutions with which the Company has membership or other privileges, and any applicable law, or applicable rule or regulation of any governmental agency, self-regulatory organization or state or federal regulatory body. |
10. | RESTRICTIVE COVENANTS. As a condition precedent to the grant of the RSUs, the Participant hereby agrees to be subject to the restrictive covenants set forth in EXHIBIT A hereto (the Restrictive Covenant Agreement). |
11. | MISCELLANEOUS. |
(a) | No Right To Continued Employment or Service. This Agreement shall not confer upon the Participant any right to continue in the employ or service of the Company or a Subsidiary, including the Employer, or to be entitled to any remuneration or benefits not set forth in this Agreement or the Plan nor interfere with or limit the right of the Company or a Subsidiary, including the Employer, to modify the terms of or terminate the Participants employment or service at any time. |
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(b) | No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Participants participation in the Plan or acquisition or sale of the underlying Common Shares. The Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan or the RSUs. |
(c) | Cancellation/Clawback. The Participant hereby acknowledges and agrees that the Participant and the RSUs are subject to the terms and conditions of Section 19(o) of the Plan (regarding reduction, cancellation, forfeiture or recoupment of Awards upon the occurrence of certain specified events). |
(d) | Plan to Govern. This Agreement and the rights of the Participant hereunder are subject to all of the terms and conditions of the Plan as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for the administration of the Plan. |
(e) | Amendment. Subject to the restrictions set forth in the Plan, the Company may from time to time suspend, modify or amend this Agreement or the Plan. Subject to the Companys rights pursuant to Sections 5(b), 13 and 21 of the Plan, no amendment of the Plan or this Agreement may, without the consent of the Participant, adversely affect the rights of the Participant in a material manner with respect to the RSUs granted pursuant to this Agreement. |
(f) | Severability. In the event that any provision of this Agreement shall he held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of this Agreement, and this Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. |
(g) | Entire Agreement. This Agreement, the Plan and the Restrictive Covenant Agreement contain all of the understandings between the Company and the Participant concerning the RSUs granted hereunder and supersede all prior agreements and understandings. |
(h) | Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the Participants death, acquire any rights hereunder in accordance with this Agreement or the Plan. |
(i) | Governing Law. To the extent not preempted by federal law, this Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to any conflicts or choice of law, rule or principle that might otherwise refer the interpretation of the award to the substantive law of another jurisdiction. |
(j) | Compliance with Section 409A of the Internal Revenue Code. The RSUs are intended to comply with Section 409A of the Code (Section 409A) to the extent subject thereto, and shall be interpreted in accordance with Section 409A and |
4
treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Date of Grant. The Company reserves the right to modify the terms of this Agreement, including, without limitation, the payment provisions applicable to the RSUs, to the extent necessary or advisable to comply with Section 409A and reserves the right to make any changes to the RSUs so that the RSUs do not become deferred compensation under Section 409A. |
For purposes of this Agreement, each amount to be paid or benefit to be provided shall be construed as a separate identified payment for purposes of Section 409A.
Notwithstanding any provision in the Plan or this Agreement to the contrary, if the Participant is a specified employee and a payment subject to Section 409A (and not excepted therefrom) to the Participant is due upon Separation from Service, such payment shall be delayed for a period of six (6) months after the date the Participant Separates from Service (or, if earlier, the death of the Participant). Any payment that would otherwise have been due or owing during such six-month period will be paid immediately following the end of the six-month period unless another compliant date is specified in the applicable agreement. If the RSUs include a series of installment payments (within the meaning of Treas. Reg. § 1.409A-2(b)(2)(iii)), the Participants right to such series of installment payments shall be treated as a right to a series of separate payments and not as a right to a single payment, and if the RSUs include dividend equivalents (within the meaning of Treas. Reg. § 1.409A-3(e)), the Participants right to such dividend equivalents shall be treated separately from the right to other amounts under the RSUs.
Notwithstanding any provision of the Plan or this Agreement to the contrary, in no event shall the Company or an Affiliate, including the Employer, be liable to the Participant on account of failure of the RSUs to (i) qualify for favorable U.S. or foreign tax treatment or (ii) avoid adverse tax treatment under U.S. or foreign law, including, without limitation, under Section 409A.
5
Exhibit 10.39
Clarios International Inc.
PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD AGREEMENT
(For Employees)
This Performance-Based Restricted Stock Unit Award Agreement (Agreement) is entered into by and between Clarios International Inc. (the Company) and the participant whose name appears below (the Participant) in order to set forth the terms and conditions of performance-based Restricted Stock Units (the PSUs) granted to the Participant under the Clarios International Inc. 2021 Long-Term Incentive Plan (the Plan).
Participants Name:
Award Type |
Date of Grant |
Target Number of |
Vesting Terms |
Performance Period |
Performance Goals | |||||
PSUs |
[●] | [●] | Subject to achievement of the Performance Goals, 50% of the PSUs shall vest as of [●] and 50% of the PSUs shall vest as of [●], in each case subject to the Participants continued employment through the applicable vesting date | [●] through [●] | Are as set forth on Attachment A to the Terms and Conditions |
Subject to the attached Terms and Conditions and the terms of the Plan, which are incorporated herein by reference, the Company hereby grants to the Participant, on the Date of Grant, the target number of PSUs, with the Vesting Terms as set forth above. Capitalized terms used but not otherwise defined herein or in the attached Terms and Conditions shall have the meanings ascribed to such terms in the Plan.
IN WITNESS WHEREOF, the Company has duly executed and delivered this Agreement as of the Date of Grant.
CLARIOS INTERNATIONAL INC. | PARTICIPANT | |||||
By: |
|
| ||||
Name: [●] | Name: [●] | |||||
Title: [●] |
PLEASE RETURN ONE SIGNED COPY OF THIS AGREEMENT TO:
Clarios International Inc.
5757 N Green Bay Avenue
Florist Tower
Milwaukee, WI 53209
Attn: [●]
2
Clarios International Inc.
CLARIOS INTERNATIONAL INC. 2021 LONG-TERM INCENTIVE PLAN
Terms and Conditions of PSU Grant
1. | GRANT OF PSUs. The PSUs have been granted to the Participant as an incentive for the Participant to continue to provide services to the Company and its Subsidiaries, including the Subsidiary employing the Participant (the Employer), and to align the Participants interests with those of the Company. Each PSU corresponds to one Common Share. Each PSU constitutes a contingent and unsecured promise by the Company to deliver one Common Share on the settlement date, as set forth in Section 3. |
2. | VESTING; FORFEITURE. The PSUs shall vest in accordance with the Vesting Terms, subject to the Participants continuous service with the Company and its Subsidiaries through the applicable vesting date. All unvested PSUs shall be immediately forfeited upon the Participants Separation from Service for any reason; provided, that upon the Participants Separation from Service following the end of the Performance Period due to a termination by the Company and its Subsidiaries without Cause, subject to the Participants execution and non-revocation of a general release of claims in a form reasonably acceptable to the Company, the PSUs, to the extent earned, shall vest on a pro rata basis based on the number of days that the Participant was employed during the period from the date immediately following the end of the Performance Period through [●] (the Time-Vesting Period), divided by the number of days in the Time-Vesting Period. All PSUs, whether vested or unvested, shall be immediately forfeited upon the Participants (i) Separation from Service due to the Participants termination by the Company or its Subsidiaries for Cause or (ii) breach of any restrictive covenants to which the Participant is subject with respect to the Company or its Affiliates (including, without limitation, those set forth in the Restrictive Covenant Agreement (as defined below)). |
3. | SETTLEMENT. Except as otherwise set forth in the Plan, the PSUs will be settled in Common Shares, and the Participant shall receive the number of Common Shares that corresponds to the number of PSUs that have become vested as of the applicable vesting date, which Common Shares shall be delivered on the date that is no later than forty-five (45) days following the applicable vesting date, as determined in the Committees sole discretion. |
4. | DIVIDEND EQUIVALENT PAYMENTS. Until the PSUs settle in Common Shares, if the Company pays a dividend on Common Shares, the Participant will be entitled to a payment in the same amount as the dividend the Participant would have received if he or she held Common Shares in respect of his or her vested and unvested PSUs held but not previously forfeited immediately prior to the record date of the dividend (a Dividend Equivalent). No such Dividend Equivalents will be paid to the Participant with respect to any PSU that is thereafter cancelled or forfeited prior to the applicable vesting date. The Committee will determine the form of payment in its sole discretion and may pay Dividend Equivalents in Common Shares, cash or a combination thereof. The Company will pay the Dividend Equivalents within forty-five (45) days of the vesting date of the PSUs to which such Dividend Equivalents relate. |
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5. | NONTRANSFERABILITY. No portion of the PSUs may be sold, assigned, transferred, encumbered, hypothecated, or pledged by the Participant, other than to the Company as a result of forfeiture of the PSUs as provided herein, unless and until payment is made in respect of vested PSUs in accordance with the provisions hereof and the Participant has become the holder of record of the vested Common Shares issuable hereunder, unless otherwise provided by the Committee. |
6. | TAX AND WITHHOLDING. Pursuant to rules and procedures that the Company or the Employer establishes, federal, state, local or foreign income or other tax or other withholding obligations arising upon settlement of the PSUs may be satisfied, in the Committees sole discretion, by having the Company or the Employer withhold Common Shares, by having the Participant tender Common Shares or by having the Company or the Employer withhold cash if the Company provides for a cash withholding option, in each case in an amount sufficient to satisfy the tax or other withholding obligations. Common Shares withheld or tendered will be valued using the Fair Market Value of the Common Shares on the date the PSUs are settled. Any withholding or tendering of Common Shares shall comply with the requirements of Financial Accounting Standards Board, Accounting Standards Codification, Topic 718, and any withholding satisfied through a net-settlement of the PSUs shall be limited to the maximum statutory withholding requirements. The Participant acknowledges that, if he or she is subject to taxes in more than one jurisdiction, the Company or the Employer may be required to withhold or account for taxes in more than one jurisdiction. |
7. | RIGHTS AS STOCKHOLDER. The Participant will not have any rights as a stockholder in the Common Shares corresponding to the PSUs prior to settlement of the PSUs. |
8. | SECURITIES LAW COMPLIANCE. The Company may, if it determines it is appropriate, affix any legend to the stock certificates representing Common Shares issued upon settlement of the PSUs and any stock certificates that may subsequently be issued in substitution for the original certificates. The Company may advise the transfer agent to place a stop order against such Common Shares if it determines that such an order is necessary or advisable. |
9. | COMPLIANCE WITH LAW. Any sale, assignment, transfer, pledge, mortgage, encumbrance or other disposition of Common Shares issued upon settlement of the PSUs (whether directly or indirectly, whether or not for value and whether or not voluntary) must be made in compliance with any applicable constitution, rule, regulation or policy of any of the exchanges, associations or other institutions with which the Company has membership or other privileges, and any applicable law, or applicable rule or regulation of any governmental agency, self-regulatory organization or state or federal regulatory body. |
10. | RESTRICTIVE COVENANTS. As a condition precedent to the grant of the PSUs, the Participant hereby agrees to be subject to the restrictive covenants set forth in EXHIBIT A hereto (the Restrictive Covenant Agreement). |
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11. | MISCELLANEOUS. |
(a) | No Right To Continued Employment or Service. This Agreement shall not confer upon the Participant any right to continue in the employ or service of the Company or a Subsidiary, including the Employer, or to be entitled to any remuneration or benefits not set forth in this Agreement or the Plan nor interfere with or limit the right of the Company or a Subsidiary, including the Employer, to modify the terms of or terminate the Participants employment or service at any time. |
(b) | No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Participants participation in the Plan or acquisition or sale of the underlying Common Shares. The Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan or the PSUs. |
(c) | Cancellation/Clawback. The Participant hereby acknowledges and agrees that the Participant and the PSUs are subject to the terms and conditions of Section 19(o) of the Plan (regarding reduction, cancellation, forfeiture or recoupment of Awards upon the occurrence of certain specified events). |
(d) | Plan to Govern. This Agreement and the rights of the Participant hereunder are subject to all of the terms and conditions of the Plan as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for the administration of the Plan. |
(e) | Amendment. Subject to the restrictions set forth in the Plan, the Company may from time to time suspend, modify or amend this Agreement or the Plan. Subject to the Companys rights pursuant to Sections 5(b), 13 and 21 of the Plan, no amendment of the Plan or this Agreement may, without the consent of the Participant, adversely affect the rights of the Participant in a material manner with respect to the PSUs granted pursuant to this Agreement. |
(f) | Severability. In the event that any provision of this Agreement shall he held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of this Agreement, and this Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. |
(g) | Entire Agreement. This Agreement, the Plan and the Restrictive Covenant Agreement contain all of the understandings between the Company and the Participant concerning the PSUs granted hereunder and supersede all prior agreements and understandings. |
(h) | Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the Participants death, acquire any rights hereunder in accordance with this Agreement or the Plan. |
5
(i) | Governing Law. To the extent not preempted by federal law, this Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to any conflicts or choice of law, rule or principle that might otherwise refer the interpretation of the award to the substantive law of another jurisdiction. |
(j) | Compliance with Section 409A of the Internal Revenue Code. The PSUs are intended to comply with Section 409A of the Code (Section 409A) to the extent subject thereto, and shall be interpreted in accordance with Section 409A and treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Date of Grant. The Company reserves the right to modify the terms of this Agreement, including, without limitation, the payment provisions applicable to the PSUs, to the extent necessary or advisable to comply with Section 409A and reserves the right to make any changes to the PSUs so that the PSUs do not become deferred compensation under Section 409A. |
For purposes of this Agreement, each amount to be paid or benefit to be provided shall be construed as a separate identified payment for purposes of Section 409A.
Notwithstanding any provision in the Plan or this Agreement to the contrary, if the Participant is a specified employee and a payment subject to Section 409A (and not excepted therefrom) to the Participant is due upon Separation from Service, such payment shall be delayed for a period of six (6) months after the date the Participant Separates from Service (or, if earlier, the death of the Participant). Any payment that would otherwise have been due or owing during such six-month period will be paid immediately following the end of the six-month period unless another compliant date is specified in the applicable agreement. If the PSUs include a series of installment payments (within the meaning of Treas. Reg. § 1.409A-2(b)(2)(iii)), the Participants right to such series of installment payments shall be treated as a right to a series of separate payments and not as a right to a single payment, and if the PSUs include dividend equivalents (within the meaning of Treas. Reg. § 1.409A-3(e)), the Participants right to such dividend equivalents shall be treated separately from the right to other amounts under the PSUs.
Notwithstanding any provision of the Plan or this Agreement to the contrary, in no event shall the Company or an Affiliate, including the Employer, be liable to the Participant on account of failure of the PSUs to (i) qualify for favorable U.S. or foreign tax treatment or (ii) avoid adverse tax treatment under U.S. or foreign law, including, without limitation, under Section 409A.
6
Exhibit 21.1
Subsidiaries of Clarios International Inc.
The following entities are subsidiaries of Clarios International Inc. as of the time of this offering
Entity Name |
Jurisdiction | |
Banco Invex, S.A., Institución de Banca Múltiple, Invex Grupo Financiero, Solely and exclusively as trustee of Trust F/4530 |
Mexico | |
Bohai Clarios Power Solutions Co., Ltd |
China | |
Brookfield Panther GP LLC |
Delaware | |
Clarios (Changxing) Power Solutions Co., Ltd. |
China | |
Chongqing Bo Ao Clarios Power Solutions Co., Ltd. |
China | |
Clarios (Chongqing) Power Solutions Co., Ltd. |
China | |
Clarios (HK) Advanced Solutions Limited |
Hong Kong | |
Clarios (Shanghai) Company Management Co., Ltd. |
China | |
Clarios Advanced Solutions GmbH |
Germany | |
Clarios Advanced Solutions LLC |
Delaware | |
Clarios Andina S.A.S. |
Colombia | |
Clarios Andina S.A.S. Sucursal Perú |
Peru | |
Clarios APS Production, LLC |
Michigan | |
Clarios Arabian Holding Company LLC |
Delaware | |
Clarios ARBL Holding LP |
Ontario | |
Clarios Argentina S.R.L. |
Argentina | |
Clarios Asia Holding LLC |
Delaware | |
Clarios Asia Pacific Investment Holding ulc |
Ireland | |
Clarios Australia Pty Ltd |
Australia | |
Clarios Australia Pty Ltd - Rep. Office |
United Arab Emirates | |
Clarios Austria Ges.m.b.H. |
Austria | |
Clarios Austria Holding GmbH |
Austria | |
Clarios Battery Technology (Shanghai) Co., Limited |
China | |
Clarios BCD LLC |
Delaware | |
Clarios Belgium BVBA |
Belgium | |
Clarios Beteiligungs GmbH |
Germany | |
Clarios Bohai (Binzhou) Power Solutions Co., Ltd |
China | |
Clarios Brasil Serviços EIRELI |
Brazil | |
Clarios Bulgaria EOOD |
Bulgaria | |
Clarios Canada, Inc. |
Canada | |
Clarios Cayman Ltd |
Cayman Islands | |
Clarios Česká Lípa spol. s r.o. |
Czech Republic | |
Clarios Colombia Holding LLC |
Delaware | |
Clarios Components, LLC |
Delaware |
Entity Name |
Jurisdiction | |
Clarios Czech spol. s r.o. |
Czech Republic | |
Clarios del Pacifico S.A.S |
Colombia | |
Clarios Delkor Corporation |
Korea | |
Clarios Denmark ApS |
Denmark | |
Clarios Energy Solutions Brasil Ltda. |
Brazil | |
Clarios Enterprises S.R.L. |
Romania | |
Clarios Europe Holding Co., Limited |
Hong Kong | |
Clarios European Holding LLC |
US | |
Clarios Finance GK |
Japan | |
Clarios France SAS |
France | |
Clarios Germany GmbH & Co. KG |
Germany | |
Clarios Germany Holding GmbH |
Germany | |
Clarios Global GP LLC |
Delaware | |
Clarios Global LP |
Ontario | |
Clarios Holding Andina SAS |
Colombia | |
Clarios Hong Kong Limited |
Hong Kong | |
Clarios Hungary Kft. |
Hungary | |
Clarios Iberia P&D S.L |
Spain | |
Clarios International LP |
Ontario | |
Clarios Interstate Battery Holding LLC |
Delaware | |
Clarios Investment, LLC |
Delaware | |
Clarios Italia SRL |
Italy | |
Clarios Japan GK |
Japan | |
Clarios Luxembourg Austria Holding Sarl |
Luxembourg | |
Clarios Malta Finance Ltd |
Malta | |
Clarios Malta Holding Ltd |
Malta | |
Clarios Management GmbH |
Germany | |
Clarios Mexico Holding LLC |
US | |
Clarios Mexico Management, S.A. de C.V. SOFOM E.N.R. |
Mexico | |
Clarios Mexico Sales S de RL de CV |
Mexico | |
Clarios Netherlands B.V. |
Netherlands | |
Clarios Netherlands Global Holding B.V. |
Netherlands | |
Clarios Netherlands Holding B.V. |
Netherlands | |
Clarios Netherlands LATAM Holding B.V. |
Netherlands | |
Clarios Netherlands Mexico Holding B.V. |
Netherlands | |
Clarios New Energy Battery (Jiangsu) Co., Ltd. |
China | |
Clarios Plastics Czech spol. s r.o. |
Czech Republic | |
Clarios Plastics Germany GmbH |
Germany | |
Clarios Plastics Spain S.L. |
Spain | |
Clarios Poland Sp. z.o.o. |
Poland |
2
Entity Name |
Jurisdiction | |
Clarios Recycling GmbH |
Germany | |
Clarios Rus LLC |
Russia | |
Clarios SA LLC |
Delaware | |
Clarios Sales, d.o.o. |
Slovenia | |
Clarios Sarreguemines SAS |
France | |
Clarios Schweiz GmbH |
Switzerland | |
Clarios Singapore Pte. Ltd. |
Singapore | |
Clarios Slovakia spol sro |
Slovakia | |
Clarios Sweden AB |
Sweden | |
Clarios Technology and Recycling GmbH |
Germany | |
Clarios Tolling GmbH & CO KG |
Germany | |
Clarios UK Limited |
United Kingdom | |
Clarios Ukraine LLC |
Ukraine | |
Clarios US Finance Company, Inc. |
Delaware | |
Clarios USA LLC |
Delaware | |
Clarios VARTA Hannover GmbH |
Germany | |
Clarios Zwickau GmbH & Co. KG |
Germany | |
Clarios, LLC |
Wisconsin | |
CPS Technology Holdings LLC |
Delaware | |
Current Merger Sub 7 LLC |
Delaware | |
Enertec Venezuela, S.R.L. |
Venezuela | |
Finland Branch of Clarios Sweden AB |
Finland | |
Henan Johnson Controls Power Solutions Co., Ltd. |
China | |
JC New Energy Battery (Suzhou) Ltd |
China | |
JC New Energy Battery (Tianjin) Limited |
China | |
Johnson Controls Enterprises Mexico, S. de. R.L. de C.V. |
Mexico | |
Karat Guc Sistemleri Sanayi ve Ticaret A.S. |
Turkey | |
Panther A-Class Aggregator LP |
Ontario | |
Panther A-Class LP |
Ontario | |
Panther B-Class Aggregator LP |
Ontario | |
Panther BCP V GP LLC |
Delaware | |
Panther Brookfield Capital Partners V (Cdn II) GP LLC |
Delaware | |
(Norway Branch of) Clarios Sweden AB |
Norway | |
Russia Branch of Clarios Germany GmbH & Co. KGaA |
Russia | |
Servicios Corporativos LTH Mexico, S. de R.L. de C.V. |
Mexico | |
VB Autobatterie Hellas Commercial Company |
Greece |
3
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Registration Statement on Form S-1 of our report dated May 4, 2021 relating to the financial statements of Clarios Global LP. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ Deloitte & Touche LLP
Milwaukee, WI
July 2, 2021
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form S-1 of Clarios International Inc. of our report dated May 4, 2021 relating to the financial statements and financial statement schedule of Clarios Global LP, which appears in this Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
July 2, 2021
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