TABLE OF CONTENTS
TABLE OF CONTENTS1


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________________
FORM 10-K
ý      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
o      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-13953
W. R. GRACE & CO.
(Exact name of registrant as specified in its charter)
Delaware
 
65-0773649
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
7500 Grace Drive, Columbia, Maryland 21044-4098
(Address of principal executive offices) (Zip code)
(410) 531-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $.01 par value per share
 
New York Stock Exchange, Inc.
Preferred Stock Purchase Rights
 
 
 
 
 
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ý     No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes  o     No  ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes  ý     No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý     No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý
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  ý
 
Accelerated filer  o
Non-accelerated filer  o  (Do not check if a smaller reporting company)
 
Smaller reporting company  o
Emerging growth company  o
 
 
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 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No  ý
The aggregate market value of W. R. Grace & Co. voting and non-voting common equity held by non-affiliates as of June 30, 2017 (the last business day of the registrant's most recently completed second fiscal quarter) based on the closing sale price of $72.01 as reported on the New York Stock Exchange was $4,876,308,803 .
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  ý     No  o
At January 31, 2018 , 67,693,241 shares of W. R. Grace & Co. Common Stock, $.01 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to our stockholders in connection with the Annual Meeting of Stockholders to be held on May 9, 2018, are incorporated by reference into Part III.
 


Table of Contents

TABLE OF CONTENTS
PART I
 
 
 
PART II
 
 
PART III
 
 
PART IV
 
 
GRACE ® , the GRACE ® logo and, except as otherwise indicated, the other trademarks, service marks or trade names used in the text of this Report are trademarks, service marks or trade names of operating units of W. R. Grace & Co. or its subsidiaries and/or affiliates. RESPONSIBLE CARE ® is a trademark, registered in the United States and/or other countries, of the American Chemistry Council. UNIPOL ® is a trademark of The Dow Chemical Company or an affiliated company of Dow. W. R. Grace & Co.–Conn. and/or its affiliates are licensed to use the UNIPOL ® trademark in the area of polypropylene.
Unless the context indicates otherwise, in this Report the terms "Grace," "we," "us," or "our" mean W. R. Grace & Co. and/or its consolidated subsidiaries and affiliates, and the term the "Company" means W. R. Grace & Co. Unless otherwise indicated, the contents of websites mentioned in this report are not incorporated by reference or otherwise made a part of this Report.
The Financial Accounting Standards Board ® is referred to in this Report as the "FASB." The FASB issues, among other things, the FASB Accounting Standards Codification ® ("ASC") and Accounting Standards Updates ("ASU"). The U.S. Internal Revenue Service is referred to in this Report as the "IRS."


Table of Contents

PART I

Item 1.    BUSINESS
BUSINESS OVERVIEW
W. R. Grace & Co. is engaged in the production and sale of specialty chemicals and specialty materials on a global basis through two reportable business segments: Grace Catalysts Technologies, which includes catalysts and related products and technologies used in refining, petrochemical and other chemical manufacturing applications; and Grace Materials Technologies, which includes specialty materials, including silica-based and silica-alumina-based materials, used in coatings, consumer, industrial, and pharmaceutical applications. We entered the specialty chemicals industry in 1954, the year in which we acquired the Davison Chemical Company. Grace is the successor to a company that began in 1854 and originally became a public company in 1953. W. R. Grace & Co. is a Delaware corporation. Our principal executive offices are located at 7500 Grace Drive, Columbia, Maryland 21044; website is at www.grace.com; and telephone is +1 410.531.4000. As of December 31, 2017 , we had approximately 3,700 global employees.
On January 27, 2016, Grace entered into a separation agreement with GCP Applied Technologies Inc., then a wholly-owned subsidiary of Grace ("GCP"), pursuant to which Grace agreed to transfer its Grace Construction Products operating segment and the packaging technologies business of its Grace Materials Technologies operating segment to GCP (the "Separation"). Grace and GCP completed the Separation on February 3, 2016 (the "Distribution Date"), by means of a pro rata distribution to the Company's stockholders of all of the outstanding shares of GCP common stock (the "Distribution"), with one share of GCP common stock distributed for each share of Company common stock held as of the close of business on January 27, 2016. As a result of the Distribution, GCP became an independent public company. GCP’s historical financial results through the Distribution Date are reflected in Grace’s Consolidated Financial Statements as discontinued operations.
On June 30, 2016, we completed the acquisition of the assets of the BASF Polyolefin Catalysts business (the "polyolefin catalysts acquisition"), which included technologies, patents, trademarks, and production plants in Pasadena, Texas, and Tarragona, Spain, for a purchase price of $250.6 million . We added the following technologies to our catalysts portfolio: (1) LYNX ® high-activity polyethylene ("PE") catalyst technologies used commercially in slurry processes for the production of high-density PE resins such as bimodal film and pipe, and (2) LYNX ® polypropylene ("PP") catalyst technologies used commercially in all major PP process technologies including slurry, bulk loop, stirred gas, fluid gas, and stirred bulk. The acquisition also provided us with significant additional flexibility and capacity for our global polyolefin catalysts manufacturing network.
In 2016, we exited certain Grace Materials Technologies product lines, as these product lines no longer fit into our strategic growth plans. We sold certain of these assets to unaffiliated buyers for aggregate proceeds of $12.9 million.
On February 3, 2014, Grace concluded a voluntary reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware, when the joint plan of reorganization (the "Joint Plan") filed by Grace and certain other parties became effective.
On December 14, 2017, we signed a definitive agreement to acquire the polyolefin catalysts business of Albemarle Corporation for $416 million, subject to regulatory approvals and other customary closing conditions. This acquisition would be complementary to our Specialty Catalysts business and would strengthen our catalysts technology portfolio, commercial relationships, and manufacturing network.
Grace Catalysts Technologies produces and sells catalysts and related products and technologies used in refining, petrochemical and other chemical manufacturing applications, as follows:
•
Fluid catalytic cracking catalysts - also called FCC catalysts, that help to "crack" the hydrocarbon chain in distilled crude oil to produce transportation fuels, such as gasoline and diesel fuels, and other petroleum-based products; FCC additives used to reduce sulfur in gasoline, maximize propylene production from refinery FCC units, and reduce emissions of sulfur oxides, nitrogen oxides and carbon monoxide from refinery FCC units; and Methanol-to-Olefins (MTO) catalysts , used to convert methanol, often derived from coal, into petrochemical feeds such as ethylene and propylene.

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•
Hydroprocessing catalysts (HPC) - most of which are marketed through our Advanced Refining Technologies LLC, or ART, joint venture with Chevron Products Company ("Chevron"), that are used in process reactors to upgrade heavy oils into lighter, more useful products that comply with rising environmental standards by removing impurities such as nitrogen, sulfur and heavy metals, allowing less expensive feedstocks to be used in the petroleum refining process. (We hold a 50% economic interest in ART, which is not consolidated in our financial statements so ART's sales are excluded from our sales.)
•
Polyolefin catalysts and catalyst supports - also called specialty catalysts (SC), for the production of polypropylene and polyethylene thermoplastic resins, which can be customized to enhance the performance of a wide range of industrial and consumer end-use applications including high pressure pipe, geomembranes, food packaging, automotive parts, medical devices, and textiles; chemical catalysts used in a variety of industrial, environmental and consumer applications.
•
Gas-phase polypropylene process technology - which provides our licensees with a cost-effective, flexible, and reliable capability to manufacture polypropylene products across a wide spectrum of performance attributes enabling customers to manufacture products for a broad array of end-use applications.
Grace Materials Technologies produces and sells specialty materials, including silica-based and silica-alumina-based materials, used in coatings, consumer, industrial, and pharmaceutical applications, as follows:
•
Coatings - functional additives for wood and architectural coatings that provide surface effects and corrosion protection for metal substrates.
•
Consumer/Pharma - specialized materials used as additives and intermediates for pharmaceuticals, nutraceuticals, beer, toothpaste, food and cosmetic segments.
•
Chemical process - functional materials for use in plastics, rubber, tire, metal casting and adsorbent products for petrochemical and natural gas applications.
Global Scope
We operate our business on a global scale with approximately 75% of our 2017 sales outside the United States. We operate and/or sell to customers in over 60 countries and in over 30 currencies. We manage our operating segments on a global basis, to serve global markets. Currency fluctuations affect our reported results of operations, cash flows, and financial position.
Strategy Overview
Our strategy is to capture growth opportunities arising primarily from global macro trends, including the rising standards of living and expanding middle class in developing regions, and increasingly stringent environmental standards and regulations. We strive to increase enterprise value by profitably growing our specialty chemicals and specialty materials businesses in the global marketplace and achieving high levels of efficiency and cash flow. To meet these objectives, we plan to:
•
invest in research and development activities, with the goal of introducing new high-performance, technically differentiated products and services and enhancing manufacturing processes and operations;
•
expand sales and manufacturing into emerging regions, including China, India, other economies in Asia, Eastern Europe, the Middle East and Latin America;
•
pursue selected acquisitions and alliances that complement our current product offerings or provide opportunities for faster penetration of desirable market or geographic segments;
•
continue our commitment to manufacturing excellence, including process and productivity improvements, quality and cost-management; rigorous controls on working capital and capital spending; and the integration of our operations and supply chain management; and

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•
invest in commercial excellence, which includes among other things, demonstrating the financial value of our products to the operations and end markets of our customers, managing our business development pipeline, and supporting our channel partners.
PRODUCTS AND MARKETS
Specialty Chemicals and Materials Industry Overview
Specialty chemicals and specialty materials are high value-added products used as catalysts, intermediates, components, protectants or additives in a wide variety of products and applications. They are generally produced in relatively small volumes (compared with commodity chemicals) and must satisfy well-defined performance requirements and specifications. Specialty chemicals and specialty materials are often critical components of end products, catalysts for the production of end products, and components used in end products. Consequently, they are tailored to meet customer needs, which generally results in close relationships with our customers.
We focus our business on the following, which we believe are important competitive factors in the specialty chemicals and specialty materials industry:
•
value-added products, technologies and services, sold at competitive prices;
•
customer service, including rapid response to changing customer needs;
•
technological leadership (resulting from investment in research and development and technical customer service); and
•
quality and reliability of product and supply.
We believe that our focus on these competitive factors enables us to deliver significant value to customers at competitive prices and operating margins notwithstanding the increased customer service and research and development costs that this commitment entails.
Grace Catalysts Technologies Reportable Segment
Catalysts Technologies principally applies alumina, zeolite and inorganic support technologies in the design and manufacture of products with the goal of creating significant value for our diverse customer base. Our customers include major oil refiners as well as plastics and chemicals manufacturers. We believe that our technological expertise provides a competitive advantage, allowing us to quickly design products that help our customers create value in their operations and their end markets.
The following table sets forth Catalysts Technologies sales of similar products, technologies, and services as a percentage of Grace total revenue.
 
2017
 
2016
 
2015
(In millions)
Sales
 
% of Grace Revenue
 
Sales
 
% of Grace Revenue
 
Sales
 
% of Grace Revenue
Refining catalysts
$
758.1

 
44.2
%
 
$
724.9

 
45.3
%
 
$
764.5

 
47.0
%
Polyolefin and chemical catalysts
518.4

 
30.2
%
 
438.8

 
27.5
%
 
397.6

 
24.4
%
Total Catalysts Technologies Revenue
$
1,276.5

 
74.4
%
 
$
1,163.7

 
72.8
%
 
$
1,162.1

 
71.4
%

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The following table sets forth Catalysts Technologies sales by region as a percentage of Catalysts Technologies total revenue.
 
2017
 
2016
 
2015
(In millions)
Sales
 
% of Catalysts Technologies Revenue
 
Sales
 
% of Catalysts Technologies Revenue
 
Sales
 
% of Catalysts Technologies Revenue
North America
$
386.9

 
30.3
%
 
$
386.2

 
33.2
%
 
$
375.9

 
32.4
%
Europe Middle East Africa
454.5

 
35.6
%
 
438.8

 
37.7
%
 
402.5

 
34.6
%
Asia Pacific
365.7

 
28.7
%
 
261.1

 
22.4
%
 
293.0

 
25.2
%
Latin America
69.4

 
5.4
%
 
77.6

 
6.7
%
 
90.7

 
7.8
%
Total Catalysts Technologies Revenue
$
1,276.5

 
100.0
%
 
$
1,163.7

 
100.0
%
 
$
1,162.1

 
100.0
%
Grace Catalysts Technologies—Refining Catalysts
FCC Catalysts
We are a global leader in developing and manufacturing fluid catalytic cracking, or FCC, catalysts and additives that are designed to enable petroleum refiners to increase profits by improving product yields, value and quality. Our FCC products also enable refiners to reduce emissions from their FCC units and reduce sulfur content in the transportation fuels they produce. Oil refining is a highly specialized discipline and FCC catalysts must be tailored to meet local variations in crude oil feedstocks and a refinery's product mix. We work regularly with our customers to identify the most appropriate catalyst and additive formulations for their changing needs.
Since our customers are refiners, our business is highly dependent on the economics of the petroleum refining industry. In particular, demand for our FCC products is affected by refinery throughput, the type and quality of refinery feedstocks, and the demand for transportation fuels and other refinery products, for example petrochemical feeds such as propylene.
In general, as a refinery utilizes more of its FCC unit capacity, it needs a greater amount of FCC catalyst. Refinery throughput, or the extent to which refiners utilize their available FCC capacity, is generally determined by demand for transportation fuels and petrochemical products and the availability of crude oil supply. In recent years, global economic growth, especially in emerging regions, has increased global demand for transportation fuels and petrochemical products. Retail gasoline and diesel fuel prices and the level of economic activity has also directly influenced transportation fuel demand. Improvements in vehicular fuel economy, as well as consumer trends and government policies that increase the use of non-petroleum-based fuels and/or decrease the use of petroleum-based fuels also will affect transportation fuel demand over time.
Refinery crude oil feedstocks vary in quality from light and sweet to heavy and sour. Light and sweet feedstocks are typically more expensive than heavy and sour feedstocks and yield a greater proportion of high-value petroleum products. They also yield a lower proportion of residual oil, or "resid," which is generally the lowest value component contained in crude oil. Although heavy and sour feedstocks with high resid content are typically less expensive than higher quality feedstocks, the processing of high-resid feedstocks is more difficult because these feedstocks have more impurities and higher boiling points. Heavy and sour crude oil has a relatively high level of metals, nitrogen and sulfur contamination. Our customers generally determine the feedstocks to be used in their refineries based on relative pricing and availability of various quality feedstocks. Refinery configuration and complexity also plays a role in feedstock selection; more complex refineries tend to process a higher proportion of heavy and sour feedstocks. In general, as a refinery uses more heavy and sour feedstocks, it uses a greater amount of FCC catalyst. In addition, refiners use special high value-added formulations of FCC catalysts for efficient refining of heavy and sour feedstocks. We have designed our MIDAS ® catalyst, IMPACT ® catalyst, NEKTOR™ catalyst, and GENESIS ® catalyst product portfolios to enable our customers to increase the efficiency and yield of high-resid feedstock refining.
Many countries and regions, including the U.S., European Union, Japan, Russia, India and China have imposed regulatory limitations on the sulfur content of gasoline and diesel fuel. We have developed a portfolio of products designed to assist refiners in meeting their gasoline sulfur-reduction targets, including our D-PRISM ® and GSR ® additives and our SURCA ® catalyst family.

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Within certain limits, refiners have the ability to adjust their relative output of transportation fuels versus petrochemical feeds. Global economic growth, especially in emerging regions, has increased the demand for plastics at a faster rate than growth of transportation fuels. As a result, some of our refinery customers have sought increased profits from petrochemicals by increasing the yield of petrochemical feeds such as propylene from their FCC units. Our ZSM-5-based technologies, including our OLEFINSULTRA ® additive products, are designed to maximize the propylene and butylene output of FCC units.
Many U.S. petroleum refiners have entered into consent decrees with the U.S. Environmental Protection Agency (the "EPA") under which the refiners have agreed to reduce emissions of nitrogen oxides and sulfur oxides. The European Union has also imposed requirements on refineries with respect to nitrogen oxides and sulfur oxides emissions. FCC units are generally the largest emitters of these pollutants in a refinery. Our additives are designed to assist refineries in meeting their obligations to reduce these pollutants. Our Super DESOX ® additive reduces sulfur oxides emissions from commercial FCC units. Our DENOX ® additives are designed to achieve reductions in nitrogen oxides emissions comparable to those obtained from capital intensive alternatives available to a refinery, while our non-platinum-based combustion promoters XNOX ® and CP ® P are designed to enable refiners to control carbon monoxide emissions without increasing nitrogen oxides.
Competition in FCC catalysts and additives is based on value delivered to refiners, which is derived from differentiated technology, catalyst performance, technical and customer service and price. Our principal global FCC catalyst competitors are Albemarle, BASF, and SINOPEC. Our principal global competitors in FCC additives are Johnson Matthey, Albemarle, and BASF. We also have multiple regional competitors for FCC catalysts and additives.
An emerging market is developing for the conversion of methanol, either derived from coal gasification or from natural gas, into petrochemical feeds such as ethylene and propylene. This technology, known as Methanol-to-Olefins, or MTO, has created the need for an FCC-like catalyst for use in this processing unit. A number of MTO units have been constructed and are operating in China, with additional units in the planning and construction phases. Our MTO catalyst, GCQ™, was introduced in 2016 and has been used successfully in a number of customer MTO units. Competition is based on catalyst performance, technical service and price. Our primary competitors are UOP and Chia Tai.
Hydroprocessing Catalysts
We market hydroprocessing catalysts primarily through ART, our joint venture with Chevron. We established ART to combine our technology with that of Chevron and to develop, market and sell hydroprocessing catalysts to customers in the petroleum refining industry worldwide.
We are a leading supplier of hydroprocessing catalysts designed for processing high resid content feedstocks. We offer products for fixed-bed resid hydrotreating, on-stream catalyst replacement and ebullating-bed resid hydrocracking processes.
We also offer a full line of catalysts, customized for individual refiners, used in distillate hydrotreating to produce ultra-low sulfur content gasoline and diesel fuel, including our SMART CATALYST SYSTEM ® and APART ® catalyst systems. As discussed above, regulatory limitations on the sulfur content of gasoline and diesel fuel are becoming more common. These products are designed to help refiners to reduce the sulfur content of their products.
We have rights to sell hydrocracking and lubes hydroprocessing catalysts to licensees of Chevron Lummus Global (CLG) and other petroleum refiners for unit refills. These rights allow us to streamline hydroprocessing catalyst supply and improve technical service for refining customers by establishing ART as their single point of contact for all their hydroprocessing catalyst needs.
Competition in the hydroprocessing catalyst industry is based on value delivered to refiners, which is based on differentiated technology, catalyst performance, technical and customer service and price. Criterion, Albemarle, Haldor Topsoe, UOP and Axens are our leading global competitors in hydroprocessing catalysts. We also have multiple regional competitors.

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Grace Catalysts Technologies—Polyolefin Catalysts, Catalyst Supports and Polypropylene Process Technology
We are a leading provider of catalyst systems and catalyst supports to the polyolefins industry for a variety of polyethylene and polypropylene process technologies. These types of catalysts are used for the manufacture of polyethylene and polypropylene thermoplastic resins used in differentiated products such as plastic film, high-performance plastic pipe, automobile parts, household appliances, household containers, medical instruments, and many other end uses.
We use a combination of proprietary catalyst and support technology and technology licensed from third parties to provide unique catalyst-based solutions to our customers and to provide a broad technology portfolio for enhancing collaboration opportunities with technology leaders.
Our MAGNAPORE ® polymerization catalyst is used to produce high performance polyethylene in the slurry loop process for pipe and film applications. We offer our LYNX ® catalysts systems for the production of high-density polyethylene resins, such as bimodal film and pipe, as well as commercial use for the production of polypropylene in all major process technologies including slurry, bulk loop, stirred gas, fluid gas, and stirred bulk. Our CONSISTA ® 6th generation, non-phthalate catalysts are used to produce polypropylene resins that exhibit enhanced clarity, stiffness, and impact strength. Our POLYTRAK ® polymerization catalyst is designed to achieve improved polypropylene performance, particularly for impact resistant applications such as automobile bumpers and household appliances.
Our standard and customized DAVICAT ® catalysts offer a wide range of chemical and physical properties based on our material science technology for supported catalysts, polystyrene, herbicide, nutraceuticals and on-purpose olefins. Our RANEY ® nickel, cobalt and copper hydrogenation and dehydrogenation catalysts are used for the synthesis of organic compounds for the fibers, polyurethanes, engineered plastics, pharmaceuticals, sweeteners and petroleum industries.
The polyolefin catalyst and supports industry is technology-intensive, and suppliers must provide products formulated to meet customer specifications. There are many manufacturers of polyolefin catalysts and supports including Univation, LyondellBasell, Albemarle and PQ, and most sell their products worldwide.
We are also a leading licensor of gas-phase polypropylene process technology to polypropylene manufacturers. Our UNIPOL ® polypropylene technology is designed to have fewer moving parts and require less equipment than other competing technologies in order to reduce operating costs. This technology provides our licensees with a flexible and reliable capability to manufacture products for a broad array of end-use applications. The polypropylene process licensing industry is technology-intensive, and licensors must adapt the technology and the related licenses to meet individual customer needs. The major competing polypropylene process licensors are LyondellBasell and Lummus Novolen Technology.
Grace Catalysts Technologies—Manufacturing, Marketing and Raw Materials
Our Catalysts Technologies products are manufactured by a network of globally coordinated plants. Our integrated planning organization is responsible for the effective utilization of our manufacturing capabilities.
We use a global organization of technical professionals with extensive experience in refining processes, catalyst development, and catalyst applications to market our refining catalysts and additives. These professionals work to tailor our technology to the needs of each specific customer. We generally negotiate prices for our refining catalysts because our formulations are specific to the needs of each customer and each customer receives individual attention and technical service. We sell a significant portion of our hydroprocessing catalysts through multiple-year supply agreements with our geographically diverse customer base.
We use a global direct sales force for our polyolefin catalysts, supports and technologies and chemical catalysts that seeks to maintain close working relationships with our customers. These relationships enable us to cooperate with major polymer and chemical producers to develop catalyst technologies that complement their process or application developments. We have geographically distributed our sales and technical service professionals to make them responsive to the needs of our geographically diverse customers. We typically operate under long-term contracts with our customers.
Seasonality does not have a significant overall effect on our Catalysts Technologies reportable segment. However, sales of FCC catalysts tend to be lower in the first calendar quarter due to maintenance outages taken

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prior to the shift in production by refineries from home heating oil for the winter season to gasoline production for the summer season. FCC catalysts and ebullating-bed hydroprocessing catalysts are consumed at a relatively steady rate and are replaced regularly. Fixed-bed hydroprocessing catalysts are consumed over a period of years and are replaced in bulk in an irregular pattern. Since our customers periodically shut down their refining processes to replace fixed-bed hydroprocessing catalysts in bulk, our hydroprocessing catalyst sales to any customer can vary substantially over the course of a year and between years based on that customer's catalyst replacement schedule.
The principal raw materials for Catalysts Technologies products include molybdenum oxide, zeolite, caustic soda, sodium aluminate, sodium silicate, aluminum sulfate, nickel, alumina hydrate, alumina, aluminum metal, rare earths, and tungsten salt. Multiple suppliers are generally available for each of these materials; however, some of our raw materials may be provided by single sources of supply. We seek to mitigate the risk of using single source suppliers by identifying and qualifying alternative suppliers or, for unique materials, by using alternative formulations from other suppliers or by passing price increases on to customers. In some instances, we produce our own raw materials and intermediates.
Prices for many of our raw materials, including metals, and energy can be volatile. In response to increases in raw material and energy costs, we generally take actions to mitigate the effect of higher costs including increasing prices, developing alternative formulations for our products, increasing productivity, and hedging purchases of certain raw materials.
As in many chemical businesses, we consume significant quantities of natural gas in the production of Catalysts Technologies products. World events and other economic factors cause volatility in the price of natural gas. Increases or decreases in the cost of natural gas and raw materials can have a significant impact on our operating margins. We have implemented a risk management program under which we hedge natural gas in a way that is designed to provide protection against price volatility.
Grace Materials Technologies Reportable Segment
Materials Technologies principally applies specialty silica, zeolite and fine chemical technologies in the design and manufacture of products to create significant value for our diverse customer base. Our customers include coatings manufacturers, consumer product manufacturers, plastics manufacturers, petrochemical and natural gas processors, and pharmaceutical companies. We believe that our technological expertise and broad technology platform provide a competitive advantage, allowing us to tailor our products to specific customer requirements and help them create value in their operations and end markets.
The following table sets forth Materials Technologies sales of similar products as a percentage of Grace total revenue.
 
2017
 
2016
 
2015
(In millions)
Sales
 
% of Grace Revenue
 
Sales
 
% of Grace Revenue
 
Sales
 
% of Grace Revenue
Coatings
$
142.2

 
8.3
%
 
$
136.5

 
8.5
%
 
$
133.6

 
8.2
%
Consumer/Pharma
123.3

 
7.2
%
 
121.9

 
7.6
%
 
125.1

 
7.7
%
Chemical process
153.5

 
8.9
%
 
142.6

 
8.9
%
 
137.0

 
8.4
%
Other
21.0

 
1.2
%
 
33.9

 
2.2
%
 
70.4

 
4.3
%
Total Materials Technologies Revenue(1)
$
440.0

 
25.6
%
 
$
434.9

 
27.2
%
 
$
466.1

 
28.6
%
___________________________________________________________________________________________________________________
(1)
In 2016, we exited certain product lines that accounted for approximately $35 million of Materials Technologies sales in 2015.

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The following table sets forth Materials Technologies sales by region as a percentage of Materials Technologies total revenue.
 
2017
 
2016
 
2015
(In millions)
Sales
 
% of Materials Technologies Revenue
 
Sales
 
% of Materials Technologies Revenue
 
Sales
 
% of Materials Technologies Revenue
North America
$
99.1

 
22.5
%
 
$
104.5

 
24.0
%
 
$
114.1

 
24.5
%
Europe Middle East Africa
213.2

 
48.5
%
 
209.0

 
48.1
%
 
218.7

 
46.9
%
Asia Pacific
94.1

 
21.4
%
 
87.8

 
20.2
%
 
97.9

 
21.0
%
Latin America
33.6

 
7.6
%
 
33.6

 
7.7
%
 
35.4

 
7.6
%
Total Materials Technologies Revenue
$
440.0

 
100.0
%

$
434.9

 
100.0
%
 
$
466.1

 
100.0
%
Grace Materials Technologies—Silica-based Products
We globally manufacture functional additives and process aids, such as silica gel, colloidal silica, zeolitic adsorbents, precipitated silica and silica-aluminas, for a wide variety of applications and end-use industries. We also custom manufacture fine chemical intermediates and regulatory starting materials used primarily in the pharmaceutical and nutritional supplements industries. Our product portfolio includes:
Application
 
Use
 
Key Brands
Coatings
 
Matting agents, anticorrosion pigments, TiO 2  extenders and moisture scavengers for paints and lacquers
 
SYLOID ® , SHIELDEX ® , SYLOSIV ® , SYLOWHITE™
 
 
Additives for matte, semi-glossy and glossy ink receptive coatings on high performance ink jet papers, photo paper, and commercial wide-format print media
 
SYLOJET ® , DURAFILL ® , LUDOX ®
 
 
Paper retention aids, functional fillers, paper frictionizers
 
DURAFILL ® , LUDOX ®
 
 
Defoamers
 
ZEOFLO ® , ZEOFOAM ®
Consumer/
Pharma
 
Toothpaste abrasives and thickening agents
 
SYLODENT ® , SYLOBLANC ® ,   SIDENT ®
 
 
Free-flow agents, anticaking agents, heating agents,
tabletting aids, cosmetic additives and flavor carriers
 
PERKASIL ® , SYLOID ® , SYLOSIV ® , ZEOFLO ® , ZEOFOAM ®
 
 
Edible oil refining agents, stabilizers and clarification aids for beer, juices and other beverages
 
TRISYL ® , DARACLAR ®
 
 
Pharmaceutical excipients and drug delivery
 
SYLOID ®  FP, SYLOID ®  XDP, SILSOL ®
 
 
Fine chemical intermediates and regulatory starting materials
 
SYNTHETECH™
 
 
Chromatography purification media
 
DAVISIL ® , VYDAC ®
Chemical Process
 
Reinforcing agents for rubber and tires
 
PERKASIL ®
 
 
Inorganic binders and surface smoothening aids for precision investment casting and refractory applications
 
LUDOX ®
 
 
Static adsorbents for dual pane windows and refrigerant applications, moisture scavengers, and package desiccants
 
PHONOSORB ® , SYLOSIV ® , CRYOSIV ® , PROTEKSORB ®
 
 
Chemical metal polishing aids and formulations for chemical mechanical planarization/electronics applications
 
POLIEDGE ®
 
 
Antiblocking additives for plastic films to prevent adhesion of layers in manufacturing
 
SYLOBLOC ®
 
 
Process adsorbents used in petrochemical and natural gas processes for such applications as ethylene-cracked-gas-drying, natural gas drying and sulfur removal
 
SYLOBEAD ®
Our materials are integrated into our customers' manufacturing processes and when combined with our technical support, can increase the efficiency and performance of their operations and their products. By working closely with our customers, we seek to help them respond quickly to changing consumer demands. In addition, we focus on developing and manufacturing products that differentiate our customers' products and help them

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meet evolving regulatory and environmental requirements. For example, our coatings additives are designed to be used in more sustainable water-based and VOC-compliant coatings. Our pharmaceutical excipients help improve bioavailability, extend shelf-life, and/or make drug manufacturing more efficient. Our dental silicas are engineered to provide high cleaning with gentle abrasivity. Our beer stabilization silicas offer greater productivity to breweries while reducing solid waste and water usage. Our custom manufacturing of advanced intermediates supports pharmaceutical drug development processes, enabling commercialization of life-saving therapies.
Our products are used in a wide range of industries, including paint and coatings, pharmaceutical, food and beverage, personal care, plastics and rubber, and petrochemical and biofuels. We can modify the base silica and surface chemistry for our customers in order to enhance our product performance for their unique applications.
Our global footprint allows us to partner effectively with both multinational and regional companies requiring multiple manufacturing facilities complemented by regional technical expertise in local languages. There are many manufacturers of engineered materials that market their products on a global basis including Evonik, PQ, and UOP. Competition is generally based on product performance, technical service, quality and reliability, price, and other differentiated product features to address the needs of customers, end-users and brand owners. Our products compete on the basis of distinct technology, product quality, and customer support. Competition for these products is highly fragmented, with a large number of companies that sell their products on a global or regional basis.
Grace Materials Technologies—Manufacturing, Marketing and Raw Materials
Our Materials Technologies products are manufactured by a network of globally integrated plants that are positioned to service our customers regionally. Our integrated planning organization is responsible for the effective utilization of our manufacturing capabilities.
We use country-based direct sales forces that are dedicated to each product line and backed by application-specific technical customer service teams to market our Materials Technologies products. Our sales force seeks to develop long-term relationships with our customers and focuses on consultative sales, technical support and key account growth programs. To ensure full geographic coverage, our direct sales organization is further supplemented by a network of distributors and agents.
Seasonality does not have a significant overall effect on our Materials Technologies reportable segment; however, our adsorbents for dual frame windows are affected by seasonal and weather-related factors and the level of construction activity, and our edible oil refining agents, stabilizers and clarification aids for beer, juices and other beverages are affected by the level of consumption of beverages. These impacts are mitigated by the global scope of our business.
The principal raw materials for Materials Technologies products include sodium silicate, zeolite, soda ash, sulfuric acid, and caustic soda. Multiple suppliers are generally available for each of these materials; however, some of our raw materials may be provided by single sources of supply. We seek to mitigate the risk of using single source suppliers by identifying and qualifying alternative suppliers or, for unique materials, by using alternative formulations from other suppliers or by passing price increases on to customers. In some instances, we produce our own raw materials and intermediates.
Prices for many of our raw materials and energy can be volatile. In response to increases in raw material and energy costs, we generally take actions intended to mitigate the effect of higher costs including increasing prices, developing alternative formulations for our products, and increasing productivity.
As in many chemical businesses, we consume significant quantities of natural gas in the production of Materials Technologies products. World events and other economic factors can cause volatility in the price of natural gas. Increases or decreases in the cost of natural gas and raw materials can have a significant impact on our operating margins. We have implemented a risk management program under which we hedge natural gas in a way that is intended to provide protection against price volatility.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS
Disclosure of financial information about industry segments and geographic areas for 2017 , 2016 and 2015 is provided in this Report in Item 8 (Financial Statements and Supplementary Data) in the Financial Supplement under Note 17 (Segment Information) to the Consolidated Financial Statements, which disclosure is incorporated

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herein by reference. Disclosure of risks attendant to our foreign operations is provided in this Report in Item 1A (Risk Factors), which disclosure is incorporated herein by reference.
BACKLOG OF ORDERS
While at any given time there may be some backlog of orders, this backlog is not material in respect to our total annual sales, nor are the changes, from time to time, significant.
INTELLECTUAL PROPERTY; RESEARCH ACTIVITIES
Competition in the specialty chemicals and specialty materials industry is often based on technological superiority and innovation. Our ability to maintain our margins and effectively compete with other suppliers depends on our ability to introduce new products based on innovative technology, as well as our ability to obtain patent or other intellectual property protection. Our research and development programs emphasize development of new products and processes, improvement of existing products and processes and application of existing products and processes to new industries and uses. Most research activity is conducted in North America and Europe.
We routinely file and obtain patents in a number of countries around the world that are significant to our businesses in order to protect our investments in innovation, research, and product development. Numerous patents and patent applications protect our products, formulations, manufacturing processes, equipment, and improvements. We also benefit from the use of trade secret information, including know-how and other proprietary information relating to many of our products and processing technologies. There can be no assurance, however, that our patents, patent applications and precautions to protect trade secrets and know-how will provide sufficient protection for our intellectual property. In addition, other companies may independently develop technology that could replicate, and thus diminish the advantage provided by, our trade secrets. Other companies may also develop alternative technology or design-arounds that could circumvent our patents or may acquire patent rights applicable to our business which might interpose a limitation on expansion of our business in the future.
Research and development expenses were approximately $54 million , $49 million , and $47 million in 2017 , 2016 , and 2015 , respectively. These amounts include depreciation and amortization expenses related to research and development assets and expenses incurred in funding external research projects. The amount of research and development expenses relating to government- and customer-sponsored projects (rather than projects that we sponsor) was not material during these periods. Grace also conducts research and development activities with our ART joint venture, which are not included in the amounts above.
ENVIRONMENT, HEALTH AND SAFETY MATTERS
We are subject, along with other manufacturers of specialty chemicals, to stringent regulations under numerous regional, national, provincial, state and local environment, health and safety laws and regulations relating to the manufacture, storage, handling, disposal and stewardship of chemicals and other materials. Environmental laws require that certain responsible parties, as defined in the relevant statute, fund remediation actions regardless of legality of original disposal or ownership of a disposal site. We are involved in various response actions to address the presence of chemical substances as required by applicable laws.
We have expended substantial funds to comply with environmental laws and regulations and expect to continue to do so in the future. The following table sets forth our expenditures in the past three years, and our estimated expenditures in 2018 and 2019 , for (i) the operation and maintenance of manufacturing facilities and the disposal of wastes; (ii) capital expenditures for environmental control facilities; and (iii) site remediation:

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(In millions)
Operation of
Facilities and
Waste Disposal
 
Capital
Expenditures
 
Site
Remediation
2015
$
47

 
$
15

 
$
12

2016
62

 
10

 
18

2017
51

 
7

 
20

2018(1)
53

 
19

 
24

2019(1)
55

 
18

 
13

___________________________________________________________________________________________________________________
(1)
Amounts are based on environmental response matters for which sufficient information is available to estimate costs. We do not have sufficient information to estimate all of Grace's possible future environmental response costs. As we receive new information, our estimate of such costs may change materially.
Additional information about our environmental remediation activities is provided in this Report in Item 8 (Financial Statements and Supplementary Data) in the Financial Supplement under Note 10 (Commitments and Contingent Liabilities) to the Consolidated Financial Statements, which information is incorporated herein by reference.
We continuously seek to improve our environment, health and safety performance. To the extent applicable, we extend the basic elements of the American Chemistry Council's RESPONSIBLE CARE ® program to all our locations worldwide, embracing specific performance objectives in the key areas of management systems, product stewardship, employee health and safety, community awareness and emergency response, distribution, process safety and pollution prevention. We have implemented the RESPONSIBLE CARE ® Security Code through a company-wide security program focused on the security of our people, processes, and systems. We have reviewed existing security (including cybersecurity) vulnerability and taken actions to enhance security systems where deemed necessary. In addition, we are complying with the Department of Homeland Security’s Chemical Facility Anti-Terrorism Standards, including identifying facilities subject to the standards, conducting security vulnerability assessments and developing site security plans, as necessary.
EMPLOYEE RELATIONS
As of December 31, 2017 , we employed approximately 3,700 persons, of whom approximately 1,900 were employed in the United States and approximately 1,000 were employed in Germany. Of our total employees, approximately 2,200 were salaried and 1,500 were hourly.
Approximately 640 of our manufacturing employees in the United States are represented by unions. We have operated without a labor work stoppage for more than 10 years. We have works councils representing the majority of our European sites serving approximately 1,100 employees.
AVAILABILITY OF REPORTS AND OTHER DOCUMENTS
We maintain an Internet website at www.grace.com . Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on our website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission, or SEC. These reports may be accessed through our website's investor information page.
In addition, the charters for the Audit, Compensation, Nominating and Governance, and Corporate Responsibility Committees of our Board of Directors, our corporate governance principles and code of ethics are available, free of charge, on our website at www.grace.com/en-us/corporate-leadership/pages/governance.aspx . Printed copies of the charters, governance principles and code of ethics may be obtained free of charge by contacting Grace Shareholder Services at 410-531-4167.
The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filings we make with the SEC.
Our Chief Executive Officer and Chief Financial Officer have submitted certifications to the SEC pursuant to the Sarbanes Oxley Act of 2002 as exhibits to this Report.

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EXECUTIVE OFFICERS
See "Executive Officers of the Registrant" following Part I, Item 4 of this Report for information about our Executive Officers.
Item 1A.    RISK FACTORS
This Report, including the Financial Supplement, contains, and our other public communications may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding: expected financial positions; results of operations; cash flows; financing plans; business strategy; operating plans; capital and other expenditures; competitive positions; growth opportunities for existing products; benefits from new technology and cost reduction initiatives, plans and objectives; and markets for securities, are forward looking. Such statements generally include the words "believes," "plans," "intends," "targets," "will," "expects," "suggests," "anticipates," "outlook," "continues" or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. We are subject to risks and uncertainties that could cause our actual results to differ materially from our projections or that could cause other forward-looking statements to prove incorrect. Factors that could cause actual events to differ materially from those contained in the forward-looking statements include those factors set forth below and elsewhere in this Annual Report on Form 10-K. Our reported results should not be considered as an indication of our future performance. Readers are cautioned not to place undue reliance on our projections and forward-looking statements, which speak only as of the date those projections and statements are made. We undertake no obligation to publicly release any revisions to the projections and forward-looking statements contained in this document, or to update them to reflect events or circumstances occurring after the date of this document. In addition to general economic, business and market conditions, we are subject to other risks and uncertainties, including, without limitation, the following:
Risks Related to the Business
The global scope of our operations subjects us to the risks of doing business in foreign countries, which could adversely affect our business, financial condition and results of operations.
We operate our business on a global scale with approximately 75% of our 2017 sales outside the United States. We operate and/or sell to customers in over 60 countries and in over 30 currencies. We currently have many production facilities, research and development facilities and administrative and sales offices located outside North America, including facilities and offices located in EMEA (Europe Middle East Africa), Asia Pacific and Latin America. We expect non-U.S. sales to continue to represent a substantial majority of our revenue. Accordingly, our business is subject to risks related to the differing legal, political, social and regulatory requirements and economic conditions of many jurisdictions. Risks inherent in non-U.S. operations include the following:
•
commercial agreements may be more difficult to enforce and receivables more difficult to collect;
•
intellectual property rights may be more difficult to enforce;
•
increased shipping costs, disruptions in shipping or reduced availability of freight transportation;
•
we may have difficulty transferring our profits or capital from foreign operations to other countries where such funds could be more profitably deployed;
•
we may experience unexpected adverse changes in export duties, quotas and tariffs and difficulties in obtaining export licenses;
•
some foreign countries have adopted, and others may impose, additional withholding and other taxes or adopt other restrictions on foreign trade or investment, including import, currency exchange and capital controls, charges and limitations;
•
foreign governments may nationalize private enterprises;
•
our business and profitability in a particular country could be affected by political or economic repercussions on a domestic, country-specific or global level from terrorist activities and the response to such activities;
•
we may be affected by unexpected adverse changes in foreign laws or regulatory requirements;
•
we may have to pay increased cash taxes in the event of a change in tax laws, regulations or interpretations in one or more foreign jurisdictions, and our business, financial condition or results of operations, or liquidity could be adversely affected; and

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•
we are exposed to geopolitical risk, where unexpected changes in global, regional, or local political or social conditions could adversely affect our foreign operations.
Our success as a global business will depend, in part, upon our ability to succeed in differing legal, regulatory, economic, social and political conditions by developing, implementing and maintaining policies and strategies that are effective in each location where we do business.
We are exposed to currency exchange rate changes that impact our profitability.
We are exposed to currency exchange rate risk through our U.S. and non-U.S. operations. Changes in currency exchange rates may materially affect our operating results. For example, changes in currency exchange rates may affect the relative prices at which we and our competitors sell products in the same region and the cost of materials used in our operations. A substantial portion of our net sales and assets are denominated in currencies other than the U.S. dollar, particularly the euro. When the U.S. dollar strengthens against other currencies, at a constant level of business, our reported sales, earnings, assets and liabilities are reduced because the non-U.S. currencies translate into fewer U.S. dollars.
We incur a currency transaction risk whenever one of our operating subsidiaries enters into either a purchase or a sales transaction using a currency different from the operating subsidiary's functional currency. Given the volatility of exchange rates, we may not be able to manage our currency transaction risks effectively, or volatility in currency exchange rates may expose our financial condition or results of operations to a significant additional risk.
Prices for certain raw materials and energy are volatile and can have a significant effect on our manufacturing and supply chain strategies as we seek to maximize our profitability. If we are unable to successfully adjust our strategies in response to volatile raw materials and energy prices, such volatility could have a negative effect on our earnings in future periods.
We use petroleum-based materials, metals, natural gas and other materials in the manufacture of our products. We consume substantial amounts of energy in our manufacturing processes. Prices for these materials and energy are volatile and can have a significant effect on our pricing, sales, manufacturing and supply chain strategies as we seek to maximize our profitability. Our ability to successfully adjust strategies in response to volatile raw material and energy prices is a significant factor in maintaining or improving our profitability. If we are unable to successfully adjust our strategies in response to volatile prices, such volatility could have a negative effect on our sales and earnings in future periods.
A substantial portion of our raw materials are commodities whose prices fluctuate as market supply and demand fundamentals change.
We attempt to manage exposure to price volatility of major commodities through:
•
long-term supply contracts;
•
contracts with customers that permit adjustments for changes in prices of commodity-based materials and energy;
•
forward buying programs that layer in our expected requirements systematically over time; and
•
limited use of financial instruments.
Although we regularly assess our exposure to raw material price volatility, we cannot always predict the prospects of volatility and we cannot always cover the risk in a cost effective manner.
We have a policy of maintaining, when available, multiple sources of supply for raw materials. However, certain of our raw materials may be provided by single sources of supply. We may not be able to obtain sufficient raw materials due to unforeseen developments that would cause an interruption in supply. Even if we have multiple sources of supply for raw materials, these sources may not make up for the loss of a major supplier.
If we are not able to continue our technological innovation and successful introduction of new products, our customers may turn to other suppliers to meet their requirements.
The specialty chemicals industry and the end-use markets into which we sell our products experience ongoing technological change and product improvements. A key element of our business strategy is to invest in research and development activities with the goal of introducing new high-performance, technically differentiated

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products. We may not be successful in developing new technology and products that effectively compete with products introduced by our competitors, and our customers may not accept, or may have lower demand for, our new products. If we fail to keep pace with evolving technological innovations or fail to improve our products in response to our customers’ needs, then our business, financial condition and results of operations could be adversely affected as a result of reduced sales of our products.
We spend large amounts of money for environmental compliance in connection with our current and former operations.
As a manufacturer of specialty chemicals and specialty materials, we are subject to stringent regulations under numerous U.S. federal, state, local and foreign environmental, health and safety laws and regulations relating to the generation, storage, handling, discharge, disposition and stewardship of chemicals and other materials. We have expended substantial funds to comply with such laws and regulations and have established a policy to minimize our emissions to the environment. Nevertheless, legislative, regulatory and economic uncertainties (including existing and potential laws and regulations pertaining to climate change) make it difficult for us to project future spending for these purposes, and if there is an acceleration in new regulatory requirements, we may be required to expend substantial additional funds to remain in compliance.
We are subject to environmental clean-up costs, fines, penalties and damage claims that have been and continue to be costly.
In the U.S., we are subject to lawsuits and regulatory actions, in connection with current and former operations (including some divested businesses and off-site disposal facilities), that seek clean-up or other remedies. We are also subject to similar risks outside of the U.S.
We operated a vermiculite mine in Libby, Montana, until 1990. Some of the vermiculite ore that was mined at the Libby mine contained naturally occurring asbestos. We are cooperating with the U.S. Environmental Protection Agency and other federal, state and local governmental agencies in a remedial investigation and feasibility study ("RI/FS") of the Libby mine and the surrounding area to determine the location, scope and extent of required remediation. The EPA is also investigating or remediating formerly owned or operated sites that processed Libby vermiculite into finished products. We are cooperating with the EPA on these investigation and remediation activities, and have recorded a liability to the extent that our review has indicated that a probable liability has been incurred and the cost is estimable.
We have recorded liabilities for all environmental matters for which a loss is considered to be probable and sufficient information is available to reasonably estimate the loss. These liabilities do not include the cost to remediate the Libby vermiculite mine and surrounding area or costs related to any additional EPA claims, whether resulting from the EPA's investigation of vermiculite facilities or otherwise, which may be material but are not currently estimable. Due to these vermiculite-related matters, it is probable that our ultimate liability for environmental matters will exceed our current estimates by material amounts.
Our indebtedness may materially affect our business, including our ability to fulfill our obligations, react to changes in our business and incur additional debt to fund future needs.
We have a substantial amount of debt. As of December 31, 2017 , we had $1,033.1 million of unsecured indebtedness outstanding and $510.8 million of secured indebtedness outstanding. Our indebtedness may have material effects on our business, including to:
•
require us to dedicate a substantial portion of our cash flow to debt payments, thereby reducing funds available for working capital, capital expenditures, acquisitions, research and development, distributions to stockholders, stock repurchase programs and other purposes;
•
restrict us from making strategic acquisitions or taking advantage of favorable business opportunities;
•
limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;
•
increase our vulnerability to adverse economic, credit and industry conditions, including recessions;
•
make it more difficult for us to satisfy our debt service and other obligations;
•
place us at a competitive disadvantage compared to our competitors that have relatively less debt; and
•
limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, research and development and other purposes.

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If we incur additional debt, the risks related to our indebtedness may intensify. We expect to incur additional debt in connection with the announced polyolefin catalysts acquisition.
Restrictions imposed by agreements governing our indebtedness may limit our ability to operate our business, finance our future operations or capital needs, or engage in other business activities. If we fail to comply with certain restrictions under these agreements, our debt could be accelerated and we may not have sufficient cash to pay our accelerated debt.
The agreements governing our indebtedness contain various covenants that limit, among other things, our ability, and the ability of certain of our subsidiaries, to:
•
incur certain liens;
•
enter into sale and leaseback transactions; and
•
consolidate, merge or sell all or substantially all of our assets or the assets of our guarantors.
As a result of these covenants, we will be limited in the manner in which we can conduct our business, and may be unable to engage in favorable business activities or finance future operations or capital needs. Accordingly, these restrictions may limit our flexibility to operate our business. A failure to comply with the restrictions contained in these agreements, including maintaining the financial ratios required by our credit facilities, could lead to an event of default which could result in an acceleration of our indebtedness. We cannot assure you that our future operating results will be sufficient to enable us to comply with the covenants contained in the agreements governing our indebtedness or to remedy any such default. In addition, in the event of an acceleration, we may not have or be able to obtain sufficient funds to make any accelerated payments.
Our indebtedness exposes us to interest expense increases if interest rates increase.
As of December 31, 2017 , $301.3 million , or approximately 20% , of our borrowings were at variable interest rates and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed would remain the same, and our net income would decrease. An increase of 100 basis points in the interest rates payable on our variable rate indebtedness would increase our annual estimated debt-service requirements by $3.0 million , assuming our consolidated variable interest rate indebtedness outstanding as of December 31, 2017 , remains the same.
We have unfunded and underfunded pension plan liabilities. We will require future operating cash flow to fund these liabilities. We have no assurance that we will generate sufficient cash to satisfy these obligations.
We maintain U.S. and non-U.S. defined benefit pension plans covering current and former employees who meet or met age and service requirements. Our net pension liability and cost is materially affected by the discount rate used to measure pension obligations, the longevity and actuarial profile of our workforce, the level of plan assets available to fund those obligations and the actual and expected long-term rate of return on plan assets. Significant changes in investment performance or a change in the portfolio mix of invested assets can result in corresponding increases and decreases in the valuation of plan assets or in a change in the expected rate of return on plan assets. Assets available to fund the pension benefit obligation of the U.S. advance-funded pension plans at December 31, 2017 , were approximately $1,110 million , or approximately $107 million less than the measured pension benefit obligation on a U.S. GAAP basis. In addition, any changes in the discount rate could result in a significant increase or decrease in the valuation of pension obligations, affecting the reported funded status of our pension plans as well as the net periodic pension cost in the following years. Similarly, changes in the expected return on plan assets can result in significant changes in the net periodic pension cost in the following years.
Our obligation to make payments to the PD Trust in respect of asbestos PD Claims (other than ZAI PD Claims) is not capped and we may be obligated to make additional payments.
Under the Joint Plan of reorganization that concluded Grace's status as a debtor under Chapter 11, as discussed above (the "Joint Plan"), an asbestos property damage trust has been established and funded under Section 524(g) of the Bankruptcy Code. The order of the Bankruptcy Court confirming the Joint Plan contains a channeling injunction which provides that all pending and future asbestos-related property damage claims and demands, PD Claims, can only be brought against the PD Trust. The PD Trust contains two accounts. One of these accounts, the PD Account, is funded solely in respect of PD Claims other than those PD Claims related to

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our former ZAI attic insulation product. Unresolved and future non-ZAI PD Claims are to be litigated pursuant to procedures approved by the Bankruptcy Court and, to the extent such PD claims are determined to be allowed claims, are to be paid in cash by the PD Trust. We are obligated to make a payment to the PD Trust every six months in the amount of any non-ZAI PD Claims allowed during the preceding six months plus interest (if any) and the amount of PD Trust expenses for the preceding six months (the "PD Obligation"). The aggregate amount we are required to pay under the PD Obligation is not capped so we may have to make additional payments to the PD Account in respect of the PD Obligation. We are also obligated to make up to 10 contingent deferred payments to the PD Trust of $8 million each during the 20-year period beginning February 3, 2019, in respect of ZAI PD Claims in the event the ZAI PD Account's assets fall below $10 million in the preceding year. We have accrued liabilities for probable PD Claims but have not accrued any liability for the contingent ZAI PD payments as we do not currently believe they are probable.
Our ability to use net operating losses and tax credits to reduce future tax payments may be limited if there is a change in ownership of Grace or if Grace does not generate sufficient U.S. taxable income or foreign source income. Our ability to use these attributes is also subject to time limitations. Changes in tax laws and regulations may reduce their value and availability.
Our ability to use future tax deductions and tax credits, including net operating losses ("NOLs"), is dependent on our ability to generate sufficient future taxable income in the U.S. and sufficient foreign source income. Under U.S. federal income tax law, a corporation is generally permitted to carry forward NOLs for a 20-year period (indefinitely in the case of NOLs occurring in taxable years after December 31, 2017) for deduction against future taxable income. Federal tax credits may be carried forward for 10 years. Also, our ability to use NOLs and tax credits and their value may be adversely affected by changes in tax laws and regulations.
In addition, our ability to utilize federal and state NOLs and U.S. federal tax credits may be limited by Section 382 of the Internal Revenue Code resulting from future changes in the ownership of outstanding Company common stock. Our Amended and Restated Certificate of Incorporation provides that under certain circumstances, our Board of Directors would have the authority to impose restrictions on the transfer of Company common stock with respect to certain 5% stockholders in order to preserve these future tax benefits.
We intend to pursue acquisitions, joint ventures and other transactions that complement or expand our businesses. We may not be able to complete proposed transactions and even if completed, the transactions may involve a number of risks that may materially and adversely affect our business, financial condition and results of operations.
We intend to continue to pursue opportunities to buy other businesses or technologies that could complement, enhance or expand our current businesses or product lines or that might otherwise offer us growth opportunities. We may have difficulty identifying appropriate opportunities or, if we do identify opportunities, we may not be successful in completing transactions for a number of reasons. Any transactions that we are able to identify and complete may involve a number of risks, including:
•
the diversion of management's attention from our existing businesses to integrate the operations and personnel of the acquired or combined business or joint venture;
•
possible adverse effects on our operating results during the integration process;
•
failure of the acquired business to achieve expected operational objectives; and
•
our possible inability to achieve the intended objectives of the transaction.
In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage any newly acquired operations or their employees. We may not be able to maintain uniform standards, controls, procedures and policies, which may lead to operational inefficiencies.
We work with dangerous materials that can injure our employees, damage our facilities, disrupt our operations, and contaminate the environment.
Some of our operations involve the handling of hazardous materials that may pose the risk of fire, explosion, or the release of hazardous substances. Such events could result from natural disasters, operational failures or terrorist attacks, and might cause injury or loss of life to our employees and others, environmental contamination, and property damage. These events might cause a temporary shutdown of an affected plant, or portion thereof, and we could be subject to penalties or claims as a result. A disruption of our operations caused by these or other events could have a material adverse effect on our results of operations.

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Some of our employees are unionized, represented by works councils or employed subject to local laws that are less favorable to employers than the laws in the United States.
As of December 31, 2017 , we had approximately 3,700 global employees. Approximately 640 of our approximately 1,900 U.S. employees are unionized. In addition, a large number of our employees are employed in countries in which employment laws provide greater bargaining or other rights to employees than the laws in the United States. Such employment rights require us to work collaboratively with the legal representatives of the employees to effect any changes to labor arrangements. For example, most of our employees in Europe are represented by works councils that have co-determination rights on any changes in conditions of employment, including certain salaries and benefits and staff changes, and may impede efforts to restructure our workforce. A strike, work stoppage or slowdown by our employees or significant dispute with our employees, whether or not related to these negotiations, could result in a significant disruption of our operations or higher ongoing labor costs.
We may be subject to claims of infringement of the intellectual property rights of others, which could hurt our business.
From time to time, we face infringement claims from our competitors or others alleging that our processes or products infringe on their proprietary technologies. Any claims that our products or processes infringe the intellectual property rights of others, regardless of the merit or resolution of the claims, could cause us to incur significant costs in responding to, defending and resolving the claims, and may divert the efforts and attention of our management and technical personnel from our business. If we are found to be infringing on the proprietary technology of others, we may be liable for damages, and we may be required to change our processes, redesign our products, pay others to use the technology or stop using the technology or producing the infringing product. Even if we ultimately prevail, the existence of the lawsuit could prompt our customers to switch to products that are not the subject of infringement suits.
We are subject to business continuity risks that may adversely affect our business, financial condition and results of operations.
We are subject to significant risks from both natural disasters and accidents such as fires, storms and floods, and other disruptive events, such as war, insurrection and terrorist actions. These types of occurrences can negatively affect our manufacturing, supply chain, logistics, transportation, and communications functions. Similarly, they can strike major suppliers and customers, thus restricting or delaying our supply of raw materials or energy as well as reducing or deferring demand for our products and services. Also, we have centralized certain administrative functions, primarily in North America, Europe and Asia, to improve efficiency and reduce costs. To the extent that these central locations are disrupted or disabled, key business processes, such as invoicing, payments and general management operations, could be interrupted.
As we operate worldwide in a competitive environment, global economic and financial market conditions may adversely affect our business, financial condition and results of operations.
We compete by selling value-added products, technologies and services. Increased levels and numbers of competitors, globally or regionally, could negatively impact our results of operations. Economic conditions around the world can have a direct impact on our revenues. A global or regional economic downturn or market uncertainty could reduce the demand for our products, technologies and services, which could negatively impact our results of operations. Since many of our customers are refiners, our fluid catalytic cracking (FCC) catalyst business is highly dependent on the economics of the petroleum refining industry. Demand for our FCC products is affected by refinery throughput, the type and quality of refinery feedstocks, and the demand for transportation fuels and other refinery products, such as propylene. Also, disruptions in the financial markets could have an adverse effect on our ability to finance our operations and growth plans, and could negatively impact our suppliers and customers in similar manners.
Our ability to operate our businesses and our financial condition could be significantly undermined by cybersecurity breaches.
Despite our implementation of security measures, our information technology ("IT") systems are subject to cyberattack and other similar disruptions. Breaches by hackers, the introduction of computer viruses and other cybersecurity incidents affecting our IT systems could result in disruptions to our operations. Also, such incidents could include theft of our trade secrets and other intellectual property, as well as confidential customer and

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business information, which could be used by unauthorized parties and publicly disclosed. This could negatively affect our relationships with customers and our ability to compete effectively, and could ultimately harm our reputation, business, financial condition and results of operations. In addition, we may be required to incur significant costs to protect against damage caused by cybersecurity breaches in the future.
A failure of our information technology infrastructure could adversely impact our business and operations.
We rely upon the capacity, reliability and security of our IT infrastructure and our ability to expand and continually update this infrastructure in response to the changing needs of our business. If we experience a problem with the functioning of an important IT system, the resulting disruptions could have an adverse effect on our business. Our IT systems affect virtually every aspect of our business, including supply chain, manufacturing, logistics, finance and communications. We and certain of our third-party vendors receive and store personal information in connection with our human resources operations and other aspects of our business. Any IT system failure, natural disaster, accident, or intentional breach could result in disruptions to our operations.
Risks Related to the Separation
In connection with the Separation, GCP will indemnify us and we will indemnify GCP for certain liabilities. There can be no assurance that the indemnities from GCP will be sufficient to insure us against the full amount of such liabilities, or that GCP’s ability to satisfy its indemnification obligation will not be impaired in the future.
Pursuant to the Separation and Distribution Agreement and other agreements we entered into in connection with the Separation, GCP agreed to indemnify us for certain liabilities, and we agreed to indemnify GCP for certain liabilities. However, third parties might seek to hold us responsible for liabilities that GCP agreed to assume or retain under these agreements, and there can be no assurance that GCP will be able to fully satisfy its indemnification obligations under these agreements.
A court could deem the Distribution in the Separation to be a fraudulent conveyance and void the transaction or impose substantial liabilities upon us.
If the transaction is challenged by a third party, notwithstanding the fact that we received an opinion from a nationally recognized financial firm that we were solvent and had adequate surplus to make the Distribution, a court could deem the distribution of GCP common stock or certain internal restructuring transactions undertaken by us in connection with the Separation to be a fraudulent conveyance or transfer. Fraudulent conveyances or transfers are defined to include transfers made or obligations incurred with the actual intent to hinder, delay or defraud current or future creditors or transfers made or obligations incurred for less than reasonably equivalent value when the debtor was insolvent, or that rendered the debtor insolvent, inadequately capitalized or unable to pay its debts as they become due. In such circumstances, a court could void the transactions or impose substantial liabilities upon us, which could adversely affect our financial condition and our results of operations. Among other things, the court could require our stockholders to return to us some or all of the shares of GCP common stock issued in the Distribution or require us to fund liabilities of other companies involved in the Separation for the benefit of creditors. Whether a transaction is a fraudulent conveyance or transfer will vary depending upon the laws of the applicable jurisdiction.
Item 1B.    UNRESOLVED STAFF COMMENTS
None.

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Item 2.    PROPERTIES
We operate manufacturing plants and other facilities (including offices, warehouses, labs and other service facilities) throughout the world. Some of these plants and facilities are shared by our reportable segments. We consider our major operating properties to be in good operating condition and suitable for their current use. We believe that the productive capacity of our plants and other facilities is generally adequate for current operations. The table below summarizes our principal manufacturing plants by reportable segment and region as of December 31, 2017 :
 
Number of Facilities(1)
 
North America
 
Europe Middle East Africa (EMEA)
 
Asia Pacific
 
Latin America
 
Total
Catalysts Technologies
10

 
4

 
1

 
—

 
15

Leased
2

 
3

 
—

 
—

 
5

Owned
8

 
1

 
1

 
—

 
10

Materials Technologies
4

 
2

 
1

 
1

 
8

Leased
2

 
1

 
—

 
1

 
4

Owned
2

 
1

 
1

 
—

 
4

___________________________________________________________________________________________________________________
(1)
Shared facilities are counted in both reportable segments. The total number of facilities included in the above table, without regard to sharing between reportable segments, is 20, of which we owned 11 and leased 9.
Generally, we own the machinery and equipment at our principal manufacturing plants. We also own the land on which most of our largest manufacturing plants are situated; however, certain manufacturing plants are located on leased land, normally long-term. We own our Corporate Headquarters in Columbia, Maryland. We also lease and operate a shared services facility in Manila, Philippines.
The table below sets forth our principal manufacturing plants by reportable segment.
Catalysts Technologies
 
Materials Technologies
Aiken, South Carolina
 
East Chicago, Indiana*
Chattanooga, Tennessee
 
Hesperia, California*
Chicago, Illinois
 
Dueren, Germany*
Edison, New Jersey*
 
Kuantan, Malaysia
Lake Charles, Louisiana
 
Sorocaba, Brazil*
Norco, Louisiana*
 
 
Pasadena, Texas
 
 
Valleyfield, Quebec, Canada
 
 
Porvoo, Finland*
 
Shared
Stenungsund, Sweden*
 
Albany, Oregon
Tarragona, Spain*
 
Curtis Bay, Maryland
Qingdao, China
 
Worms, Germany
___________________________________________________________________________________________________________________
*
Denotes leased site.
For information on our net properties and equipment by region and country, see disclosure set forth in Item 8 (Financial Statements and Supplementary Data) in the Financial Supplement under Note 17 (Segment Information) to our Consolidated Financial Statements, which disclosure is incorporated herein by reference.
In connection with our credit agreement, we executed security agreements with respect to certain of our United States facilities. As of December 31, 2017 , mortgages or deeds of trust were in effect with respect to facilities in the following locations: Albany, Oregon; Curtis Bay and Columbia, Maryland; Chicago, Illinois; and Lake Charles, Louisiana. For a description of our credit agreement see Item 8 (Financial Statements and Supplementary Data) in the Financial Supplement under Note 5 (Debt) to the Consolidated Financial Statements.

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Item 3.    LEGAL PROCEEDINGS
CHAPTER 11 PROCEEDINGS AND ASBESTOS CLAIMS
Disclosures provided in this Report in Item 1 (Business) and Item 8 (Financial Statements and Supplementary Data), and in the Financial Supplement under Note 10 (Commitments and Contingent Liabilities, under the caption "Legacy Product and Environmental Liabilities") to the Consolidated Financial Statements, are incorporated herein by reference.
ENVIRONMENTAL INVESTIGATIONS AND CLAIMS
Disclosures provided in this Report in Item 1 (Business) under the caption "Environment, Health and Safety Matters" and Item 8 (Financial Statements and Supplementary Data), and in the Financial Supplement under Note 10 (Commitments and Contingent Liabilities, under the caption "Legacy Environmental Liabilities") to the Consolidated Financial Statements, are incorporated herein by reference.
Item 4.    MINE SAFETY DISCLOSURES
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95 to this Report.

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EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the following list of executive officers of Grace as of February 15, 2018 , is included as an unnumbered Item in Part I of this report in lieu of being included in the Grace Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 9, 2018 . Our executive officers are elected annually.
Name and Age
 
Office
 
First Elected
Alfred E. Festa (58)
 
Chairman of the Board
Chief Executive Officer
 
01/01/08
06/01/05
Hudson La Force (53)
 
Director
President and Chief Operating Officer
 
11/02/17
02/04/16
Thomas E. Blaser (56)
 
Senior Vice President and Chief Financial Officer
 
02/25/16
Elizabeth C. Brown (54)
 
Vice President and Chief Human Resources Officer
 
01/21/15
Keith N. Cole (59)
 
Vice President, Government Relations and Environmental, Health and Safety
 
02/10/14
Mark A. Shelnitz (59)
 
Vice President, General Counsel and Secretary
 
04/27/05
Messrs. Festa, La Force and Shelnitz have been actively engaged in Grace's business for the past five years.
Mr. Blaser joined Grace in 2016. Mr. Blaser was most recently during 2015 President of Arysta LifeScience North America, LLC, a global agricultural chemical and life science business where he also served for ten years as Chief Financial Officer.
Ms. Brown joined Grace in 2015. From 2010 until she joined Grace, Ms. Brown held leadership positions in human resources for Tyco International Limited (now Johnson Controls, Inc.).
Mr. Cole joined Grace in 2014. From 2002 until he joined Grace, Mr. Cole held leadership positions in government relations and public policy for General Motors Corporation.

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PART II

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Except as provided below, the disclosure required by this Item appears in this Report in: Item 6 (Selected Financial Data); under the heading "Selected Financial Data" opposite the caption "Other Statistics—Common shareholders of record" in the Financial Supplement; Item 8 (Financial Statements and Supplementary Information) in the Financial Supplement in Note 14 (Shareholders' Equity) and Note 21 (Quarterly Summary and Statistical Information (Unaudited) opposite the captions "Dividends declared per share" and "Market price of common stock") to the Consolidated Financial Statements; and Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters), and such disclosure is incorporated herein by reference.
SHAREHOLDER RIGHTS AGREEMENT (RIGHTS TO EXPIRE ON MARCH 30, 2018)
On March 31, 1998, we paid a dividend of one Preferred Stock Purchase Right on each share of Company common stock. Subject to our prior redemption for $.01 per right, rights will become exercisable on the earlier of:
•
10 days after an acquiring person, composed of an individual or group, has acquired beneficial ownership of 20% or more of the outstanding Company common stock or
•
10 business days (or a later date fixed by the Board of Directors) after an acquiring person commences (or announces the intention to commence) a tender offer or exchange offer for beneficial ownership of 20% or more of the outstanding Company common stock.
Until these events occur, the rights will automatically trade with the Company common stock, and separate certificates for the rights will not be distributed. The rights do not have voting or dividend rights.
Generally, each right not owned by an acquiring person:
•
will initially entitle the holder to buy from Grace one hundredth of a share of the Company Junior Participating Preferred Stock, at an exercise price of $100, subject to adjustment;
•
will entitle such holder to receive upon exercise, in lieu of shares of Company junior preferred stock, that number of shares of Company common stock having a market value of two times the exercise price of the right; and
•
may be exchanged by Grace for one share of Company common stock or one hundredth of a share of Company junior preferred stock, subject to adjustment.
Generally, if there is an acquiring person and we are acquired, each right not owned by an acquiring person will entitle the holder to buy a number of shares of common stock of the acquiring company having a market value equal to twice the exercise price of the right.
Each share of Company junior preferred stock will be entitled to a minimum preferential quarterly dividend payment of $1.00 per share but will be entitled to an aggregate dividend equal to 100 times the dividend declared per share of Company common stock whenever such dividend is declared. In the event of liquidation, holders of Company junior preferred stock will be entitled to a minimum preferential liquidation payment of $100 per share but will be entitled to an aggregate payment equal to 100 times the payment made per share of Company common stock. Each share of Company junior preferred stock will have 100 votes, voting together with the Company common stock. Finally, in the event of any business combination, each share of Company junior preferred stock will be entitled to receive an amount equal to 100 times the amount received per share of Company common stock. These rights are protected by customary antidilution provisions.
The rights will expire on March 30, 2018.
DIVIDENDS ON COMPANY COMMON STOCK
Prior to 2016, we had not paid a cash dividend on Company common stock since 1997. However, on January 26, 2016, we announced that our Board of Directors approved a policy of paying a regular quarterly cash

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dividend at an initial annual rate of $0.68 per share of Company common stock. On February 8, 2017, we announced that our Board of Directors approved an increase to the annual cash dividend rate, raising it to $0.84 per share of Company common stock. On February 8, 2018, we announced that the Board of Directors approved a further increase to the annual cash dividend rate, raising it to $0.96 per share of Company common stock. Although our credit agreement and indentures (as described in Item 8 (Financial Statements and Supplementary Data) in the Financial Supplement under Note 5 (Debt) to the Consolidated Financial Statements and filed as an exhibit to this Report) contain certain restrictions on the payment of dividends on, and redemptions of, equity interests and other restricted payments, we believe that such restrictions do not currently materially limit our ability to pay dividends. Any determination to pay cash dividends in the future may be affected by business and market conditions, our views on potential future capital requirements, the restrictions noted above, covenants contained in any agreements we may enter into in the future and changes in federal income tax law.
SHARE REPURCHASES
Share Repurchase Program
On February 5, 2015, we announced that the Board of Directors authorized a share repurchase program of up to $500 million , which we completed on July 10, 2017. On February 8, 2017, we announced that the Board of Directors authorized an additional share repurchase program of up to $250 million. Repurchases under the programs may be made through one or more open market transactions at prevailing market prices; unsolicited or solicited privately negotiated transactions; accelerated share repurchase programs; or through any combination of the foregoing, or in such other manner as determined by management. The timing of the repurchases and the actual amount repurchased will depend on a variety of factors, including the market price of Grace's shares, the strategic deployment of capital, and general market and economic conditions.
The following table presents information regarding the status of repurchases of Company common stock by or on behalf of Grace or any "affiliated purchaser" of Grace. Neither Grace nor any such affiliated purchaser of Grace purchased any shares of Company common stock during the three months ended December 31, 2017 .
Issuer Purchases of Equity Securities
 
 
Total number of shares purchased
(#)
 
Average price paid per share
($/share)
 
Total number of shares purchased as part of publicly announced plans or programs
(#)
 
Approximate dollar value of shares that may yet be purchased under the plans or programs
($ in millions)
10/1/2017 - 10/31/2017
 
—

 
—

 
—

 
218.9

11/1/2017 - 11/30/2017
 
—

 
—

 
—

 
218.9

12/1/2017 - 12/31/2017
 
—

 
—

 
—

 
218.9

Total
 
—

 
—

 
—

 
218.9

PI Warrant Settlement
As of February 3, 2014, the effective date of the Grace Joint Plan of Reorganization, we issued to the WRG Personal Injury Trust warrants (the "PI Warrant") to acquire 10 million shares of Company common stock at a price of $17 per share. On February 3, 2015, we repurchased the PI Warrant for a payment of $490 million.
STOCK TRANSFER RESTRICTIONS
Under the terms of our Amended and Restated Certificate of Incorporation, as approved by the Bankruptcy Court as part of the confirmation of the Joint Plan, in order to preserve significant tax benefits which are subject to elimination or limitation, the Board of Directors has the authority to impose restrictions on the transfer of Company common stock with respect to certain 5% shareholders. Imposing such restrictions requires at least a 25% ownership shift to occur (as determined under Internal Revenue Code regulations) and at least a two-thirds vote of all of the directors. These restrictions would generally not limit the ability of a person that holds less than 5% of Company common stock to either buy or sell stock on the open market.
This summary does not purport to be complete and is qualified in its entirety by reference to the Amended and Restated Certificate of Incorporation, which has been filed with the SEC and is incorporated by reference as Exhibit 3.1 to this Annual Report on Form 10-K.

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STOCK PERFORMANCE GRAPH
The following information in Item 5 is not deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent Grace specifically incorporates it by reference into such a filing.
The line graph and table below compare the cumulative total shareholder return on Company common stock with the cumulative total return of companies on the Standard & Poor’s ("S&P") 500 Stock Index, the S&P Composite 1500 Specialty Chemicals Index and S&P 1500 Diversified Chemicals Index. This graph and table assume the investment of $100 in Company common stock on December 31, 2012 . Cash dividends paid in 2016 and 2017 are assumed reinvested for the graph and table below.
CHART-FB94E54074F15422AB1A04.JPG
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
W. R. Grace & Co.
$
100

 
$
147

 
$
142

 
$
148

 
$
126

 
$
132

S&P 500 Index
100

 
132

 
150

 
153

 
171

 
208

S&P 1500 Specialty Chemicals
100

 
132

 
156

 
153

 
172

 
215

S&P 1500 Diversified Chemicals
100

 
143

 
153

 
155

 
181

 
233

Item 6.    SELECTED FINANCIAL DATA
The disclosure required by this Item appears in the Financial Supplement under the heading "Selected Financial Data" which disclosure is incorporated herein by reference.

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The disclosure required by this Item appears in the Financial Supplement under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" which disclosure is incorporated herein by reference.
Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our global operations, raw materials and energy requirements, and debt obligations expose us to various market risks. We use derivative financial instruments to mitigate certain of these risks. The following is a discussion of our primary market risk exposures, how those exposures are managed, and certain quantitative data pertaining to our market risk-sensitive instruments.
Currency Exchange Rate Risk
We operate and/or sell to customers in over 60 countries and in over 30 currencies; therefore, our results of operations are exposed to changes in currency exchange rates. We seek to minimize exposure to these changes by matching revenue streams in volatile currencies with expenditures in the same currencies, but it is not always possible to do so. From time to time, we use financial instruments such as currency forward contracts, options, or combinations of them to reduce the risk of certain specific transactions. However, we do not have a policy of hedging all exposures, because management does not believe that such a level of hedging would be cost-effective. Significant uses of derivatives to mitigate the effects of changes in currency exchange rates are as follows.
In May 2016, Grace entered into a fixed-to-fixed cross-currency swap maturing in October 2021 to hedge its net investment in non-U.S. subsidiaries. On every April 1 and October 1, Grace will swap interest payments. Grace will pay euro fixed at the annual rate of 3.426% on €170.0 million and receive U.S. dollars fixed at the annual rate of 5.125% on $190.3 million . The agreement requires an exchange of the notional amounts at maturity. The following tables provide information about the cross-currency swap at December 31, 2017 , specifically, the aggregate future cash flows for each of the next four years and the fair value. The fair value represents the value of the derivative contract, and is included in "other current assets" and "other liabilities" in the Consolidated Balance Sheets.
(In millions)
2018
 
2019
 
2020
 
2021
Payable—interest and principal in euro
€
5.8

 
€
5.8

 
€
5.8

 
€
175.8

Receivable—interest and principal in U.S. dollars
$
9.8

 
$
9.8

 
$
9.8

 
$
200.1

(In millions)
December 31, 2017
Current asset
$
2.7

Noncurrent liability
(20.2
)
Net fair value
$
(17.5
)
There were no significant currency forward exchange agreements outstanding at December 31, 2017 .
Interest Rate Risk
As of December 31, 2017 , approximately $301.3 million of our borrowings were at variable interest rates and expose us to interest rate risk. As a result, we have been and will continue to be subject to the variations on interest rates in respect of our floating-rate debt. A 100 basis point increase in the interest rates payable on our variable rate debt outstanding as of December 31, 2017 , would increase our annual interest expense by $3.0 million .
In connection with our emergence financing, we entered into an interest rate swap beginning on February 3, 2015, and maturing on February 3, 2020, fixing the LIBOR component of the interest on $250 million of Grace's term debt at a rate of 2.393%. While we have and may continue to enter into agreements intending to limit our exposure to higher interest rates, any such agreements may not offer complete protection from this risk.

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See Item 8 (Financial Statements and Supplementary Data) in the Financial Supplement under Note 6 (Fair Value Measurements and Risk) to the Consolidated Financial Statements for additional disclosure around market risk, which disclosure is incorporated herein by reference.
Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The disclosure required by this Item appears in the Financial Supplement which disclosure is incorporated herein by reference.
Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A.    CONTROLS AND PROCEDURES
Except as provided below, the disclosure required by this Item appears in the Financial Supplement under the headings "Management's Report on Financial Information and Internal Controls" and "Report of Independent Registered Public Accounting Firm," which disclosure is incorporated herein by reference.
There was no change in Grace's internal control over financial reporting during the quarter ended December 31, 2017 , that has materially affected, or is reasonably likely to materially affect, Grace's internal control over financial reporting.
Item 9B.    OTHER INFORMATION
None.

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PART III

Item 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated by reference to the sections entitled "Proposal One: Election of Directors," "—Nominees for Election as Directors," "—Continuing Directors," and "—Corporate Governance;" "Questions and Answers About the Annual Meeting and the Voting Process—Question 29: Where can I find Grace corporate governance materials?;" and "Other Information—Section 16(a) Beneficial Ownership Reporting Compliance" of a definitive proxy statement that Grace will file with the SEC no later than 120 days after December 31, 2017 (the " 2018 Proxy Statement"). Required information on executive officers of Grace appears at Part I after Item 4 of this report.
Item 11.    EXECUTIVE COMPENSATION
Incorporated by reference to the sections entitled "Proposal One: Election of Directors—Corporate Governance," and "—Director Compensation," and "Executive Compensation" of the 2018 Proxy Statement.
Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Incorporated by reference to the sections entitled "Other Information—Stock Ownership of Certain Beneficial Owners and Management" and "—Equity Compensation Plan Information" of the 2018 Proxy Statement.
Item 13.    CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Incorporated by reference to the sections entitled "Proposal One: Election of Directors—Corporate Governance" and "Other Information—Related Party Transactions" of the 2018 Proxy Statement.
Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference to the sections entitled "Proposal Two: Ratification of the Appointment of Independent Registered Public Accounting Firm—Principal Accountant Fees and Services" and "—Audit Committee Pre-Approval Policies and Procedures" of the 2018 Proxy Statement.

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PART IV

Item 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements and Schedules.     The required information is set forth in the Financial Supplement under the heading "Table of Contents" which is incorporated herein by reference.
Exhibits.     The exhibits to this Report are listed below. Other than exhibits that are filed herewith, all exhibits listed below are incorporated by reference.
In reviewing the agreements included as exhibits to this and other Reports filed by Grace with the Securities and Exchange Commission, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about Grace or other parties to the agreements. The agreements generally contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement. These representations and warranties:
•
are not statements of fact, but rather are used to allocate risk to one of the parties if the statements prove to be inaccurate;
•
may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
•
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
•
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and do not reflect more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about Grace may be found elsewhere in this report and Grace's other public filings, which are available without charge through the Securities and Exchange Commission's website at http://www.sec.gov .
Exhibit No.
 
Exhibit
 
Location
2.1

 
 
Exhibit 2.01 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953
2.2

 
 
Exhibit 2.02 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953
2.3

 
 
Exhibit 2.1 to Form 8-K (filed 1/28/16) SEC File No.: 001-13953
2.4

 
 
Filed herewith
3.1

 
 
Exhibit 3.01 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953
3.2

 
 
Exhibit 3.01 to Form 8-K (filed 1/23/15) SEC File No.: 001-13953
4.1

 
 
Exhibit 4.1 to Form 10-12B/A (filed 3/25/08) SEC File No.: 001-13953
4.2

 
 
Exhibit 4.10 to Form 10-K (filed 3/02/07) SEC File No.: 001-13953

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Exhibit No.
 
Exhibit
 
Location
4.3

 
 
Exhibit 4.01 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953
4.4

 
 
Exhibit 10.1 to Form 8-K (filed 11/25/15) SEC File No.: 001-13953
4.5

 
 
Exhibit 4.04 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953
4.6

 
 
Exhibit 4.05 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953
4.7

 
 
Exhibit 4.06 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953
4.8

 
 
Exhibit 4.07 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953
4.9

 
 
Exhibit 4.08 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953
4.10

 
 
Exhibit 4.1 to Form 8-K (filed 9/19/14) SEC File No.: 001-13953
4.11

 
 
Exhibit 4.2 to Form 8-K (filed 9/19/14) SEC File No.: 001-13953
4.12

 
 
Exhibit 4.3 (included as Exhibit A-1 to Exhibit 4.2) to Form 8-K (filed 9/19/14) SEC File No.: 001-13953
4.13

 
 
Exhibit 4.4 (included as Exhibit A-2 to Exhibit 4.2) to Form 8-K (filed 9/19/14) SEC File No.: 001-13953
10.1

 
 
Exhibit 10.02 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953
10.2

 
 
Exhibit 10.1 to Form 8-K (filed 5/01/13) SEC File No.: 001-13953*
10.3

 
 
Exhibit 10.03 to Form 8-K (filed 2/07/14) SEC File No.: 001-13953*
10.4

 
 
Exhibit 10.2 to Form 8-K (filed 2/09/16) SEC File No.: 001-13953*
10.5

 
 
Exhibit 10.1 to Form 8-K (filed 2/09/16) SEC File No.: 001-13953*
10.6

 
 
Exhibit 10.3 to Form 8-K (filed 2/09/16) SEC File No.: 001-13953*
10.7

 
 
Exhibit 10.7 to Form 10-K (filed 3/28/02) SEC File No.: 001-13953*
10.8

 
 
Exhibit 10.8 to Form 10-K (filed 3/28/02) SEC File No.: 001-13953*
10.9

 
 
Exhibit 10.17 to Form 10-K (filed 3/13/03) SEC File No.: 001-13953*

29

Table of Contents

Exhibit No.
 
Exhibit
 
Location
10.10

 
 
Exhibit 10.2 to Form 8-K (filed 2/04/16) SEC File No.: 001-13953*
10.11

 
 
Exhibit 10.1 to Form 8-K (filed 5/12/15) SEC File No.: 001-13953*
10.12

 
 
Exhibit 10.1 to Form 8-K (filed 1/28/16) SEC File No.: 001-13953
10.13

 
 
Exhibit 10.1 to Form 8-K (filed 5/29/09) SEC File No.: 001-13953*
10.14

 
 
Exhibit 10.1 to Form 8-K (filed 3/07/08) SEC File No.: 001-13953*
10.15

 
 
Exhibit 10.20 to Form 10-K (filed 2/25/15) SEC File No.: 001-13953*
10.16

 
 
Exhibit 10.1 to Form 10-Q (filed 5/07/15) SEC File No.: 001-13953*
10.17

 
 
Exhibit 10.10 to Form 10-Q (filed 5/05/16) SEC File No.: 001-13953*
12

 
 
Filed herewith
21

 
 
Filed herewith
23

 
 
Filed herewith
24

 
 
Filed herewith
31.(i).1

 
 
Filed herewith
31.(i).2

 
 
Filed herewith
32

 
 
Filed herewith
95

 
 
Filed herewith
101.INS

 
XBRL Instance Document
 
Filed herewith
101.SCH

 
XBRL Taxonomy Extension Schema
 
Filed herewith
101.CAL

 
XBRL Taxonomy Extension Calculation Linkbase
 
Filed herewith
101.DEF

 
XBRL Taxonomy Extension Definition Linkbase
 
Filed herewith
101.LAB

 
XBRL Taxonomy Extension Label Linkbase
 
Filed herewith
101.PRE

 
XBRL Taxonomy Extension Presentation Linkbase
 
Filed herewith
___________________________________________________________________________________________________________________
*
Management contracts and compensatory plans, contracts or arrangements required to be filed as exhibits to this Report.
Item 16.    FORM 10-K SUMMARY
None.

30

Table of Contents

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
W. R. GRACE & CO.
 
By:
/s/ A. E. FESTA
 
 
A. E. Festa
(Chairman and Chief Executive Officer)
 
By:
/s/ THOMAS E. BLASER
 
 
Thomas E. Blaser
(Senior Vice President and Chief Financial Officer)
 
By:
/s/ WILLIAM C. DOCKMAN
 
 
William C. Dockman
(Vice President and Controller)
Dated: February 22, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 22, 2018 .
Signature
 
 
 
Title
H. F. Baldwin*
 
}
 
 
R. F. Cummings, Jr.*
 
}
 
 
J. Fasone Holder*
 
}
 
 
D. H. Gulyas*
 
}
 
Directors
H. La Force*
 
}
 
 
J. N. Quinn*
 
}
 
 
C. J. Steffen*
 
}
 
 
M. E. Tomkins*
 
}
 
 

/s/ A. E. FESTA
 
Chairman, Chief Executive Officer and Director (Principal Executive Officer)
(A. E. Festa)
 
/s/ THOMAS E. BLASER
 
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
(Thomas E. Blaser)
 
/s/ WILLIAM C. DOCKMAN
 
Vice President and Controller
(Principal Accounting Officer)
(William C. Dockman)
 
___________________________________________________________________________________________________________________
*
By signing his name hereto, Mark A. Shelnitz is signing this document on behalf of each of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission.
 
By:
/s/ MARK A. SHELNITZ
 
 
Mark A. Shelnitz
(Attorney-in-Fact)

31

Table of Contents

FINANCIAL SUPPLEMENT
W. R. GRACE & CO.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2017



F-1

Table of Contents

TABLE OF CONTENTS
 
 
_______________________________________________________________________________
The Financial Statement Schedule should be read in conjunction with the Consolidated Financial Statements and Notes thereto. Financial statements of less than majority-owned persons and other persons accounted for by the equity method have been omitted as provided in Rule 3-09 of the United States Securities and Exchange Commission's (the "SEC") Regulation S-X. Financial Statement Schedules not included have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.


F-2

Table of Contents

Management's Report on Financial Information and Internal Controls
Responsibility For Financial Information —We are responsible for the preparation, accuracy, integrity and objectivity of the Consolidated Financial Statements and the other financial information included in this report. Such information has been prepared in conformity with accounting principles generally accepted in the United States of America and accordingly, includes certain amounts that represent management's best estimates and judgments. Actual amounts could differ from those estimates.
Responsibility For Internal Controls —We and our management are also responsible for establishing and maintaining adequate internal controls over financial reporting. These internal controls consist of policies and procedures that are designed to assess and monitor the effectiveness of the control environment including risk identification, governance structure, delegations of authority, information flow, communications and control activities. A chartered Disclosure Committee oversees Grace's public financial reporting process and key managers are required to confirm their compliance with Grace's policies and internal controls quarterly. While no system of internal controls can ensure elimination of all errors and irregularities, Grace's internal controls, which are reviewed and modified in response to changing conditions, have been designed to provide reasonable assurance that assets are safeguarded, policies and procedures are followed, transactions are properly executed and reported, and appropriate disclosures are made. The concept of reasonable assurance is based on the recognition that there are limitations in all systems of internal control and that the costs of such systems should be balanced with their benefits. The Audit Committee of the Board of Directors, which is composed solely of independent directors, meets regularly with Grace's senior financial management, internal auditors and independent registered public accounting firm to review audit plans and results, as well as the actions taken by management in discharging its responsibilities for accounting, financial reporting and internal controls. The Audit Committee is responsible for the selection and compensation of the independent registered public accounting firm. Grace's financial management, internal auditors and independent registered public accounting firm have direct and confidential access to the Audit Committee at all times.
Report On Internal Control Over Financial Reporting —We and our management have evaluated Grace's internal control over financial reporting as of December 31, 2017 . This evaluation was based on criteria for effective internal control over financial reporting set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, we and our management have concluded that Grace's internal control over financial reporting is effective as of December 31, 2017 . Grace's independent registered public accounting firm that audited our financial statements included in Item 15 has also audited the effectiveness of Grace's internal control over financial reporting as of December 31, 2017 , as stated in their report, which appears on the following page.
Report On Disclosure Controls And Procedures —As of December 31, 2017 , we and our management carried out an evaluation of the effectiveness of the design and operation of Grace's disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon that evaluation, we concluded that Grace's disclosure controls and procedures are effective in ensuring that information required to be disclosed in Grace's periodic filings and submissions under the Exchange Act is accumulated and communicated to us and our management to allow timely decisions regarding required disclosures, and such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
/s/ A. E. FESTA
 
/s/ THOMAS E. BLASER
A. E. Festa
Chief Executive Officer
 
Thomas E. Blaser
Senior Vice President and Chief Financial Officer
February 22, 2018
 
 


F-3

Table of Contents

Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of W. R. Grace & Co.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of W. R. Grace & Co. and its subsidiaries (“the Company”) as of December 31, 2017 and December 31, 2016, and the related consolidated statements of operations, of comprehensive income, of equity, and of cash flows for each of the three years in the period ended December 31, 2017, including the related notes and schedule of valuation and qualifying accounts and reserves for each of the three years in the period ended December 31, 2017 appearing under Item 15 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and December 31, 2016 , and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Financial Information and Internal Controls. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting 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 in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide

F-4

Table of Contents

reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
February 22, 2018
We have served as the Company’s auditor since 1906.


F-5

Table of Contents

Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S‑8 (Nos. 333-194171, 333-173785) of W. R. Grace & Co. of our report dated February 22, 2018 relating to the financial statements, financial statement schedule, and the effectiveness of internal control over financial reporting, which appears in this Form 10‑K.  

/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
February 22, 2018


F-6

Table of Contents

W. R. Grace & Co. and Subsidiaries
Consolidated Statements of Operations
 
Year Ended December 31,
(In millions, except per share amounts)
2017
 
2016
 
2015
Net sales
$
1,716.5

 
$
1,598.6

 
$
1,628.2

Cost of goods sold
1,053.2

 
942.7

 
976.5

Gross profit
663.3

 
655.9

 
651.7

Selling, general and administrative expenses
302.6

 
308.8

 
318.9

Research and development expenses
53.5

 
48.8

 
47.1

Restructuring and repositioning expenses
26.7

 
38.6

 
20.4

Equity in earnings of unconsolidated affiliate
(25.9
)
 
(29.8
)
 
(20.4
)
Provision for environmental remediation
24.4

 
28.7

 
6.4

Interest expense and related financing costs
79.5

 
81.5

 
99.4

Other (income) expense, net
(8.4
)
 
13.3

 
(13.8
)
Total costs and expenses
452.4

 
489.9

 
458.0

Income (loss) from continuing operations before income taxes
210.9

 
166.0

 
193.7

(Provision for) benefit from income taxes
(200.5
)
 
(59.0
)
 
(69.8
)
Income (loss) from continuing operations
10.4

 
107.0

 
123.9

Income (loss) from discontinued operations, net of income taxes
—

 
(12.9
)
 
20.2

Net income (loss)
10.4

 
94.1

 
144.1

Less: Net (income) loss attributable to noncontrolling interests
0.8

 
—

 
0.1

Net income (loss) attributable to W. R. Grace & Co. shareholders
$
11.2

 
$
94.1

 
$
144.2

Amounts Attributable to W. R. Grace & Co. Shareholders:
 
 
 
 
 
Income (loss) from continuing operations attributable to W. R. Grace & Co. shareholders
$
11.2

 
$
107.0

 
$
124.0

Income (loss) from discontinued operations, net of income taxes
—

 
(12.9
)
 
20.2

Net income (loss) attributable to W. R. Grace & Co. shareholders
$
11.2

 
$
94.1

 
$
144.2

Earnings Per Share Attributable to W. R. Grace & Co. Shareholders
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
Income (loss) from continuing operations
$
0.16

 
$
1.53


$
1.72

Income (loss) from discontinued operations, net of income taxes
—

 
(0.19
)
 
0.28

Net income (loss)
$
0.16

 
$
1.34


$
2.00

Weighted average number of basic shares
68.1

 
70.1

 
72.0

Diluted earnings per share:
 
 
 
 
 
Income (loss) from continuing operations
$
0.16

 
$
1.52


$
1.71

Income (loss) from discontinued operations, net of income taxes
—

 
(0.19
)
 
0.28

Net income (loss)
$
0.16

 
$
1.33


$
1.99

Weighted average number of diluted shares
68.2

 
70.5

 
72.6

Dividends per common share
$
0.84

 
$
0.51

 
$
—


The Notes to Consolidated Financial Statements are an integral part of these statements.
 
F-7

Table of Contents

W. R. Grace & Co. and Subsidiaries
Consolidated Statements of Comprehensive Income
 
Year Ended December 31,
(In millions)
2017
 
2016
 
2015
Net income (loss)
$
10.4

 
$
94.1

 
$
144.1

Other comprehensive income (loss), net of income taxes:
 
 
 
 
 
Defined benefit pension and other postretirement plans
(1.3
)
 
(0.6
)
 
(1.0
)
Currency translation adjustments
(26.0
)
 
(1.8
)
 
(43.3
)
Gain (loss) from hedging activities
0.8

 
0.3

 
1.3

Total other comprehensive income (loss) attributable to noncontrolling interests
—

 
2.6

 
0.2

Total other comprehensive income (loss), net of income taxes
(26.5
)
 
0.5

 
(42.8
)
Comprehensive income (loss)
(16.1
)
 
94.6

 
101.3

Less: comprehensive (income) loss attributable to noncontrolling interests
0.8

 
(2.6
)
 
(0.1
)
Comprehensive income (loss) attributable to W. R. Grace & Co. shareholders
$
(15.3
)
 
$
92.0

 
$
101.2



The Notes to Consolidated Financial Statements are an integral part of these statements.
 
F-8

Table of Contents

W. R. Grace & Co. and Subsidiaries
Consolidated Statements of Cash Flows
 
Year Ended December 31,
(In millions)
2017
 
2016
 
2015
OPERATING ACTIVITIES
 
 
 
 
 
Net income (loss)
$
10.4

 
$
94.1

 
$
144.1

Less: loss (income) from discontinued operations
—

 
12.9

 
(20.2
)
Income (loss) from continuing operations
10.4

 
107.0


123.9

Reconciliation to net cash provided by (used for) operating activities from continuing operations:
 
 
 
 
 
Depreciation and amortization
111.5

 
100.3

 
99.2

Equity in earnings of unconsolidated affiliate
(25.9
)
 
(29.8
)
 
(20.4
)
Dividends received from unconsolidated affiliate
19.0

 
31.0

 
11.8

Costs related to legacy product, environmental, and other claims
30.8

 
35.4

 
6.1

Cash paid for legacy product, environmental, and other claims
(54.5
)
 
(24.6
)
 
(507.4
)
Provision for (benefit from) income taxes
200.5

 
59.0

 
69.8

Cash paid for income taxes
(61.8
)
 
(96.6
)
 
(40.7
)
Income tax refunds received
34.2

 
11.4

 
5.9

Interest expense and related financing costs
79.5

 
81.5

 
99.4

Cash paid for interest
(70.2
)
 
(75.7
)
 
(89.5
)
Loss on early extinguishment of debt
—

 
11.1

 
—

Defined benefit pension expense (income)
64.1

 
72.6

 
50.9

Cash paid under defined benefit pension arrangements
(17.8
)
 
(15.9
)
 
(15.4
)
Accounts receivable reserve—Venezuela
10.0

 
—

 
—

Changes in assets and liabilities, excluding effect of currency translation and acquisitions:
 
 
 
 
 
Trade accounts receivable
(4.9
)
 
(15.7
)
 
(18.0
)
Inventories
4.4

 
(0.6
)
 
3.8

Accounts payable
(2.5
)
 
32.0

 
7.3

All other items, net
(7.6
)
 
(14.9
)
 
23.5

Net cash provided by (used for) operating activities from continuing operations
319.2

 
267.5

 
(189.8
)
INVESTING ACTIVITIES
 
 
 
 
 
Capital expenditures
(125.2
)
 
(116.9
)
 
(118.8
)
Business acquired
(3.5
)
 
(246.5
)
 
—

Proceeds from sale of assets
0.6

 
13.7

 
—

Other investing activities
(1.8
)
 
4.7

 
6.8

Net cash provided by (used for) investing activities from continuing operations
(129.9
)
 
(345.0
)
 
(112.0
)
FINANCING ACTIVITIES
 
 
 
 
 
Borrowings under credit arrangements
114.4

 
39.4

 
292.4

Repayments under credit arrangements
(143.9
)
 
(633.0
)
 
(50.0
)
Cash paid for repurchases of common stock
(65.0
)
 
(195.1
)
 
(301.5
)
Proceeds from exercise of stock options
16.4

 
17.0

 
26.9

Dividends paid
(57.3
)
 
(36.0
)
 
—

Distribution from GCP
—

 
750.0

 
—

Other financing activities
0.6

 
(2.5
)
 
(8.3
)
Net cash provided by (used for) financing activities from continuing operations
(134.8
)
 
(60.2
)
 
(40.5
)
Effect of currency exchange rate changes on cash and cash equivalents
7.7

 
(3.0
)
 
(1.7
)
Increase (decrease) in cash and cash equivalents from continuing operations
62.2

 
(140.7
)
 
(344.0
)
Cash flows from discontinued operations
 
 
 
 
 
Net cash provided by (used for) operating activities
—

 
23.9

 
202.5

Net cash provided by (used for) investing activities
—

 
(9.5
)
 
(32.4
)
Net cash provided by (used for) financing activities
—

 
31.4

 
2.9

Effect of currency exchange rate changes on cash and cash equivalents
—

 
(1.0
)
 
(56.6
)
Increase (decrease) in cash and cash equivalents from discontinued operations
—

 
44.8

 
116.4

Net increase (decrease) in cash and cash equivalents
62.2

 
(95.9
)

(227.6
)
Less: cash and cash equivalents of discontinued operations
—

 
(143.4
)
 
—

Cash and cash equivalents, beginning of period
90.6

 
329.9

 
557.5

Cash and cash equivalents, end of period
$
152.8

 
$
90.6


$
329.9

 
 
 
 
 
 
Supplemental disclosure of cash flow information
 
 
 
 
 
Capital expenditures in accounts payable
$
41.4

 
$
23.8

 
$
29.4

Net share settled stock option exercises
1.2

 
10.5

 
—


The Notes to Consolidated Financial Statements are an integral part of these statements.
 
F-9

Table of Contents

W. R. Grace & Co. and Subsidiaries
Consolidated Balance Sheets
 
December 31,
(In millions, except par value and shares)
2017
 
2016
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
152.8

 
$
90.6

Restricted cash and cash equivalents
10.7

 
10.0

Trade accounts receivable, less allowance of $11.7 (2016—$2.2)
285.2

 
273.9

Inventories
230.9

 
228.0

Other current assets
49.0

 
52.3

Total Current Assets
728.6


654.8

Properties and equipment, net of accumulated depreciation and amortization of $1,463.4 (2016—$1,327.5)
799.1

 
729.6

Goodwill
402.4

 
394.2

Technology and other intangible assets, net
255.4

 
269.1

Deferred income taxes
556.5

 
709.4

Investment in unconsolidated affiliate
125.9

 
117.6

Other assets
39.1

 
37.1

Total Assets
$
2,907.0

 
$
2,911.8

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Debt payable within one year
$
20.1


$
76.5

Accounts payable
210.3

 
195.4

Other current liabilities
217.8

 
208.9

Total Current Liabilities
448.2

 
480.8

Debt payable after one year
1,523.8


1,507.6

Underfunded and unfunded defined benefit pension plans
502.4

 
424.3

Other liabilities
169.3

 
126.7

Total Liabilities
2,643.7

 
2,539.4

Commitments and Contingencies—Note 10

 

Equity
 
 
 
Common stock issued, par value $0.01; 300,000,000 shares authorized; outstanding: 67,780,410 (2016—68,309,431)
0.7

 
0.7

Paid-in capital
474.8

 
487.3

Retained earnings
573.1

 
619.3

Treasury stock, at cost: shares: 9,676,217 (2016—9,147,196)
(832.1
)
 
(804.9
)
Accumulated other comprehensive income (loss)
39.9

 
66.4

Total W. R. Grace & Co. Shareholders' Equity
256.4

 
368.8

Noncontrolling interests
6.9

 
3.6

Total Equity
263.3

 
372.4

Total Liabilities and Equity
$
2,907.0

 
$
2,911.8


The Notes to Consolidated Financial Statements are an integral part of these statements.
 
F-10

Table of Contents

W. R. Grace & Co. and Subsidiaries
Consolidated Statements of Equity
(In millions)
Common
Stock and
Paid-in
Capital
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Noncontrolling
Interests
 
Total
Equity
Balance, December 31, 2014
$
526.8

 
$
292.1

 
$
(429.2
)
 
$
(23.8
)
 
$
3.1

 
$
369.0

Net income (loss)
—

 
144.2

 
—

 
—

 
0.7

 
144.9

Repurchase of common stock
—

 
—

 
(301.5
)
 
—

 
—

 
(301.5
)
Stock-based compensation
13.0

 
—

 
—

 
—

 
—

 
13.0

Exercise of stock options
(45.4
)
 
—

 
72.3

 
—

 
—

 
26.9

Purchase of noncontrolling interest
(0.7
)
 
—

 
—

 
—

 
0.7

 
—

Tax benefit related to stock plans
1.9

 
—

 
—

 
—

 
—

 
1.9

Shares issued
1.1

 
—

 
—

 
—

 
—

 
1.1

Other comprehensive income (loss)
—

 
—

 
—

 
(43.0
)
 
0.2

 
(42.8
)
Balance, December 31, 2015
496.7

 
436.3

 
(658.4
)
 
(66.8
)
 
4.7

 
212.5

Net income (loss)
—

 
94.1

 
—

 
—

 
—

 
94.1

Repurchase of common stock
—

 
—

 
(195.1
)
 
—

 
—

 
(195.1
)
Stock-based compensation
11.6

 
—

 
—

 
—

 
—

 
11.6

Exercise of stock options
(21.1
)
 
—

 
48.6

 
—

 
—

 
27.5

Tax benefit related to stock plans
—

 
70.4

 
—

 
—

 
—

 
70.4

Shares issued
0.8

 
—

 
—

 
—

 
—

 
0.8

Dividends declared
—

 
(36.0
)
 
—

 
—

 
—

 
(36.0
)
Other comprehensive income (loss)
—

 
—

 
—

 
(2.1
)
 
2.6

 
0.5

Distribution of GCP
—

 
54.5

 
—

 
135.3

 
(3.7
)
 
186.1

Balance, December 31, 2016
488.0

 
619.3

 
(804.9
)
 
66.4

 
3.6

 
372.4

Net income (loss)
—

 
11.2

 
—

 
—

 
(0.8
)
 
10.4

Repurchase of common stock
—

 
—

 
(65.0
)
 
—

 
—

 
(65.0
)
Stock-based compensation
11.0

 
—

 
—

 
—

 
—

 
11.0

Exercise of stock options
(18.9
)
 
—

 
35.0

 
—

 
—

 
16.1

Payments to taxing authorities in consideration of employee tax obligations related to stock-based compensation arrangements
(2.5
)
 
—

 
—

 
—

 
—

 
(2.5
)
Shares issued
(2.1
)
 
—

 
2.8

 
—

 
—

 
0.7

Dividends declared
—

 
(57.4
)
 
—

 
—

 
—

 
(57.4
)
Contribution from joint venture partner
—

 
—

 
—

 
—

 
4.1

 
4.1

Other comprehensive income (loss)
—

 
—

 
—

 
(26.5
)
 
—

 
(26.5
)
Balance, December 31, 2017
$
475.5

 
$
573.1

 
$
(832.1
)
 
$
39.9

 
$
6.9

 
$
263.3


The Notes to Consolidated Financial Statements are an integral part of these statements.
 
F-11

Table of Contents

Notes to Consolidated Financial Statements

1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies
W. R. Grace & Co., through its subsidiaries, is engaged in specialty chemicals and specialty materials businesses on a global basis through two reportable segments: Grace Catalysts Technologies, which includes catalysts and related products and technologies used in refining, petrochemical and other chemical manufacturing applications; and Grace Materials Technologies, which includes specialty materials, including silica-based and silica-alumina-based materials, used in coatings, consumer, industrial, and pharmaceutical applications.
W. R. Grace & Co. conducts all of its business through a single wholly owned subsidiary, W. R. Grace & Co.–Conn. ("Grace–Conn."). Grace–Conn. owns all of the assets, properties and rights of W. R. Grace & Co. on a consolidated basis, either directly or through subsidiaries.
As used in these notes, the term "Company" refers to W. R. Grace & Co. The term "Grace" refers to the Company and/or one or more of its subsidiaries and, in certain cases, their respective predecessors.
Separation Transaction     On January 27, 2016, Grace entered into a separation agreement with GCP Applied Technologies Inc., then a wholly-owned subsidiary of Grace ("GCP"), pursuant to which Grace agreed to transfer its Grace Construction Products operating segment and the packaging technologies business of its Grace Materials Technologies operating segment to GCP (the "Separation"). Grace and GCP completed the Separation on February 3, 2016 (the "Distribution Date"), by means of a pro rata distribution to the Company's stockholders of all of the outstanding shares of GCP common stock (the "Distribution"), with one share of GCP common stock distributed for each share of Company common stock held as of the close of business on January 27, 2016. As a result of the Distribution, GCP became an independent public company. GCP’s historical financial results through the Distribution Date are reflected in Grace’s Consolidated Financial Statements as discontinued operations.
Principles of Consolidation     The Consolidated Financial Statements include the accounts of Grace and entities as to which Grace maintains a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation. Investments in affiliated companies in which Grace can significantly influence operating and financial policies, but does not have a controlling financial interest, are accounted for under the equity method.
Grace conducts certain of its business through joint ventures with unaffiliated third parties. For joint ventures in which Grace has a controlling financial interest, Grace consolidates the results of such joint ventures in the Consolidated Financial Statements. Grace recognizes a liability for cumulative amounts due to the third parties based on the financial results of the joint ventures, and deducts the amount of income attributable to noncontrolling interests in the measurement of its consolidated net income.
Reportable Segments     Grace reports financial results of each of its reportable segments that engage in business activities that generate revenues and expenses and whose operating results are regularly reviewed by Grace's Chief Executive Officer and Chief Operating Officer.
Use of Estimates     The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, and the reported amounts of revenues and expenses for the periods presented. Actual amounts could differ from those estimates, and the differences could be material. Changes in estimates are recorded in the period identified. Grace's accounting measurements that are most affected by management's estimates of future events are:
•
Realization values of net deferred tax assets, which depend on projections of future taxable income (see Note 7 );
•
Pension and postretirement liabilities, which depend on assumptions regarding participant life spans, future inflation, discount rates and total returns on invested funds (see Note 8 );
•
Carrying values of goodwill and other intangible assets, which depend on assumptions of future earnings and cash flows (see Note 4 and Note 19 ); and

F-12

Table of Contents


Notes to Consolidated Financial Statements (Continued)

1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)

•
Contingent liabilities, which depend on an assessment of the probability of loss and an estimate of ultimate obligation, such as litigation (see Note 10 ), income taxes (see Note 7 ), and environmental remediation (see Note 10 ).
Revenue Recognition     Grace recognizes revenue when all of the following criteria are satisfied: risk of loss and title transfer to the customer; the price is fixed and determinable; persuasive evidence of a sales arrangement exists; and collectability is reasonably assured. The point at which risk of loss and title transfers to a customer is determined based on delivery terms, which are generally included in customer contracts of sale, order confirmation documents, and invoices.
Cash Equivalents     Cash equivalents consist of liquid instruments and investments with maturities of three months or less when purchased. The recorded amounts approximate fair value.
Inventories     Inventories are stated at the lower of cost or market. The method used to determine cost is first-in/first-out, or "FIFO." Market values for raw materials are based on current cost and, for other inventory classifications, net realizable value. Inventories are evaluated regularly for salability, and slow moving and/or obsolete items are adjusted to expected salable value. Inventory values include direct and certain indirect costs of materials and production. Abnormal costs of production are expensed as incurred.
Long Lived Assets     Properties and equipment are stated at cost. Depreciation of properties and equipment is generally computed using the straight-line method over the estimated useful life of the asset. Estimated useful lives range from 20 to 30  years for buildings, 3 to 7  years for information technology equipment, 3 to 10  years for operating machinery and equipment, and 5 to 10  years for furniture and fixtures. Interest is capitalized in connection with major project expenditures. Fully depreciated assets are retained in properties and equipment and related accumulated depreciation accounts until they are removed from service. In the case of disposals, assets and related accumulated depreciation are removed from the accounts and the net amount, less any proceeds from disposal, is charged or credited to earnings. Obligations for costs associated with asset retirements, such as requirements to restore a site to its original condition, are accrued at net present value and amortized along with the related asset.
Grace is currently in the process of conducting a depreciation study to review the useful lives of machinery and equipment, including an evaluation of historical retirement data as well as industry review and analysis. This evaluation will be completed by the end of the 2018 first quarter. Grace expects this review to result in increased useful lives (and lower depreciation expense) and will apply the change to new and existing assets on a prospective basis as a change in accounting estimate effective January 1, 2018.
Intangible assets with finite lives consist of technology, customer lists, trademarks and other intangibles and are amortized over their estimated useful lives, ranging from 1 to 30  years.
Grace reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. There were no impairment charges recorded in any of the periods presented.
Goodwill     Goodwill arises from business combinations, and it is reviewed for impairment on an annual basis at October 31 and whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. Recoverability is assessed at the reporting unit level most directly associated with the business combination that generated the goodwill. For the purpose of measuring impairment, Grace has identified its operating segments as reporting units. Grace has evaluated its goodwill annually with no impairment charge required in any of the periods presented.
Financial Instruments     Grace uses commodity forward, swap and/or option contracts; currency forward and/or option contracts; and interest rate swap contracts to manage exposure to fluctuations in commodity prices, currency exchange rates, and interest rates. Grace does not hold or issue derivative financial instruments for trading purposes. Derivative instruments are recorded at fair value in the Consolidated Balance Sheets as either assets or liabilities. For derivative instruments designated as fair value hedges, changes in the fair values of the

F-13

Table of Contents


Notes to Consolidated Financial Statements (Continued)

1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)

derivative instruments closely offset changes in the fair values of the hedged items in "other (income) expense, net" in the Consolidated Statements of Operations. For derivative instruments designated as cash flow hedges, the gain or loss on the hedge is reported in "accumulated other comprehensive income (loss)" in the Consolidated Balance Sheets until it is cleared to earnings during the same period in which the hedged item affects earnings. The changes in the fair values of derivative instruments that are not designated as hedges are recorded in current period earnings. Cash flows from derivative instruments are reported in the same category as the cash flows from the items being hedged.
Income Taxes     Deferred tax assets and liabilities are recognized with respect to the expected future tax consequences of events that have been recorded in the Consolidated Financial Statements. Grace reduces the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed quarterly.
In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard, Grace gives appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, domestic and foreign source income, the duration of statutory carryforward periods, and Grace's experience with operating loss and tax credit carryforward expirations.
Tax benefits from an uncertain tax position are recognized only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the position. 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 realized upon ultimate settlement. Grace evaluates such likelihood based on relevant facts and tax law. Grace adjusts its recorded liability for income tax matters due to changes in circumstances or new uncertainties, such as amendments to existing tax law. Grace's ultimate tax liability depends upon many factors, including negotiations with taxing authorities in the jurisdictions in which it operates, outcomes of tax litigation, and resolution of disputes arising from federal, state, and foreign tax audits. Due to the varying tax laws in each jurisdiction management, with the assistance of local tax advisors as necessary, assesses individual matters in each jurisdiction on a case-by-case basis. Grace researches and evaluates its income tax positions, including why it believes they are compliant with income tax regulations, and these positions are documented as appropriate.
Pension Benefits     Grace's method of accounting for actuarial gains and losses relating to its global defined benefit pension plans is referred to as "mark-to-market accounting." Under mark-to-market accounting, Grace's pension costs consist of two elements: 1) ongoing costs recognized quarterly, which include service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; and 2) mark-to-market gains and losses recognized annually in the fourth quarter resulting from changes in actuarial assumptions, such as discount rates and the difference between actual and expected returns on plan assets. Should a significant event occur, Grace's pension obligation and plan assets are remeasured at an interim period, and the gains or losses on remeasurement are recognized in that period.
Stock-Based Compensation     The Company recognizes expenses related to stock-based compensation payment transactions in which it receives employee services in exchange for (a) equity instruments of the Company or (b) liabilities that are based on the fair value of the Company’s equity instruments or that may be settled by the issuance of equity instruments. Stock-based compensation cost for restricted stock units (RSUs) and share settled performance based units (PBUs) are measured based on the high/low average of the Company’s common stock on the date of grant. Cash settled performance based units (CSPBU) are remeasured at the end of each reporting period based on the closing fair market value of the Company’s common stock. Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair value as calculated by the Black-Scholes option pricing model. The Company recognizes stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period.

F-14

Table of Contents


Notes to Consolidated Financial Statements (Continued)

1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)

Currency Translation     Assets and liabilities of foreign subsidiaries (other than those located in countries with highly inflationary economies) are translated into U.S. dollars at current exchange rates, while revenues, costs and expenses are translated at average exchange rates during each reporting period. The resulting translation adjustments are included in "accumulated other comprehensive income (loss)" in the Consolidated Balance Sheets. The financial statements of any subsidiaries located in countries with highly inflationary economies are remeasured as if the functional currency were the U.S. dollar; the remeasurement creates translation adjustments that are reflected in net income in the Consolidated Statements of Operations.
Reclassifications     Certain amounts in prior years' Consolidated Financial Statements have been reclassified to conform to the current year presentation. Such reclassifications have not materially affected previously reported amounts in the Consolidated Financial Statements.
Recently Issued Accounting Standards     In May 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers." This update is intended to remove inconsistencies and weaknesses in revenue requirements; provide a more robust framework for addressing revenue issues; improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets; provide more useful information to users of financial statements through improved disclosure requirements; and simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. The standard allows for two methods of adoption: (a) full retrospective adoption, meaning the standard is applied to all periods presented, or (b) modified retrospective adoption, meaning the cumulative effect of applying the new standard is recognized as an adjustment to the opening retained earnings balance. Grace has assessed specific areas of the standard and its impact on the Consolidated Financial Statements. Grace will adopt this standard in the 2018 first quarter under the modified retrospective approach and does not expect it to have a material effect on the Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02 "Leases (Topic 842)." This update is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term, including optional payments where they are reasonably certain to occur. Currently, as a lessee, Grace is a party to a number of leases which, under existing guidance, are classified as operating leases and not recorded on the balance sheet but are expensed as incurred. Under the new standard, many of these leases will be recorded on the Consolidated Balance Sheets. Grace will adopt the standard in the 2019 first quarter and at this time cannot reasonably estimate the effect of adoption.
In November 2016, the FASB issued ASU 2016-18 "Statement of Cash Flows (Topic 230): Restricted Cash," which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Grace will adopt the update in the 2018 first quarter and does not expect it to have a material effect on the Consolidated Financial Statements. As of December 31, 2017 and 2016, restricted cash included in the Consolidated Balance Sheets was  $10.7 million  and  $10.0 million , respectively.
In January 2017, the FASB issued ASU 2017-01 "Business Combinations (Topic 805)," which provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output, and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments in this update also narrow the definition of the term "output" so that the term is consistent with how outputs are described in Topic 606. Public

F-15

Table of Contents


Notes to Consolidated Financial Statements (Continued)

1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)

business entities are required to apply the amendments in this update to annual periods beginning after December 15, 2017, including interim periods within those periods, with early application permitted. Grace will adopt the update when it becomes effective and does not expect it to have a material effect on the Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-04 "Intangibles—Goodwill and Other (Topic 350)." This update modifies the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination ("Step 2"). Because these amendments eliminate Step 2 from the goodwill impairment test, they should reduce the cost and complexity of evaluating goodwill for impairment. Grace is required to adopt the amendments in this update for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Grace is currently evaluating the timing of adoption and does not expect the update to have a material effect on the Consolidated Financial Statements.
In March 2017, the FASB issued ASU 2017-07 "Compensation—Retirement Benefits (Topic 715)." This update requires that the service cost component of net benefit cost be presented with other compensation costs arising from services rendered. The remaining net benefit cost is either presented as a line item in the statement of operations outside of a subtotal for income from operations, if presented, or disclosed separately. Only the service cost component of net benefit expense can be capitalized. The update will affect the classification of defined benefit pension expense within the Consolidated Statements of Operations, with changes to amounts included in "cost of goods sold," "selling, general and administrative expenses," "research and development expenses," and "other (income) expense, net." Grace will adopt the update in the 2018 first quarter.
In May 2017, the FASB issued ASU 2017-09 "Compensation—Stock Compensation (Topic 718)." This update clarifies the existing definition of the term "modification," which is currently defined as "a change in any of the terms or conditions of a share-based payment award." The update requires entities to account for modifications of share-based payment awards unless the (1) fair value, (2) vesting conditions, and (3) classification as an equity instrument or a liability instrument of the modified award are the same as of the original award before modification. Grace is required to adopt the amendments in this update for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted. Grace does not currently have any modifications of share-based awards and will adopt the update when it becomes effective.
In January 2018, the FASB issued ASU 2018-01 "Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842." This update provides an optional transition practical expedient that allows an entity to elect not to evaluate under Topic 842 existing or expired land easements not previously accounted for as leases. All land easements entered into or modified after the adoption of Topic 842 must be evaluated under Topic 842. Grace, which typically does not account for easements under current lease accounting, will use the transition practical expedient when adopting Topic 842 in the 2019 first quarter and at this time cannot reasonably estimate the effect of adoption.
In February 2018, the FASB issued ASU 2018-02 "Income Statement—Reporting Comprehensive Income (Topic 220)." This update addresses the revaluation of deferred tax assets and liabilities due to the Tax Cuts and Jobs Act of 2017 impacting income from continuing operations, even if the initial income tax effects were recognized in other comprehensive income. The update allows entities to reclassify the tax effects that were originally in other comprehensive income from accumulated other comprehensive income to retained earnings. The update requires entities to disclose whether the election was made and a description of the income tax effects. The update can be: (a) applied to the period of adoption, or (b) applied retrospectively to each period in which the Tax Cuts and Jobs Act of 2017 is in effect. Grace is required to adopt the amendments in this update for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. Grace is currently evaluating the timing and effect of adoption.

F-16

Table of Contents


Notes to Consolidated Financial Statements (Continued)

1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies (Continued)

U.S. Tax Reform     On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Act") was signed into law, making significant changes to the Internal Revenue Code. Changes include a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. Grace has estimated its provision for income taxes in accordance with the Act and guidance available as of the date of this filing and as a result has recorded $143.0 million as additional income tax expense in the 2017 fourth quarter, the period in which the legislation was enacted. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future, was $120.1 million . The provisional amounts related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings and the state and foreign taxes on the unremitted earnings were $37.4 million and $4.9 million respectively. Additionally, Grace provisionally released valuation allowances on a portion of its state net operating losses and federal tax credits of $2.0 million and $17.4 million .
On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, Grace has determined that the $120.1 million of deferred tax expense recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the $37.4 million of current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings, as well as the state and foreign taxes on unremitted earnings and the release of the valuation allowances, were provisional amounts and reasonable estimates at December 31, 2017. Additional work is necessary for a more detailed analysis of Grace's deferred tax assets and liabilities and its historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in the 2018 quarter during which the analysis is completed, which is expected to be during the second half of 2018.
In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Act. Grace has not completed its analysis in order to make a policy decision on accounting for GILTI.
See Note 7 for more information related to income taxes and U.S. tax reform.
2. Inventories
Inventories are stated at the lower of cost or net realizable value, and cost is determined using FIFO. Inventories consisted of the following at December 31, 2017 and 2016 :
 
December 31,
(In millions)
2017
 
2016
Raw materials
$
48.8

 
$
57.7

In process
33.0

 
33.4

Finished products
124.7

 
115.8

Other
24.4

 
21.1

 
$
230.9

 
$
228.0


F-17

Table of Contents


Notes to Consolidated Financial Statements (Continued)

3. Properties and Equipment

 
December 31,
(In millions)
2017
 
2016
Land
$
14.2

 
$
10.0

Buildings
404.5

 
375.4

Information technology and equipment
136.6

 
125.3

Machinery, equipment and other
1,571.8

 
1,445.8

Projects under construction
135.4

 
100.6

Properties and equipment, gross
2,262.5

 
2,057.1

Accumulated depreciation and amortization
(1,463.4
)
 
(1,327.5
)
Properties and equipment, net
$
799.1

 
$
729.6

Capitalized interest costs amounted to $1.5 million , $1.3 million , and $1.0 million in 2017 , 2016 , and 2015 , respectively. Depreciation and lease amortization expense relating to properties and equipment was $96.1 million , $85.7 million , and $81.8 million in 2017 , 2016 , and 2015 , respectively. Grace's expense for operating leases was $11.3 million , $10.0 million , and $10.6 million in 2017 , 2016 , and 2015 , respectively.
At December 31, 2017 , minimum future non-cancelable payments for operating leases are:
 
(In millions)
2018
$
10.4

2019
7.3

2020
5.5

2021
3.0

2022
2.8

Thereafter
39.3

 
$
68.3

4. Goodwill and Other Intangible Assets
The carrying amount of goodwill attributable to each reportable segment and the changes in those balances during the years ended December 31, 2017 and 2016 , are as follows:
(In millions)
Catalysts Technologies
 
Materials Technologies
 
Total Grace
Balance, December 31, 2015
$
292.7

 
$
43.8

 
$
336.5

Goodwill acquired during the year
63.8

 
—

 
63.8

Foreign currency translation
(3.0
)
 
(0.6
)
 
(3.6
)
Write-off related to exited product lines
—

 
(2.5
)
 
(2.5
)
Balance, December 31, 2016
353.5

 
40.7

 
394.2

Goodwill acquired during the year
—

 
2.4

 
2.4

Foreign currency translation
4.2

 
1.6

 
5.8

Balance, December 31, 2017
$
357.7

 
$
44.7

 
$
402.4


F-18

Table of Contents


Notes to Consolidated Financial Statements (Continued)

4. Goodwill and Other Intangible Assets (Continued)

Grace's net book value of other intangible assets at December 31, 2017 and 2016 , was $255.4 million and $269.1 million , respectively, detailed as follows:
 
December 31, 2017
 
December 31, 2016
(In millions)
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Technology
$
214.7

 
$
41.5

 
$
222.3

 
$
38.9

Customer lists
55.8

 
8.8

 
69.6

 
20.3

Trademarks
25.5

 
2.6

 
25.3

 
1.5

Other
16.0

 
3.7

 
15.7

 
3.1

Total
$
312.0

 
$
56.6

 
$
332.9

 
$
63.8

Amortization expense related to intangible assets was $15.4 million , $13.9 million , and $16.2 million in 2017 , 2016 , and 2015 , respectively.
At December 31, 2017 , estimated future annual amortization expense for intangible assets is:
 
(In millions)
2018
$
15.4

2019
15.4

2020
15.1

2021
14.9

2022
14.8

Thereafter
179.8

 
$
255.4

5. Debt
Components of Debt
 
December 31,
(In millions)
2017
 
2016
5.125% senior notes due 2021, net of unamortized debt issuance costs of $5.8 at December 31, 2017 (2016—$7.3)
$
694.2

 
$
692.7

U.S. dollar term loan, net of unamortized debt issuance costs and discounts of $4.3 at December 31, 2017 (2016—$5.7)
404.1

 
402.7

5.625% senior notes due 2024, net of unamortized debt issuance costs of $3.5 at December 31, 2017 (2016—$4.0)
296.5

 
296.0

Euro term loan, net of unamortized debt issuance costs and discounts of $1.0 at December 31, 2017 (2016—$1.3)
94.0

 
82.5

Debt payable to unconsolidated affiliate
42.4

 
39.5

Deferred payment obligation
—

 
30.0

Other borrowings(1)
12.7

 
40.7

Total debt
1,543.9

 
1,584.1

Less debt payable within one year
20.1

 
76.5

Debt payable after one year
$
1,523.8

 
$
1,507.6

Weighted average interest rates on total debt
4.7
%
 
4.6
%
___________________________________________________________________________________________________________________
(1)
Represents borrowings under various lines of credit and other borrowings, primarily by non-U.S. subsidiaries.

F-19

Table of Contents


Notes to Consolidated Financial Statements (Continued)

5. Debt (Continued)

See Note 6 for a discussion of the fair value of Grace's debt.
The principal maturities of debt outstanding at December 31, 2017 , were as follows:
 
(In millions)
2018
$
20.1

2019
8.7

2020
7.4

2021
1,198.2

2022
5.0

Thereafter
304.5

Total debt
$
1,543.9

Credit Agreement
On February 3, 2014, Grace entered into a Credit Agreement (the "Credit Agreement") in connection with its exit financing. The Credit Agreement, as amended in connection with the Separation, provides for:
(a)
a $700 million term loan due in 2021, with interest at LIBOR +200 bps with a 75 bps floor;
(b)
a €150 million term loan due in 2021, with interest at EURIBOR +225 bps with a 75 bps floor; and
(c)
a $300 million revolving credit facility due in 2020, with interest at LIBOR +175 bps.
The Credit Agreement contains customary affirmative covenants, including but not limited to (i) maintenance of legal existence and compliance with laws and regulations; (ii) delivery of consolidated financial statements and other information; (iii) payment of taxes; (iv) delivery of notices of defaults and certain other material events; and (v) maintenance of adequate insurance. The Credit Agreement also contains customary negative covenants, including but not limited to restrictions on (i) dividends on, and redemptions of, equity interests and other restricted payments; (ii) liens; (iii) loans and investments; (iv) the sale, transfer or disposition of assets and businesses; (vi) transactions with affiliates; and (vii) a maximum total leverage ratio. Grace is in compliance with these covenants. The Credit Agreement contains conditions that would require mandatory principal payments in advance of the term loan maturity date; none of these conditions had been triggered as of December 31, 2017 .
Events of default under the Credit Agreement include, but are not limited to: (i) failure to pay principal, interest, fees or other amounts under the Credit Agreement when due, taking into account any applicable grace period; (ii) any representation or warranty proving to have been incorrect in any material respect when made; (iii) failure to perform or observe covenants or other terms of the Credit Agreement subject to certain grace periods; (iv) a cross-default and cross-acceleration with certain other material debt; (v) bankruptcy events; (vi) certain defaults under ERISA; and (vii) the invalidity or impairment of security interests.
To secure its obligations under the Credit Agreement, the Company has granted security interests in the shares of its Grace–Conn. and Alltech Associates, Inc. subsidiaries, substantially all of its U.S. non-real estate assets and property, and certain U.S. real estate.
On January 30, 2015, Grace borrowed on its $250 million delayed draw term loan facility then provided for under the Credit Agreement and used the funds, together with cash on hand, to repurchase the warrant issued to the asbestos personal injury trust (the "PI Trust") for $490 million . (See Note 10 for Chapter 11 information.)
Grace had no outstanding draws on its revolving credit facility as of December 31, 2017 ; however, the available credit under that facility was reduced to $262.8 million by outstanding letters of credit.
During the 2016 first quarter, in connection with the Separation, GCP distributed $750 million to Grace. Grace used $600 million of those funds to repay $526.9 million of its U.S. dollar term loan, including the $250 million borrowed under the delayed draw facility, and €67.3 million of its euro term loan. As a result, Grace

F-20

Table of Contents


Notes to Consolidated Financial Statements (Continued)

5. Debt (Continued)

recorded a loss on early extinguishment of $11.1 million , which is included in "other (income) expense" in the Consolidated Statements of Operations. See Note 20 for information related to the Separation.
Senior Notes
On September 16, 2014, Grace–Conn. (the "Issuer") issued $1,000.0 million of senior unsecured notes (the "Notes") in two tranches:
(a)
$700 million in aggregate principal amount of Notes due 2021 at a coupon rate of 5.125% , and
(b)
$300 million in aggregate principal amount of Notes due 2024 at a coupon rate of 5.625% .
The Notes were priced at 100% of par and were offered and sold pursuant to exemptions from registration under the Securities Act of 1933, as amended, (the "Securities Act"). The net proceeds received from issuance were $985.5 million , a portion of which was used to terminate Grace's obligations under the deferred payment agreement with the PI Trust for $632.0 million and to repay amounts outstanding under Grace's revolving credit facility. The remaining proceeds from the Notes were used to partially fund the settlement of the warrant issued to the PI Trust (as defined in Note 10 ) and for other general corporate purposes. Interest is payable on the Notes on each April 1 and October 1.
Grace may redeem some or all of the Notes at any time at a price equal to the greater of (i) 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest and (ii) the sum, as determined by an independent investment banker, of the present values of the remaining scheduled payments of principal and interest (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the treasury rate plus 50 basis points, in each case, plus accrued and unpaid interest. In the event of a change in control, Grace will be required to offer to purchase the Notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest.
The Notes are jointly and severally guaranteed on a full and unconditional senior unsecured basis by the Company and Alltech Associates, Inc., a wholly-owned subsidiary of the Issuer (the "Guarantors"). The Notes and guarantees are senior obligations of the Issuer and the Guarantors, respectively, and will rank equally with all of the existing and future unsubordinated obligations of the Issuer and the Guarantors, respectively. The Notes are effectively subordinated to any secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally subordinated to the debt and other liabilities of Grace’s non-guarantor subsidiaries.
The Notes were issued subject to covenants that limit the Issuer’s and certain of its subsidiaries’ ability, subject to certain exceptions and qualifications, to (i) create or incur liens on assets, (ii) enter into any sale and leaseback transaction and (iii) in the case of the Issuer, merge or consolidate with another company. Grace is in compliance with these covenants.
The Notes were also issued subject to customary events of default which include (subject in certain cases to customary grace and cure periods), among others, nonpayment of principal or interest; breach of other agreements in the Indenture; failure to pay certain other indebtedness; failure to discharge a final judgment for payment of $75 million or more (excluding any amounts covered by insurance or indemnities) rendered against the Issuer or any of its significant subsidiaries; and certain events of bankruptcy or insolvency. Generally, if any event of default occurs, the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding series of Notes may declare all the Notes of such series to be due and payable immediately.
This summary of the Credit Agreement, the amendment to the Credit Agreement, the indentures, and the Notes does not purport to be complete and is qualified in its entirety by reference to the full text of such agreements, copies of which have been filed with the SEC.
6. Fair Value Measurements and Risk
Certain of Grace's assets and liabilities are reported at fair value on a gross basis. ASC 820 "Fair Value Measurements and Disclosures" defines fair value as the value that would be received at the measurement date

F-21

Table of Contents


Notes to Consolidated Financial Statements (Continued)

6. Fair Value Measurements and Risk (Continued)

in the principal or "most advantageous" market. Grace uses principal market data, whenever available, to value assets and liabilities that are required to be reported at fair value.
Grace has identified the following financial assets and liabilities that are subject to the fair value analysis required by ASC 820:
Fair Value of Debt and Other Financial Instruments      Debt payable is recorded at carrying value. Fair value is determined based on Level 2 inputs, including expected future cash flows (discounted at market interest rates), estimated current market prices, and quotes from financial institutions.
At December 31, 2017 , the carrying amounts and fair values of Grace's debt were as follows:
 
December 31, 2017
 
December 31, 2016
(In millions)
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
5.125% senior notes due 2021(1)
$
694.2

 
$
728.7

 
$
692.7

 
$
721.3

U.S. dollar term loan(2)
404.1

 
409.7

 
402.7

 
408.2

5.625% senior notes due 2024(1)
296.5

 
321.3

 
296.0

 
311.5

Euro term loan(2)
94.0

 
93.7

 
82.5

 
82.0

Other borrowings
55.1

 
55.1

 
110.2

 
110.2

Total debt
$
1,543.9

 
$
1,608.5

 
$
1,584.1

 
$
1,633.2

___________________________________________________________________________________________________________________
(1)
Carrying amounts are net of unamortized debt issuance costs of $5.8 million and $3.5 million at December 31, 2017 , and $7.3 million and $4.0 million as of December 31, 2016 , related to the 5.125% senior notes due 2021 and 5.625% senior notes due 2024, respectively.
(2)
Carrying amounts are net of unamortized debt issuance costs and discounts of $4.3 million and $1.0 million at December 31, 2017 , and $5.7 million and $1.3 million as of December 31, 2016 , related to the U.S. dollar term loan and euro term loan, respectively.
At December 31, 2017 , the recorded values of other financial instruments such as cash equivalents and trade receivables and payables approximated their fair values, based on the short-term maturities and floating rate characteristics of these instruments.
Currency Derivatives      Because Grace operates and/or sells to customers in over 60 countries and in over 30 currencies, its results are exposed to fluctuations in currency exchange rates. Grace seeks to minimize exposure to these fluctuations by matching sales in volatile currencies with expenditures in the same currencies, but it is not always possible to do so. From time to time, Grace uses financial instruments such as currency forward contracts, options, swaps, or combinations thereof to reduce the risk of certain specific transactions. However, Grace does not have a policy of hedging all exposures, because management does not believe that such a level of hedging would be cost-effective. Forward contracts with maturities of not more than 36 months are used and designated as cash flow hedges of forecasted repayments of intercompany loans. The effective portion of gains and losses on these currency hedges is recorded in "accumulated other comprehensive income (loss)" and reclassified into "other (income) expense, net" to offset the remeasurement of the underlying hedged loans. Excluded components (forward points) on these hedges are amortized to income on a systematic basis.
Grace also enters into foreign currency forward contracts to hedge a portion of its net outstanding monetary assets and liabilities. These forward contracts are not designated as hedging instruments under applicable accounting guidance, and therefore all changes in the fair value of the forward contracts are recorded in "other (income) expense, net," in the Consolidated Statements of Operations. These forward contracts are intended to offset the foreign currency gains or losses associated with the underlying monetary assets and liabilities.
The valuation of Grace's currency exchange rate forward contracts and swaps is determined using an income approach. Inputs used to value currency exchange rate forward contracts consist of: (1) spot rates, which are quoted by various financial institutions; (2) forward points, which are primarily affected by changes in interest

F-22

Table of Contents


Notes to Consolidated Financial Statements (Continued)

6. Fair Value Measurements and Risk (Continued)

rates; and (3) discount rates used to present value future cash flows, which are based on the London Interbank Offered Rate (LIBOR) curve or overnight indexed swap rates. Total notional amounts for forward contracts outstanding at December 31, 2017 , were $230.2 million .
Debt and Interest Rate Swap Agreements      Grace uses interest rate swaps designated as cash flow hedges to manage fluctuations in interest rates on variable rate debt. The effective portion of gains and losses on these interest rate cash flow hedges is recorded in "accumulated other comprehensive income (loss)" and reclassified into "interest expense and related financing costs" during the hedged interest period.
In connection with its emergence financing, Grace entered into interest rate swaps beginning on February 3, 2015, and maturing on February 3, 2020, fixing the LIBOR component of the interest on $250 million of Grace's term debt at a rate of 2.393% . The valuation of these interest rate swaps is determined using an income approach, using prevailing market interest rates and discount rates to present value future cash flows based on the forward LIBOR yield curves. Credit risk is also incorporated into derivative valuations.
The following tables present the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016 :
 
Fair Value Measurements at December 31, 2017, Using
(In millions)
Total
 
Quoted Prices in
Active Markets
for Identical
Assets or
Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets
 
 
 
 
 
 
 
Currency derivatives
$
3.1

 
$
—

 
$
3.1

 
$
—

Total Assets
$
3.1

 
$
—

 
$
3.1

 
$
—

Liabilities
 
 
 
 
 
 
 
Currency derivatives
$
23.8

 
$
—

 
$
23.8

 
$
—

Interest rate derivatives
1.8

 
—

 
1.8

 
—

Total Liabilities
$
25.6

 
$
—

 
$
25.6

 
$
—

 
Fair Value Measurements at December 31, 2016, Using
(In millions)
Total
 
Quoted Prices in
Active Markets
for Identical
Assets or
Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets
 
 
 
 
 
 
 
Currency derivatives
$
8.8

 
$
—

 
$
8.8

 
$
—

Total Assets
$
8.8

 
$
—

 
$
8.8

 
$
—

Liabilities
 
 
 
 
 
 
 
Interest rate derivatives
$
6.0

 
$
—

 
$
6.0

 
$
—

Currency derivatives
0.9

 
—

 
0.9

 
—

Total Liabilities
$
6.9

 
$
—

 
$
6.9

 
$
—


F-23

Table of Contents


Notes to Consolidated Financial Statements (Continued)

6. Fair Value Measurements and Risk (Continued)

The following tables present the location and fair values of derivative instruments included in the Consolidated Balance Sheets as of December 31, 2017 and 2016 :
 
Asset Derivatives
 
Liability Derivatives
December 31, 2017
(In millions)
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
Derivatives designated as hedging instruments under ASC 815:
 
 
 
 
 
 
 
Currency contracts
Other current assets
 
$
2.7

 
Other current liabilities
 
$
1.4

Interest rate contracts
Other current assets
 
—

 
Other current liabilities
 
1.3

Currency contracts
Other assets
 
—

 
Other liabilities
 
22.2

Interest rate contracts
Other assets
 
—

 
Other liabilities
 
0.5

Derivatives not designated as hedging instruments under ASC 815:

 
 
 

 
 
Currency contracts
Other current assets
 
0.4

 
Other current liabilities
 
0.2

Total derivatives
 
 
$
3.1

 
 
 
$
25.6

 
Asset Derivatives
 
Liability Derivatives
December 31, 2016
(In millions)
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
Derivatives designated as hedging instruments under ASC 815:
 
 
 
 
 
 
 
Currency contracts
Other current assets
 
$
4.0

 
Other current liabilities
 
$
—

Interest rate contracts
Other current assets
 
—

 
Other current liabilities
 
2.8

Currency contracts
Other assets
 
4.0

 
Other liabilities
 
—

Interest rate contracts
Other assets
 
—

 
Other liabilities
 
3.2

Derivatives not designated as hedging instruments under ASC 815:
 
 
 
 
 
 
 
Currency contracts
Other current assets
 
0.8

 
Other current liabilities
 
0.9

Total derivatives
 
 
$
8.8

 
 
 
$
6.9

The following tables present the location and amount of gains and losses on derivative instruments included in the Consolidated Statements of Operations or, when applicable, gains and losses initially recognized in "other comprehensive income (loss)" ("OCI") for the years ended December 31, 2017 , 2016 , and 2015 :
Year Ended December 31, 2017
(In millions)
Amount of Gain (Loss) Recognized in OCI on Derivatives
 
Location of Gain (Loss) Reclassified from Accumulated OCI into Income
 
Amount of Gain (Loss) Reclassified from OCI into Income
Derivatives in ASC 815 cash flow hedging relationships:
 
 
 
 
 
Interest rate contracts
$
0.9

 
Interest expense
 
$
(2.7
)
Currency contracts(1)
(3.6
)
 
Other expense
 
(2.9
)
Total derivatives
$
(2.7
)
 
 
 
$
(5.6
)
___________________________________________________________________________________________________________________
(1)
Amount of gain (loss) recognized in OCI includes ($ 0.6 million ) excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in OCI.

F-24

Table of Contents


Notes to Consolidated Financial Statements (Continued)

6. Fair Value Measurements and Risk (Continued)

Year Ended December 31, 2016
(In millions)
Amount of Gain (Loss) Recognized in OCI on Derivatives
 
Location of Gain (Loss) Reclassified from Accumulated OCI into Income
 
Amount of Gain (Loss) Reclassified from OCI into Income
Derivatives in ASC 815 cash flow hedging relationships:
 
 
 
 
 
Interest rate contracts
$
(2.2
)
 
Interest expense
 
$
(4.1
)
Currency contracts
(0.1
)
 
Other expense
 
0.8

Total derivatives
$
(2.3
)
 
 
 
$
(3.3
)
Year Ended December 31, 2015
(In millions)
Amount of Gain (Loss) Recognized in OCI on Derivatives
 
Location of Gain (Loss) Reclassified from Accumulated OCI into Income
 
Amount of Gain (Loss) Reclassified from OCI into Income
Derivatives in ASC 815 cash flow hedging relationships:
 
 
 
 
 
Interest rate contracts
$
(5.6
)
 
Interest expense
 
$
(3.8
)
Currency contracts
1.4

 
Other expense
 
0.7

Total derivatives
$
(4.2
)
 
 
 
$
(3.1
)
The following table presents the total amounts of income and expense line items presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are reported.
 
Year Ended December 31,
 
2017
 
2016
 
2015
(In millions)
Interest expense
 
Other income (expense)
 
Interest expense
 
Other income (expense)
 
Interest expense
 
Other income (expense)
Total amounts of income and expense line items in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded
$
79.5

 
$
(8.4
)
 
$
81.5

 
$
13.3

 
$
99.4

 
$
(13.8
)
Gain (loss) on cash flow hedging relationships in ASC 815
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
Amount of gain or (loss) reclassified from accumulated OCI into income
$
(2.7
)
 
$
—

 
$
(4.1
)
 
$
—

 
$
(3.8
)
 
$
—

Currency contracts
 
 
 
 
 
 
 
 
 
 
 
Amount of gain or (loss) reclassified from accumulated OCI into income
—

 
(2.9
)
 
—

 
0.8

 
—

 
0.7

Amount excluded from effectiveness testing recognized in earnings based on amortization approach (included in above)
—

 
0.6

 
—

 
—

 
—

 
—

Net Investment Hedges      Grace uses cross-currency swaps as derivative hedging instruments in certain net investment hedges of its non-U.S. subsidiaries. The effective portion of gains and losses attributable to these net investment hedges is recorded net of tax to "currency translation adjustments" within "accumulated other comprehensive income (loss)" to offset the change in the carrying value of the net investment being hedged. Recognition in earnings of amounts previously recorded to "currency translation adjustments" is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. At December 31, 2017 , the notional amount of €170.0 million of Grace's cross-currency swaps was designated as a hedging instrument of its net investment in its European subsidiaries.
Grace also uses foreign currency denominated debt and deferred intercompany royalties as non-derivative hedging instruments in certain net investment hedges. The effective portion of gains and losses attributable to these net investment hedges is recorded to "currency translation adjustments" within "accumulated other comprehensive income (loss)." Recognition in earnings of amounts previously recorded to "currency translation adjustments" is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. At December 31, 2017 , €80.1 million of Grace's term loan principal

F-25

Table of Contents


Notes to Consolidated Financial Statements (Continued)

6. Fair Value Measurements and Risk (Continued)

was designated as a hedging instrument of its net investment in its European subsidiaries. At December 31, 2017 , €33.7 million of Grace's deferred intercompany royalties was designated as a hedging instrument of its net investment in European subsidiaries.
The following tables present the location and amount of gains and losses on derivative and non-derivative instruments designated as net investment hedges for the years ended December 31, 2017 , 2016 , and 2015 . There were no reclassifications of the effective portion of net investment hedges out of OCI and into earnings for the periods presented in the tables below.
Year Ended December 31, 2017
(In millions)
Amount of Gain (Loss) Recognized in OCI in Currency Translation Adjustments
Derivatives in ASC 815 net investment hedging relationships:
 
Cross-currency swap
$
(21.9
)
Non-derivatives in ASC 815 net investment hedging relationships:
 
Foreign currency denominated debt
$
(11.2
)
Foreign currency denominated deferred intercompany royalties
(6.5
)
 
$
(17.7
)
Year Ended December 31, 2016
(In millions)
Amount of Gain (Loss) Recognized in OCI in Currency Translation Adjustments
Derivatives in ASC 815 net investment hedging relationships:
 
Cross-currency swap
$
5.6

Non-derivatives in ASC 815 net investment hedging relationships:
 
Foreign currency denominated debt
$
4.6

Foreign currency denominated deferred intercompany royalties
2.5

 
$
7.1

Year Ended December 31, 2015
(In millions)
Amount of Gain (Loss) Recognized in OCI in Currency Translation Adjustments
Non-derivatives in ASC 815 net investment hedging relationships:
 
Foreign currency denominated debt
$
18.3

Credit Risk      Grace is exposed to credit risk in its trade accounts receivable. Customers in the petroleum refining industry represent the greatest exposure. Grace's credit evaluation policies mitigate credit risk exposures, and it has a history of minimal credit losses. Grace does not generally require collateral for its trade accounts receivable, but may require a bank letter of credit in certain instances, particularly when selling to customers in cash-restricted countries.
Grace may also be exposed to credit risk in its derivatives contracts. Grace monitors counterparty credit risk and currently does not anticipate nonperformance by counterparties to its derivatives. Grace's derivative contracts are with internationally recognized commercial financial institutions.

F-26

Table of Contents


Notes to Consolidated Financial Statements (Continued)

7. Income Taxes

Provision for Income Taxes     The components of income from continuing operations before income taxes and the related provision for income taxes for 2017 , 2016 , and 2015 are as follows:
(In millions)
2017
 
2016
 
2015
Income from continuing operations before income taxes:
 
 
 
 
 
Domestic
$
28.3

 
$
72.7

 
$
97.1

Foreign
182.6

 
93.3

 
96.6

Total
$
210.9

 
$
166.0

 
$
193.7

Benefit from (provision for) income taxes:
 
 
 
 
 
Federal—deferred
$
(144.6
)
 
$
(11.8
)
 
$
(35.4
)
State and local—current
0.2

 
(0.7
)
 
4.1

State and local—deferred
(1.7
)
 
(17.7
)
 
(6.4
)
Foreign—current
(50.8
)
 
(36.6
)
 
(23.5
)
Foreign—deferred
(3.6
)
 
7.8

 
(8.6
)
Total
$
(200.5
)
 
$
(59.0
)
 
$
(69.8
)
The difference between the benefit from (provision for) income taxes on continuing operations at the U.S. federal income tax rate of 35% and Grace's overall income tax provision is summarized as follows:
(In millions)
2017
 
2016
 
2015
Tax provision at U.S. federal income tax rate
$
(73.8
)
 
$
(58.1
)
 
$
(67.8
)
Change in benefit (provision) resulting from:
 
 
 
 
 
Provisional charge related to U.S. tax reform
(143.0
)
 
—

 
—

Effect of tax rates in foreign jurisdictions
13.3

 
6.8

 
3.0

Research and development credit
5.1

 
—

 
—

Stock option exercises
2.8

 
6.7

 
—

Nontaxable income/non-deductible expenses
(2.6
)
 
(2.5
)
 
(0.9
)
State and local income taxes, net
(1.8
)
 
(4.7
)
 
(2.9
)
U.S. tax on foreign earnings
(1.2
)
 
(0.9
)
 
(1.7
)
Decrease (increase) in valuation allowance
(0.3
)
 
(2.5
)
 
1.6

Other
1.0

 
(3.8
)
 
(1.1
)
Benefit from (provision for) income taxes
$
(200.5
)
 
$
(59.0
)
 
$
(69.8
)
Grace has estimated its provision for income taxes in accordance with the Tax Cuts and Jobs Act of 2017 (the "Act") and guidance available as of the date of this filing and as a result has recorded a provisional income tax expense of $143.0 million in the 2017 fourth quarter, the period in which the legislation was enacted. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future, was $120.1 million . The provisional amounts related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings and the state and foreign taxes on the unremitted earnings were $37.4 million and $4.9 million , respectively. Grace is no longer indefinitely reinvested with respect to its historical unremitted earnings of its foreign subsidiaries. Additionally, Grace provisionally released valuation allowances on a portion of its state net operating losses and federal tax credits of $2.0 million and $17.4 million , respectively.
The Act significantly changes how the U.S. taxes corporations. The Act requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the Act and significant estimates in calculations, and the preparation and analysis of information

F-27

Table of Contents


Notes to Consolidated Financial Statements (Continued)

7. Income Taxes (Continued)

not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the Act will be applied or otherwise administered that is different from Grace's interpretation as of the date of this filing. As Grace completes its analysis of the Act, collects and prepares necessary data including finalizing total post-1986 earnings and profits of its foreign subsidiaries, and interprets any additional guidance, Grace may make adjustments to the provisional amounts that have been recorded that may materially impact its provision for income taxes in the period in which the adjustments are made. Grace expects to complete its analysis of the provisional items during the second half of 2018.
Deferred Tax Assets and Liabilities     As of December 31, 2017 and 2016 , the tax attributes giving rise to deferred tax assets and liabilities consisted of the following items.
 
December 31,
(In millions)
2017
 
2016
Deferred tax assets:
 
 
 
Federal tax credit carryforwards
$
269.6

 
$
183.2

Pension liabilities
104.8

 
120.1

U.S. net operating loss carryforwards
89.5

 
293.6

State net operating loss carryforwards
58.2

 
50.9

Research and development
22.8

 
35.4

Prepaid royalties
21.4

 
20.8

Liability for environmental remediation
16.4

 
24.6

Reserves and allowances
15.2

 
31.1

Foreign net operating loss carryforwards
6.6

 
5.9

Liability for asbestos-related litigation
—

 
11.1

Other
14.5

 
29.0

Total deferred tax assets
$
619.0

 
$
805.7

Deferred tax liabilities:
 
 
 
Properties and equipment
$
(32.0
)
 
$
(38.5
)
Intangible assets
(15.1
)
 
(18.4
)
Pension assets
—

 
(6.1
)
Other
(11.3
)
 
(4.7
)
Total deferred tax liabilities
$
(58.4
)
 
$
(67.7
)
Valuation allowance:
 
 
 
Federal tax credit carryforwards
$
(0.3
)
 
$
(17.7
)
State net operating loss carryforwards
(9.2
)
 
(11.2
)
Foreign net operating loss carryforwards
(2.8
)
 
(2.5
)
Total valuation allowance
(12.3
)
 
(31.4
)
Net deferred tax assets
$
548.3

 
$
706.6

Grace's deferred tax assets decreased by $158.3 million from December 31, 2016 , to December 31, 2017 , largely as a result of the Act.
Grace reduces the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. See Note 1. The valuation allowance decreased by $19.1 million from December 31, 2016 , to December 31, 2017 , due to a decrease of $19.4 million related to the impact of the Act offset by an increase of $0.3 million for foreign deferred tax assets.

F-28

Table of Contents


Notes to Consolidated Financial Statements (Continued)

7. Income Taxes (Continued)

U.S. Federal and State Net Operating Losses and Credit Carryforwards     Grace has $269.6 million in federal tax credit carryforwards. In order to fully utilize the credits before they expire from 2021 to 2027 Grace will need to generate domestic and foreign source income of approximately $1.2 billion and approximately $200 million , respectively.
Grace has U.S. federal and state net operating losses. The deferred tax asset related to federal NOLs is $89.5 million . In order to fully utilize the NOLs before they expire in 2035, Grace will need to generate approximately $440 million in U.S. taxable income. The deferred tax asset, net of federal benefit, before valuation allowance related to state NOLs is $58.2 million . In order to fully utilize the state NOLs before they expire (from 2018 to 2035), Grace would need to generate approximately $1.5 billion in state taxable income.
Unrecognized Tax Benefits     The balance of unrecognized tax benefits at December 31, 2017 , was $17.7 million compared with $18.7 million at December 31, 2016 . A rollforward of the unrecognized tax benefits for the three years ended December 31, 2017 , follows.
(In millions)
Unrecognized
Tax Benefits
Balance, December 31, 2014
$
26.5

Additions for current year tax positions
0.1

Additions for prior year tax positions
0.8

Reductions for prior year tax positions and reclassifications
(1.6
)
Reductions for expirations of statute of limitations
(1.5
)
Settlements
(1.2
)
Balance, December 31, 2015
23.1

Additions for current year tax positions
6.8

Additions for prior year tax positions
0.2

Reductions for prior year tax positions and reclassifications
(0.2
)
Settlements
(3.3
)
Transferred to GCP upon Separation
(7.9
)
Balance, December 31, 2016
18.7

Additions for current year tax positions
0.8

Additions for prior year tax positions
0.7

Reductions for prior year tax positions and reclassifications
(2.5
)
Balance, December 31, 2017
$
17.7

The entire balance of unrecognized tax benefits as of December 31, 2017 , of $17.7 million , if recognized, would reduce the effective tax rate. The balance of unrecognized tax benefits as of December 31, 2017 , includes $17.7 million for tax positions with an indirect tax benefit that results in a corresponding deferred tax asset as of December 31, 2017 . Grace accrues potential interest and any associated penalties related to unrecognized tax benefits in "benefit from (provision for) income taxes" in the Consolidated Statements of Operations. There were no interest and penalties accrued on unrecognized tax benefits as of December 31, 2017 and 2016 .
Grace files U.S. federal income tax returns as well as income tax returns in various state and foreign jurisdictions. Grace's unrecognized tax benefits are related to income tax returns for tax years that remain subject to examination by the relevant taxing authorities. The following table summarizes these open tax years by major jurisdiction:

F-29

Table of Contents


Notes to Consolidated Financial Statements (Continued)

7. Income Taxes (Continued)

Tax Jurisdiction(1)
 
Examination in Progress
 
Examination Not Initiated
United States—Federal
 
2007, 2009
 
2010-2016
United States—States
 
2010-2014
 
2015-2016
Germany
 
2014-2016
 
None
Sweden
 
None
 
2013-2016
___________________________________________________________________________________________________________________
(1)
Includes federal, state, provincial or local jurisdictions, as applicable.
Grace notes that there are attributes generated in prior years that are otherwise closed by statute and were carried forward into years that are open to examination. Those attributes may still be subject to adjustment to the extent utilized in open years.
As a multinational taxpayer, Grace is under continual audit by various tax authorities. Grace believes that the amount of the liability for unrecognized tax benefits will be unchanged in the next 12 months.
8. Pension Plans and Other Postretirement Benefit Plans
Pension Plans     The following table presents the funded status of Grace's underfunded and unfunded pension plans:
 
December 31,
(In millions)
2017
 
2016
Underfunded defined benefit pension plans
$
(110.5
)
 
$
(83.1
)
Unfunded defined benefit pension plans
(391.9
)
 
(341.2
)
Total underfunded and unfunded defined benefit pension plans
(502.4
)
 
(424.3
)
Pension liabilities included in other current liabilities
(15.0
)
 
(14.4
)
Net funded status
$
(517.4
)
 
$
(438.7
)
Underfunded plans include a group of advance-funded plans that are underfunded on a projected benefit obligation ("PBO") basis. Unfunded plans include several plans that are funded on a pay-as-you-go basis, and therefore, the entire PBO is unfunded.
Grace maintains defined benefit pension plans covering current and former employees of certain business units and divested business units who meet age and service requirements. Benefits are generally based on final average salary and years of service. Grace funds its U.S. qualified pension plans ("U.S. qualified pension plans") in accordance with U.S. federal laws and regulations. Non-U.S. pension plans ("non-U.S. pension plans") are funded under a variety of methods, as required under local laws and customs. The U.S. salaried plan is closed to new entrants after January 1, 2017. U.S. salaried employees and certain U.S. hourly employees hired on or after January 1, 2017, and employees in Germany hired on or after January 1, 2016, will participate in defined contribution plans instead of defined benefit pension plans.
Grace also provides, through nonqualified plans, supplemental pension benefits in excess of U.S. qualified pension plan limits imposed by federal tax law. These plans cover officers and higher-level employees and serve to increase the combined pension amount to the level that they otherwise would have received under the U.S. qualified pension plans in the absence of such limits. The nonqualified plans are unfunded and Grace pays the costs of benefits as they are due to the participants.
At the December 31, 2017 , measurement date for Grace's defined benefit pension plans, the PBO was $1,648.7 million as measured under U.S. GAAP compared with $1,543.3 million as of December 31, 2016 . The PBO basis reflects the present value (using a 3.57% weighted average discount rate for U.S. plans and a 1.84% weighted average discount rate for non-U.S. plans as of December 31, 2017 ) of vested and non-vested benefits earned from employee service to date, based upon current services and estimated future pay increases for active employees.

F-30

Table of Contents


Notes to Consolidated Financial Statements (Continued)

8. Pension Plans and Other Postretirement Benefit Plans (Continued)

On an annual basis a full remeasurement of pension assets and pension liabilities is performed based on Grace's estimates and actuarial valuations. These valuations reflect the terms of the plan and use participant-specific information as well as certain key assumptions provided by management.
Defined Contribution Retirement Plan     Grace sponsors a defined contribution retirement plan for its employees in the United States. This plan is qualified under section 401(k) of the U.S. tax code. Currently, Grace contributes an amount equal to 100% of employee contributions, up to 6% of an individual employee's salary or wages. Grace's cost related to this benefit plan was $11.5 million , $11.1 million , and $10.4 million for the years ended December 31, 2017 , 2016 , and 2015 , respectively.
Analysis of Plan Accounting and Funded Status     The following table summarizes the changes in benefit obligations and fair values of retirement plan assets during 2017 and 2016 :
 
Defined Benefit Pension Plans

(In millions)
U.S.
 
Non-U.S.
 
Total
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Change in Projected Benefit Obligation (PBO):
 
 
 
 
 
 
 
 
 
 
 
Benefit obligation at beginning of year
$
1,274.2

 
$
1,238.8

 
$
269.1

 
$
238.8

 
$
1,543.3

 
$
1,477.6

Service cost
17.1

 
17.8

 
8.4

 
6.8

 
25.5

 
24.6

Interest cost
42.0

 
40.5

 
4.4

 
5.1

 
46.4

 
45.6

Amendments
—

 
(1.3
)
 
—

 
—

 
—

 
(1.3
)
Settlements/curtailments
—

 
—

 
—

 
(2.3
)
 
—

 
(2.3
)
Acquisitions
—

 
—

 
0.4

 
—

 
0.4

 
—

Actuarial (gain) loss
88.3

 
62.3

 
13.4

 
39.9

 
101.7

 
102.2

Benefits paid
(91.2
)
 
(83.9
)
 
(7.8
)
 
(7.5
)
 
(99.0
)
 
(91.4
)
Currency exchange translation adjustments
—

 
—

 
35.2

 
(11.7
)
 
35.2

 
(11.7
)
Other
(4.8
)
 
—

 
—

 
—

 
(4.8
)
 
—

Benefit obligation at end of year
$
1,325.6

 
$
1,274.2

 
$
323.1

 
$
269.1

 
$
1,648.7

 
$
1,543.3

Change in Plan Assets:
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
1,086.4

 
$
1,067.2

 
$
18.2

 
$
18.7

 
$
1,104.6

 
$
1,085.9

Actual return on plan assets
112.7

 
95.6

 
1.6

 
(0.5
)
 
114.3

 
95.1

Employer contributions
9.6

 
7.5

 
8.2

 
8.4

 
17.8

 
15.9

Settlements
—

 
—

 
—

 
(1.3
)
 
—

 
(1.3
)
Benefits paid
(91.2
)
 
(83.9
)
 
(7.8
)
 
(7.5
)
 
(99.0
)
 
(91.4
)
Currency exchange translation adjustments
—

 
—

 
1.3

 
0.4

 
1.3

 
0.4

Other
(7.7
)
 
—

 
—

 
—

 
(7.7
)
 
—

Fair value of plan assets at end of year
$
1,109.8

 
$
1,086.4

 
$
21.5

 
$
18.2

 
$
1,131.3

 
$
1,104.6

Funded status at end of year (PBO basis)
$
(215.8
)
 
$
(187.8
)
 
$
(301.6
)
 
$
(250.9
)
 
$
(517.4
)
 
$
(438.7
)
Amounts recognized in the Consolidated Balance Sheets consist of:
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
$
(7.0
)
 
$
(7.4
)
 
$
(8.0
)
 
$
(7.0
)
 
$
(15.0
)
 
$
(14.4
)
Noncurrent liabilities
(208.8
)
 
(180.4
)
 
(293.6
)
 
(243.9
)
 
(502.4
)
 
(424.3
)
Net amount recognized
$
(215.8
)
 
$
(187.8
)
 
$
(301.6
)
 
$
(250.9
)
 
$
(517.4
)
 
$
(438.7
)
Amounts recognized in Accumulated Other Comprehensive (Income) Loss consist of:
 
 
 
 
 
 
 
 
 
 
 
Prior service credit
$
(3.9
)
 
$
(4.3
)
 
$
(0.1
)
 
$
(0.1
)
 
$
(4.0
)
 
$
(4.4
)
Net amount recognized
$
(3.9
)
 
$
(4.3
)
 
$
(0.1
)
 
$
(0.1
)
 
$
(4.0
)
 
$
(4.4
)

F-31

Table of Contents


Notes to Consolidated Financial Statements (Continued)

8. Pension Plans and Other Postretirement Benefit Plans (Continued)

 
Defined Benefit Pension Plans

(In millions)
U.S.
 
Non-U.S.
2017
 
2016
 
2017
 
2016
Weighted Average Assumptions Used to Determine Benefit Obligations as of December 31:
 
 
 
 
 
 
 
Discount rate
3.57
%
 
4.06
%
 
1.84
%
 
1.91
%
Rate of compensation increase
4.10
%
 
4.10
%
 
2.64
%
 
3.09
%
Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31:
 
 
 
 
 
 
 
Discount rate for determining service cost
4.41
%
 
4.68
%
 
2.09
%
 
2.90
%
Discount rate for determining interest cost
3.42
%
 
3.38
%
 
1.69
%
 
2.26
%
Expected return on plan assets
5.50
%
 
5.50
%
 
4.69
%
 
5.08
%
Rate of compensation increase
4.10
%
 
4.10
%
 
3.09
%
 
3.09
%
The following table presents the components of net periodic benefit cost (income) and other amounts recognized in "other comprehensive (income) loss."
 
2017
 
2016
 
2015
U.S.
 
Non-U.S.
 
U.S.
 
Non-U.S.
 
U.S.
 
Non-U.S.
Net Periodic Benefit Cost (Income)
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
17.1

 
$
8.4

 
$
17.8

 
$
6.8

 
$
25.7

 
$
11.7

Interest cost
42.0

 
4.4

 
40.5

 
5.1

 
55.1

 
16.1

Expected return on plan assets
(57.5
)
 
(0.9
)
 
(56.7
)
 
(1.0
)
 
(70.4
)
 
(13.0
)
Amortization of prior service cost (credit)
(0.4
)
 
—

 
(0.2
)
 
—

 
0.3

 
—

Annual mark-to-market adjustment
36.0

 
13.2

 
23.3

 
40.1

 
42.0

 
(0.1
)
Net curtailment and settlement gain
—

 
—

 
—

 
(1.0
)
 
—

 
—

Net periodic benefit cost (income)
37.2

 
25.1

 
24.7

 
50.0

 
52.7

 
14.7

Less: discontinued operations
—

 
—

 
—

 
—

 
(4.0
)
 
(16.8
)
Net periodic benefit cost (income) from continuing operations
$
37.2

 
$
25.1

 
$
24.7

 
$
50.0

 
$
48.7

 
$
(2.1
)
Other Changes in Plan Assets and Benefit Obligations Recognized in OCI
 
 
 
 
 
 
 
 
 
 
 
Net prior service credit
$
—

 
$
—

 
$
(1.3
)
 
$
—

 
$
(3.6
)
 
$
—

Amortization of prior service cost (credit)
0.4

 
—

 
0.2

 
—

 
(0.3
)
 
—

Total recognized in OCI
0.4

 
—

 
(1.1
)
 
—

 
(3.9
)
 
—

Total recognized in net periodic benefit cost (income) and OCI
$
37.6

 
$
25.1

 
$
23.6

 
$
50.0

 
$
44.8

 
$
(2.1
)
The estimated prior service credit for the defined benefit pension plans that will be amortized from "accumulated other comprehensive (income) loss" into net periodic benefit cost (income) over the next fiscal year is $0.6 million . The estimated net deferred actuarial loss and prior service credit for the other postretirement plan that will be amortized from "accumulated other comprehensive (income) loss" into net periodic benefit cost (income) over the next fiscal year are $0.4 million and $1.0 million , respectively.

F-32

Table of Contents


Notes to Consolidated Financial Statements (Continued)

8. Pension Plans and Other Postretirement Benefit Plans (Continued)

Funded Status of U.S. Pension Plans
(In millions)
Underfunded U.S.
Qualified Pension Plans(1)
 
Unfunded Pay-As-You-Go
U.S. Nonqualified Plans(2)
2017

2016

2017

2016
Projected benefit obligation
$
1,217.1

 
$
1,167.9

 
$
108.5

 
$
106.3

Fair value of plan assets
1,109.8

 
1,086.4

 
—

 
—

Funded status (PBO basis)
$
(107.3
)
 
$
(81.5
)
 
$
(108.5
)
 
$
(106.3
)
Funded Status of Non-U.S. Pension Plans
(In millions)
Underfunded Non-U.S.
Pension Plans(1)
 
Unfunded Pay-As-You-Go
Non-U.S. Pension Plans(2)
2017
 
2016
 
2017
 
2016
Projected benefit obligation
$
24.7

 
$
19.8

 
$
298.4

 
$
249.3

Fair value of plan assets
21.5

 
18.2

 
—

 
—

Funded status (PBO basis)
$
(3.2
)
 
$
(1.6
)
 
$
(298.4
)
 
$
(249.3
)
___________________________________________________________________________________________________________________
(1)
Plans intended to be advance-funded.
(2)
Plans intended to be pay-as-you-go.
The accumulated benefit obligation for all defined benefit pension plans was approximately $1,570 million and $1,478 million as of December 31, 2017 and 2016 , respectively.
Pension Plans with Underfunded or
Unfunded Accumulated Benefit Obligation
(In millions)
U.S.
 
Non-U.S.
 
Total
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Projected benefit obligation
$
1,325.6

 
$
1,274.2

 
$
298.4

 
$
249.3

 
$
1,624.0

 
$
1,523.5

Accumulated benefit obligation
1,286.0

 
1,238.8

 
263.6

 
222.6

 
1,549.6

 
1,461.4

Fair value of plan assets
1,109.8

 
1,086.4

 
—

 
—

 
1,109.8

 
1,086.4

Estimated Expected Future Benefit Payments Reflecting Future Service for the Fiscal Years Ending
(In millions)
Pension Plans
 
Total
Payments
U.S.
 
Non-U.S.(1)
 
Benefit
Payments
 
Benefit
Payments
 
2018
$
82.9

 
$
8.9

 
$
91.8

2019
83.1

 
8.4

 
91.5

2020
83.3

 
8.6

 
91.9

2021
83.4

 
8.9

 
92.3

2022
83.7

 
9.1

 
92.8

2023 - 2027
413.2

 
49.0

 
462.2

___________________________________________________________________________________________________________________
(1)
Non-U.S. estimated benefit payments for 2018 and future periods have been translated at the applicable December 31, 2017 , exchange rates.
Discount Rate Assumption     The assumed discount rate for pension plans reflects the market rates for high-quality corporate bonds currently available and is subject to change based on changes in overall market interest rates. For the U.S. qualified pension plans, the assumed weighted average discount rate of 3.57% as of December 31, 2017 , was selected by Grace, in consultation with its independent actuaries, based on a yield curve constructed from a portfolio of high quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plan.
As of December 31, 2017 and 2016 , the German pension plans represented approximately 91% and 92% , respectively, of the benefit obligation of the non-U.S. pension plans. The assumed weighted average discount rate as of December 31, 2017 , for Germany ( 1.73% ) was selected by Grace, in consultation with its independent

F-33

Table of Contents


Notes to Consolidated Financial Statements (Continued)

8. Pension Plans and Other Postretirement Benefit Plans (Continued)

actuaries, based on a yield curve constructed from a portfolio of euro-denominated high quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plans. The assumed discount rates for the remaining non-U.S. pension plans were determined based on the nature of the liabilities, local economic environments and available bond indices.
As of December 31, 2015, Grace changed the approach used to determine the service and interest cost components of defined benefit pension expense. Previously, Grace estimated service and interest costs using a single weighted average discount rate derived from the same yield curve used to measure the projected benefit obligation. For 2016 and 2017, Grace elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. Grace believes the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change did not affect the measurement of the projected benefit obligation as of December 31, 2015. Grace considers this a change in accounting estimate, which is being accounted for prospectively as of January 1, 2016.
Investment Guidelines for Advance-Funded Pension Plans     The investment goal for the U.S. qualified pension plans subject to advance funding is to earn a long-term rate of return consistent with the related cash flow profile of the underlying benefit obligation. The plans are pursuing a well-defined risk management strategy designed to reduce investment risks as their funded status improves.
The U.S. qualified pension plans have adopted a diversified set of portfolio management strategies to optimize the risk reward profile of the plans:
•
Liability hedging portfolio: primarily invested in intermediate-term and long-term investment grade corporate bonds in actively managed strategies.
•
Growth portfolio: invested in a diversified set of assets designed to deliver performance in excess of the underlying liabilities with controls regarding the level of risk.
•
U.S. equity securities: the portfolio contains domestic equities that are passively managed to the S&P 500 and Russell 2000 benchmarks and an allocation to an active portfolio benchmarked to the Russell Mid-Cap and Russell 2000 indices.
•
Non-U.S. equity securities: the portfolio contains non-U.S. equities in an actively managed strategy benchmarked to the MSCI ACWI ex US index. Currency futures and forward contracts may be held for the sole purpose of hedging existing currency risk in the portfolio.
•
Other investments: may include (a) high yield bonds: fixed income portfolio of securities below investment grade including up to 30% of the portfolio in non-U.S. issuers; and (b) global real estate securities: portfolio of diversified REIT and other liquid real estate related securities. These portfolios combine income generation and capital appreciation opportunities from developed markets globally.
•
Liquidity portfolio: invested in short-term assets intended to pay periodic plan benefits and expenses.
For 2017 , the expected long-term rate of return on assets for the U.S. qualified pension plans was 5.50% . Average annual returns over one-, three-, five-, and ten-year periods were approximately 11% , 6% , 6% , and 5% , respectively.
The expected return on plan assets for the U.S. qualified pension plans for 2017 was selected by Grace, in consultation with its independent actuaries, using an expected return model. The model determines the weighted average return for an investment portfolio based on the target asset allocation and expected future returns for each asset class, which were developed using a building block approach based on observable inflation, available interest rate information, current market characteristics, and historical results.

F-34

Table of Contents


Notes to Consolidated Financial Statements (Continued)

8. Pension Plans and Other Postretirement Benefit Plans (Continued)

The target allocation of investment assets at December 31, 2017 , and the actual allocation at December 31, 2017 and 2016 , for Grace's U.S. qualified pension plans are as follows:
 
Target
Allocation
 
Percentage of Plan Assets
December 31,
U.S. Qualified Pension Plans Asset Category
2017
 
2017
 
2016
U.S. equity securities
10
%
 
11
%
 
8
%
Non-U.S. equity securities
5
%
 
5
%
 
6
%
Short-term debt securities
10
%
 
10
%
 
4
%
Intermediate-term debt securities
32
%
 
32
%
 
32
%
Long-term debt securities
41
%
 
40
%
 
48
%
Other investments
2
%
 
2
%
 
2
%
Total
100
%
 
100
%
 
100
%
The following tables present the fair value hierarchy for the U.S. qualified pension plan assets measured at fair value as of December 31, 2017 and 2016 .
 
Fair Value Measurements at December 31, 2017, Using

(In millions)
Total
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
U.S. equity group trust funds
$
118.8

 
$
—

 
$
118.8

 
$
—

Non-U.S. equity group trust funds
56.8

 
—

 
56.8

 
—

Corporate and government bond group trust funds—intermediate-term
353.6

 
—

 
353.6

 
—

Corporate and government bond group trust funds—long-term
443.4

 
—

 
443.4

 
—

Other fixed income group trust funds
25.3

 
—

 
25.3

 
—

Common/collective trust funds
92.9

 
—

 
92.9

 
—

Annuity and immediate participation contracts
19.0

 
—

 
19.0

 
—

Total Assets
$
1,109.8

 
$
—

 
$
1,109.8

 
$
—


F-35

Table of Contents


Notes to Consolidated Financial Statements (Continued)

8. Pension Plans and Other Postretirement Benefit Plans (Continued)

 
Fair Value Measurements at December 31, 2016, Using

(In millions)
Total
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
U.S. equity group trust funds
$
91.5

 
$
—

 
$
91.5

 
$
—

Non-U.S. equity group trust funds
62.6

 
—

 
62.6

 
—

Corporate bond group trust funds—intermediate-term
342.6

 
—

 
342.6

 
—

Corporate bond group trust funds—long-term
521.5

 
—

 
521.5

 
—

Other fixed income group trust funds
22.4

 
—

 
22.4

 
—

Common/collective trust funds
27.4

 
—

 
27.4

 
—

Annuity and immediate participation contracts
18.4

 
—

 
18.4

 
—

Total Assets
$
1,086.4

 
$
—

 
$
1,086.4

 
$
—

Non-U.S. pension plans accounted for approximately 2% of total global pension assets at December 31, 2017 and 2016 . Each of these plans, where applicable, follows local requirements and regulations. Some of the local requirements include the establishment of a local pension committee, a formal statement of investment policy and procedures, and routine valuations by plan actuaries.
The target allocation of investment assets for non-U.S. pension plans varies depending on the investment goals of the individual plans. The plan assets of the Canadian pension plan represent approximately 97% of the total non-U.S. pension plan assets at December 31, 2017 and 2016 . The expected long-term rate of return on assets for the Canadian pension plan was 4.75% for 2017 .
The target allocation of investment assets at December 31, 2017 , and the actual allocation at December 31, 2017 and 2016 , for the Canadian pension plan are as follows:
 
Target
Allocation
 
Percentage of Plan Assets
December 31,
Canadian Pension Plan Asset Category
2017
 
2017
 
2016
Equity securities
28
%
 
28
%
 
28
%
Bonds
58
%
 
58
%
 
57
%
Other investments
14
%
 
14
%
 
15
%
Total
100
%
 
100
%
 
100
%
The plan assets of the other country plans represent approximately 3% in the aggregate of total non-U.S. pension plan assets at December 31, 2017 and 2016 .

F-36

Table of Contents


Notes to Consolidated Financial Statements (Continued)

8. Pension Plans and Other Postretirement Benefit Plans (Continued)

The following table presents the fair value hierarchy for the non-U.S. pension plan assets measured at fair value as of December 31, 2017 and 2016 .
 
Fair Value Measurements at December 31, 2017, Using
(In millions)
Total
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Common/collective trust funds
$
20.7

 
$
—

 
$
20.7

 
$
—

Corporate bonds
0.4

 
—

 
0.4

 
—

Insurance contracts and other investments
0.4

 
—

 
0.4

 
—

Total Assets
$
21.5

 
$
—


$
21.5

 
$
—

 
Fair Value Measurements at December 31, 2016, Using
(In millions)
Total
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Common/collective trust funds
$
17.6

 
$
—

 
$
17.6

 
$
—

Corporate bonds
0.3

 
—

 
0.3

 
—

Insurance contracts and other investments
0.3

 
—

 
0.3

 
—

Total Assets
$
18.2

 
$
—

 
$
18.2

 
$
—

Plan Contributions and Funding     Grace intends to satisfy its funding obligations under the U.S. qualified pension plans and to comply with all of the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). For ERISA purposes, funded status is calculated on a different basis than under U.S. GAAP. Based on the U.S. qualified pension plans' status as of December 31, 2017 , there are no minimum required payments under ERISA for 2018 .
Grace intends to fund non-U.S. pension plans based on applicable legal requirements and actuarial and trustee recommendations. Grace expects to contribute approximately $9 million to its non-U.S. pension plans in 2018 .

F-37

Table of Contents


Notes to Consolidated Financial Statements (Continued)

9. Other Balance Sheet Accounts

 
December 31,
(In millions)
2017
 
2016
Other Current Liabilities
 
 
 
Accrued compensation
$
60.7

 
$
49.6

Environmental contingencies
23.5

 
32.5

Deferred revenue
19.5

 
27.2

Accrued interest
16.5

 
16.2

Pension liabilities
15.0

 
14.4

Income taxes payable
12.2

 
5.7

Other accrued liabilities
70.4

 
63.3

 
$
217.8

 
$
208.9

Accrued compensation includes salaries and wages as well as estimated current amounts due under the annual and long-term incentive programs.
 
December 31,
(In millions)
2017
 
2016
Other Liabilities
 
 
 
Environmental contingencies
$
46.8

 
$
33.8

Liability to unconsolidated affiliate
32.7

 
27.0

Fair value of currency and interest rate contracts
22.7

 
3.2

Deferred revenue
14.9

 
2.3

Asset retirement obligation
10.4

 
10.2

Deferred income taxes
8.2

 
2.8

Postemployment liability
5.2

 
7.2

Other noncurrent liabilities
28.4

 
40.2

 
$
169.3

 
$
126.7

10. Commitments and Contingent Liabilities
Over the years, Grace operated numerous types of businesses that are no longer part of its business portfolio. As Grace divested or otherwise ceased operating these businesses, it retained certain liabilities and obligations, which we refer to as legacy liabilities. The principal legacy liabilities are product and environmental liabilities. Although the outcome of each of the matters discussed below cannot be predicted with certainty, Grace has assessed its risk and has made accounting estimates as required under U.S. GAAP.
Legacy Product and Environmental Liabilities
Legacy Product Liabilities     Grace emerged from an asbestos-related Chapter 11 bankruptcy on February 3, 2014 (the "Effective Date"). Under its plan of reorganization, all pending and future asbestos-related claims are channeled for resolution to either a personal injury trust (the "PI Trust") or a property damage trust (the "PD Trust"). The trusts are the sole recourse for holders of asbestos-related claims. The channeling injunctions issued by the bankruptcy court prohibit holders of asbestos-related claims from asserting such claims directly against Grace.
Grace has satisfied all of its financial obligations to the PI Trust. Grace has contingent financial obligations remaining to the PD Trust. With respect to property damage claims related to Grace’s former Zonolite attic insulation product installed in the U.S. ("ZAI PD Claims"), the PD Trust was funded with $34.4 million on the Effective Date and $30.0 million on February 3, 2017. Grace is also obligated to make up to 10 contingent

F-38

Table of Contents


Notes to Consolidated Financial Statements (Continued)

10. Commitments and Contingent Liabilities (Continued)

deferred payments of $8 million per year to the PD Trust in respect of ZAI PD Claims during the 20 -year period beginning on the fifth anniversary of the Effective Date, with each such payment due only if the assets of the PD Trust in respect of ZAI PD Claims fall below $10 million during the preceding year. Grace has not accrued for the 10 additional payments as Grace does not currently believe they are probable. Grace is not obligated to make additional payments to the PD Trust in respect of ZAI PD Claims beyond the payments described above. Grace has satisfied all of its financial obligations with respect to Canadian ZAI PD Claims.
With respect to other asbestos property damage claims ("Other PD Claims"), claims unresolved as of the Effective Date are to be litigated in the bankruptcy court and any future claims are to be litigated in a federal district court, in each case pursuant to procedures approved by the bankruptcy court. To the extent any such Other PD Claims are determined to be allowed claims, they are to be paid in cash by the PD Trust. Grace is obligated to make a payment to the PD Trust every six months in the amount of any Other PD Claims allowed during the preceding six months plus interest (if applicable) and the amount of PD Trust expenses for the preceding six months (the "PD Obligation"). Grace has not paid any Other PD Claims since emergence. Annual expenses have been approximately $0.2 million per year. The aggregate amount to be paid under the PD Obligation is not capped, and Grace may be obligated to make additional payments to the PD Trust in respect of the PD Obligation. Grace has accrued for those unresolved Other PD Claims that it believes are probable and estimable. Grace has not accrued for other unresolved or unasserted Other PD Claims as it does not believe that payment is probable.
All payments to the PD Trust required after the Effective Date are secured by the Company's obligation to issue 77,372,257 shares of Company common stock to the PD Trust in the event of default, subject to customary anti-dilution provisions.
This summary of the commitments and contingencies related to the Chapter 11 proceeding does not purport to be complete and is qualified in its entirety by reference to the plan of reorganization and the exhibits and documents related thereto, which have been filed with the SEC.
Legacy Environmental Liabilities     Grace is subject to loss contingencies resulting from extensive and evolving federal, state, local and foreign environmental laws and regulations relating to its manufacturing operations. Grace has procedures in place to minimize such contingencies; nevertheless, it has liabilities associated with past operations and additional claims may arise in the future. To address its legacy liabilities, Grace accrues for anticipated costs of response efforts where an assessment has indicated that a probable liability has been incurred and the cost can be reasonably estimated. These accruals do not take into account any discounting for the time value of money.
Grace's environmental liabilities are reassessed regularly and adjusted when circumstances become better defined or response efforts and their costs can be better estimated, typically as a matter moves through the life-cycle of environmental investigation and remediation. These liabilities are evaluated based on currently available information, relating to the nature and extent of contamination, risk assessments, feasibility of response actions, and apportionment amongst other potentially responsible parties, all evaluated in light of prior experience.
At December 31, 2017 , Grace's estimated liability for legacy environmental response costs totaled $70.3 million compared with $66.3 million at December 31, 2016 , and was included in "other current liabilities" and "other liabilities" in the Consolidated Balance Sheets. These amounts are based on agreements in place or on Grace's estimate of costs where no formal remediation plan exists, yet there is sufficient information to estimate response costs.
Grace recorded pre-tax charges of $24.4 million , $29.2 million , and $6.4 million for legacy environmental matters in 2017 , 2016 , and 2015 , respectively, which is included in "provision for environmental remediation" in the Consolidated Statements of Operations.

F-39

Table of Contents


Notes to Consolidated Financial Statements (Continued)

10. Commitments and Contingent Liabilities (Continued)

Vermiculite-Related Matters
Grace purchased a vermiculite mine in Libby, Montana, in 1963 and operated it until 1990. Vermiculite concentrate from the Libby mine was used in the manufacture of attic insulation and other products. Some of the vermiculite ore contained naturally occurring asbestos.
Grace is engaged with the U.S. Environmental Protection Agency (the "EPA") and other federal, state and local governmental agencies in a remedial investigation and feasibility study ("RI/FS") of the Libby mine and the surrounding area. In its 2017 Annual Project Update for the Libby Asbestos Superfund Site, the EPA announced a narrowing of its focus from the former "OU3 Study Area" to a smaller Operable Unit 3 ("OU3"). Within this revised area, the RI/FS will determine the specific areas requiring remediation and will identify possible remedial action alternatives. Possible remedial actions within OU3 are wide-ranging, from institutional controls such as land use restrictions, to more active measures involving soil removal, containment projects, or other protective measures. Based on communications from regulatory agencies, Grace expects the RI/FS and a record of decision to be completed by the end of 2019. When meaningful new information becomes available, Grace will reevaluate estimated liability for the costs for remediation of the mine and surrounding area and adjust its reserves accordingly.
The EPA is also investigating or remediating formerly owned or operated sites that processed Libby vermiculite into finished products. Grace is cooperating with the EPA on these investigation and remediation activities and has recorded a liability to the extent that its review has indicated that a probable liability has been incurred and the cost is estimable. These liabilities cover the estimated cost of investigations and, to the extent an assessment has indicated that remediation is necessary, the estimated cost of response actions. Response actions typically involve soil excavation and removal, and replacement with clean fill. The EPA may commence additional investigations in the future at other sites that processed Libby vermiculite, but Grace does not believe, based on its knowledge of prior and current operations and site conditions, that liability for remediation at such other sites is probable.
Grace accrued $9.5 million , $24.8 million , and $6.0 million in 2017 , 2016 , and 2015 , respectively, for future costs related to vermiculite-related matters. More than half of the 2016 amount was for the completion of the RI/FS of the Libby mine and surrounding area, which is expected to be spent over the next two years. Grace's total estimated liability for response costs that are currently estimable for the Libby mine and surrounding area, and at vermiculite processing sites outside of Libby at December 31, 2017 and 2016 , was $25.8 million and $31.2 million , respectively. It is probable that Grace's ultimate liability for these vermiculite-related matters will exceed current estimates by material amounts.
Non-Vermiculite-Related Matters
During 2017, Grace accrued $14.9 million to increase non-vermiculite environmental reserves. This included a $5.9 million increase to an existing reserve based on refinement of a scope of work for remediation of materials related to a legacy business located at a current manufacturing site, as well as $7.2 million to increase the liability for remediation at a former manufacturing site to maintain ten years of operation and maintenance expenses. At December 31, 2017 and 2016 , Grace's estimated legacy environmental liability for response costs at sites not related to its former vermiculite mining and processing activities was $44.5 million and $35.1 million , respectively. This liability relates to Grace's former businesses or operations, including its share of liability at off-site disposal facilities. Grace's estimated liability is based upon regulatory requirements and environmental conditions at each site. As Grace receives new information, its estimated liability may change materially.
Commercial and Financial Commitments and Contingencies
Purchase Commitments     Grace uses purchase commitments to ensure supply and to minimize the volatility of major components of direct manufacturing costs including natural gas, certain metals, rare earths, and other materials. Such commitments are for quantities that Grace fully expects to use in its normal operations.

F-40

Table of Contents


Notes to Consolidated Financial Statements (Continued)

10. Commitments and Contingent Liabilities (Continued)

Guarantees and Indemnification Obligations     Grace is a party to many contracts containing guarantees and indemnification obligations. These contracts primarily consist of:
•
Product warranties with respect to certain products sold to customers in the ordinary course of business. These warranties typically provide that products will conform to specifications. Grace accrues a warranty liability on a transaction-specific basis depending on the individual facts and circumstances related to each sale.
•
Performance guarantees offered to customers under certain licensing arrangements. Grace has not established a liability for these arrangements based on past performance.
•
Licenses of intellectual property by Grace to third parties in which Grace has agreed to indemnify the licensee against third party infringement claims.
•
Contracts providing for the sale of a former business unit or product line in which Grace has agreed to indemnify the buyer against liabilities related to activities prior to the closing of the transaction, including environmental liabilities.
•
Contracts related to the Separation in which Grace has agreed to indemnify GCP against liabilities related to activities prior to the closing of the transaction, including tax, employee, and environmental liabilities.
•
Guarantees of real property lease obligations of third parties, typically arising out of (a) leases entered into by former subsidiaries of Grace, or (b) the assignment or sublease of a lease by Grace to a third party.
Financial Assurances     Financial assurances have been established for a variety of purposes, including insurance and environmental matters, trade-related commitments and other matters. At December 31, 2017 , Grace had gross financial assurances issued and outstanding of $124.6 million , composed of $39.5 million of surety bonds issued by various insurance companies and $85.1 million of standby letters of credit and other financial assurances issued by various banks. In November 2017, an additional $ 28.3 million in performance and warranty bonds were issued. These bonds were not released to the beneficiary until 2018 and are not included above.
11. Restructuring Expenses and Repositioning Expenses
Restructuring Expenses     In 2017 , 2016 , and 2015 , Grace incurred costs from restructuring actions, primarily related to workforce reductions as a result of changes in the business environment and its business structure, which are included in "restructuring and repositioning expenses" in the Consolidated Statements of Operations. Restructuring costs in 2017 primarily related to workforce reduction programs in Manufacturing, Supply Chain, Finance and IT. Costs in 2016 primarily related to the exit of certain non-strategic product lines in the Materials Technologies reportable segment in the 2016 first half. Costs in 2015 were in part due to the Separation.
The following table presents restructuring expenses by reportable segment for the years ended December 31, 2017 , 2016 , and 2015 .
 
Year Ended December 31,
(In millions)
2017
 
2016
 
2015
Catalysts Technologies
$
3.7

 
$
3.4

 
$
4.8

Materials Technologies
(0.1
)
 
15.1

 
0.8

Corporate
7.9

 
5.8

 
5.7

Total restructuring expenses
$
11.5

 
$
24.3

 
$
11.3


F-41

Table of Contents


Notes to Consolidated Financial Statements (Continued)

11. Restructuring Expenses and Repositioning Expenses (Continued)

These costs are not included in segment operating income. Substantially all costs related to the restructuring programs are expected to be paid by December 31, 2018.
The following table presents components of the change in restructuring liability for the years ended December 31, 2017 , 2016 , and 2015 :
(In millions)
Total
Balance, December 31, 2014
$
2.1

Accruals for severance and other costs
11.3

Payments
(5.6
)
Currency translation adjustments and other
(0.2
)
Balance, December 31, 2015
$
7.6

Accruals for severance and other costs
17.8

Payments
(16.0
)
Currency translation adjustments and other
0.2

Balance, December 31, 2016
$
9.6

Accruals for severance and other costs
11.4

Payments
(14.4
)
Currency translation adjustments and other
0.1

Balance, December 31, 2017
$
6.7

Repositioning Expenses     Repositioning expenses primarily include third party costs related to transformative productivity programs and costs incurred to complete the Separation. Pretax repositioning expenses included in continuing operations for the years ended December 31, 2017 , 2016 , and 2015 were $15.2 million , $14.3 million , and $9.1 million respectively. Expenses incurred in 2017 primarily related to third-party costs associated with productivity and transformation initiatives, as well as costs related to the Separation. Expenses incurred in 2016 and 2015 primarily related to the Separation. Substantially all of these costs have been or are expected to be settled in cash.
In 2017, Grace initiated a multi-year program to transform its manufacturing and business processes to extend its competitive advantages and improve its cost position. Grace expects to significantly improve its manufacturing performance, reduce its manufacturing costs, and improve its demand and supply planning capabilities. Grace also expects to invest significant capital in its manufacturing plants to accelerate growth and improve performance.

F-42

Table of Contents


Notes to Consolidated Financial Statements (Continued)

12. Other (Income) Expense, net


Components of other (income) expense, net are as follows:
 
Year Ended December 31,
(In millions)
2017
 
2016
 
2015
Business interruption insurance recoveries
$
(26.6
)
 
$
—

 
$
—

Accounts receivable reserve—Venezuela
10.0

 
—

 
—

Currency transaction effects
5.0

 
(1.0
)
 
(1.5
)
Third-party acquisition-related costs
2.9

 
2.5

 
—

Net (gain) loss on sales of investments and disposals of assets
1.6

 
(1.4
)
 
(10.6
)
Chapter 11 expenses, net
1.4

 
3.4

 
5.1

Loss on early extinguishment of debt
—

 
11.1

 
—

Other miscellaneous expense (income)
(2.7
)
 
(1.3
)
 
(6.8
)
Total other (income) expense, net
$
(8.4
)
 
$
13.3

 
$
(13.8
)
In January 2017, a Catalysts Technologies customer experienced an explosion and fire resulting in an extended outage. Grace received $25.0 million in payments from its third-party insurer in 2017, under its business interruption insurance policy for a portion of profits lost as a result of the outage. The policy had a $25 million limit for this event.
During the 2017 third quarter, Grace recorded a $10.0 million charge to fully reserve for a trade receivable from a Venezuela-based customer related to increased economic uncertainty and the recent political unrest and sanctions.
See Note 5 for more information related to Grace's 2016 early extinguishment of debt.
13. Other Comprehensive Income (Loss)
The following tables present the pre-tax, tax, and after-tax components of Grace's other comprehensive income (loss) for the years ended December 31, 2017 , 2016 , and 2015 :
Year Ended December 31, 2017
(In millions)
Pre-Tax Amount
 
Tax Benefit/ (Expense)
 
After-Tax Amount
Defined benefit pension and other postretirement plans:
 
 
 
 
 
Amortization of net prior service credit included in net periodic benefit cost
$
(2.3
)
 
$
0.8

 
$
(1.5
)
Amortization of net deferred actuarial loss included in net periodic benefit cost
0.4

 
(0.1
)
 
0.3

Net deferred actuarial gain (loss) arising during period
(0.1
)
 
—

 
(0.1
)
Benefit plans, net
(2.0
)
 
0.7

 
(1.3
)
Currency translation adjustments(1)
(23.1
)
 
(2.9
)
 
(26.0
)
Gain (loss) from hedging activities
2.9

 
(2.1
)
 
0.8

Other comprehensive income (loss) attributable to W. R. Grace & Co. shareholders
$
(22.2
)
 
$
(4.3
)
 
$
(26.5
)
___________________________________________________________________________________________________________________
(1)
In the 2017 third quarter, Grace recorded an out-of-period adjustment to recognize the accumulated deferred tax liability for its euro loan net investment hedge (see Note 6). The correction resulted in a reduction in deferred tax assets and a charge to "other comprehensive income (loss)" of $16.9 million . Grace has assessed the impact of this error and concluded that it was not material to any prior-period and the impact of correcting the error in 2017 is not material.

F-43

Table of Contents


Notes to Consolidated Financial Statements (Continued)

13. Other Comprehensive Income (Loss) (Continued)

Year Ended December 31, 2016
(In millions)
Pre-Tax Amount
 
Tax Benefit/ (Expense)
 
After-Tax Amount
Defined benefit pension and other postretirement plans:
 
 
 
 
 
Amortization of net prior service credit included in net periodic benefit cost
$
(2.4
)
 
$
0.9

 
$
(1.5
)
Amortization of net deferred actuarial loss included in net periodic benefit cost
0.5

 
(0.2
)
 
0.3

Net prior service credit arising during period
1.4

 
(0.5
)
 
0.9

Loss on curtailment of postretirement plans
(0.5
)
 
0.2

 
(0.3
)
Benefit plans, net
(1.0
)
 
0.4

 
(0.6
)
Currency translation adjustments
(1.8
)
 
—

 
(1.8
)
Gain (loss) from hedging activities
0.6

 
(0.3
)
 
0.3

Other comprehensive income (loss) attributable to W. R. Grace & Co. shareholders
$
(2.2
)
 
$
0.1

 
$
(2.1
)
Year Ended December 31, 2015
(In millions)
Pre-Tax Amount
 
Tax Benefit/ (Expense)
 
After-Tax Amount
Defined benefit pension and other postretirement plans:
 
 
 
 
 
Amortization of net prior service credit included in net periodic benefit cost
$
(3.1
)
 
$
1.0

 
$
(2.1
)
Amortization of net deferred actuarial loss included in net periodic benefit cost
0.7

 
(0.2
)
 
0.5

Net prior service credit arising during period
5.7

 
(1.9
)
 
3.8

Net deferred actuarial gain (loss) arising during period
(0.4
)
 
0.1

 
(0.3
)
Loss on curtailment of postretirement plans
(4.5
)
 
1.6

 
(2.9
)
Benefit plans, net
(1.6
)
 
0.6

 
(1.0
)
Currency translation adjustments
(43.3
)
 
—

 
(43.3
)
Gain (loss) from hedging activities
2.1

 
(0.8
)
 
1.3

Other comprehensive income (loss) attributable to W. R. Grace & Co. shareholders
$
(42.8
)
 
$
(0.2
)
 
$
(43.0
)

F-44

Table of Contents


Notes to Consolidated Financial Statements (Continued)

13. Other Comprehensive Income (Loss) (Continued)

The following table presents the changes in accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 2017 , 2016 , and 2015 :
 
Defined Benefit Pension and Other Postretirement Plans
 
Currency Translation Adjustments
 
Gain (Loss) from Hedging Activities
 
Total
Balance, December 31, 2014
$
4.0

 
$
(22.8
)
 
$
(5.0
)
 
$
(23.8
)
Other comprehensive income (loss) before reclassifications
3.5

 
(43.3
)
 
0.6

 
(39.2
)
Amounts reclassified from accumulated other comprehensive income (loss)
(4.5
)
 
—

 
0.7

 
(3.8
)
Net current-period other comprehensive income (loss)
(1.0
)
 
(43.3
)
 
1.3

 
(43.0
)
Balance, December 31, 2015
$
3.0

 
$
(66.1
)
 
$
(3.7
)
 
$
(66.8
)
Other comprehensive income (loss) before reclassifications
0.9

 
(1.8
)
 
(1.8
)
 
(2.7
)
Amounts reclassified from accumulated other comprehensive income (loss)
(1.5
)
 
—

 
2.1

 
0.6

Net current-period other comprehensive income (loss)
(0.6
)
 
(1.8
)
 
0.3

 
(2.1
)
Distribution of GCP
(0.2
)
 
135.5

 
—

 
135.3

Balance, December 31, 2016
$
2.2

 
$
67.6

 
$
(3.4
)
 
$
66.4

Other comprehensive income (loss) before reclassifications
(0.1
)
 
(26.0
)
 
(2.7
)
 
(28.8
)
Amounts reclassified from accumulated other comprehensive income (loss)
(1.2
)
 
—

 
3.5

 
2.3

Net current-period other comprehensive income (loss)
(1.3
)
 
(26.0
)
 
0.8

 
(26.5
)
Balance, December 31, 2017
$
0.9

 
$
41.6

 
$
(2.6
)
 
$
39.9

Grace is a global enterprise operating in many countries with local currency generally deemed to be the functional currency for accounting purposes. The currency translation amount represents the adjustments necessary to translate the balance sheets valued in local currencies to the U.S. dollar as of the end of each period presented, and to translate revenues and expenses at average exchange rates for each period presented.
See Note 6 for a discussion of hedging activities. See Note 8 for a discussion of pension plans and other postretirement benefit plans.
14. Shareholders' Equity
Under its Amended and Restated Certificate of Incorporation, the Company is authorized to issue 300,000,000 shares of common stock, $0.01 par value per share. As of December 31, 2017 , the W. R. Grace & Co. 2014 Stock Incentive Plan (together with the 2011 Stock Incentive Plan and the Amended and Restated 2011 Stock Incentive Plan, collectively, the "Stock Incentive Plans") had 2,219,234 shares of unissued stock reserved for issuance in the event of the exercise of stock options or settlement of stock-based awards. Shares issuable upon the exercise of stock options or the settlement of stock based awards are covered by reissuing treasury stock, to the extent available; otherwise they are covered through newly issued shares. For the years ended December 31, 2017 , 2016 , and 2015 , 386,300 , 745,938 , and 728,408 stock options were exercised for aggregate proceeds of $16.4 million , $17.0 million , and $26.9 million , respectively. Additionally in 2017 , 10,507 common shares were issued to members of the Board of Directors, in payment of their annual retainer; 8,215 shares were issued through net share settlement; 24,432 shares were issued to settle the 2014 Restricted Stock Units (RSUs); and 6,743 shares were issued to settle tranche 1 of the 2016 RSUs.

F-45

Table of Contents


Notes to Consolidated Financial Statements (Continued)

14. Shareholders' Equity (Continued)


The following table sets forth information relating to common stock activity for the years ended December 31, 2017 , 2016 , and 2015 :
Balance of outstanding shares, December 31, 2014
72,922,565

Stock options exercised
728,408

Shares issued
9,378

Shares forfeited
(3,120
)
Shares repurchased
(3,123,716
)
Balance of outstanding shares, December 31, 2015
70,533,515

Stock options exercised
745,938

Shares issued
110,953

Shares forfeited
(305,678
)
Shares repurchased
(2,775,297
)
Balance of outstanding shares, December 31, 2016
68,309,431

Stock options exercised
386,300

Shares issued
49,897

Shares forfeited through net share exercise
(29,783
)
Shares repurchased
(935,435
)
Balance of outstanding shares, December 31, 2017
67,780,410

15. Stock Incentive Plans
The Company has granted nonstatutory stock options to certain key employees under the Stock Incentive Plans. The Stock Incentive Plans are administered by the Compensation Committee of the Board of Directors. Stock options are generally non-qualified and are at exercise prices not less than 100% of the average per share fair market value on the date of grant. Stock-based compensation awards granted under the Company's stock incentive plans are generally subject to a vesting period from the date of the grant ranging from 1 - 3 years. Currently outstanding options expire on various dates through August 2022.
Previously outstanding stock-based compensation awards granted under equity compensation programs prior to the Separation and held by certain executives and employees were adjusted in 2016 to reflect the impact of the Separation on these awards. To preserve the aggregate intrinsic value of awards held prior to the Separation, as measured immediately before and immediately after the Separation, each holder of stock-based compensation awards generally received an adjusted award consisting of either (i) both a stock-based compensation award denominated in Company equity as it existed subsequent to the Separation and a stock-based compensation award denominated in GCP equity or (ii) solely a stock-based compensation award denominated in Company equity. In the Separation, the determination as to which type of adjustment applied to a holder’s previously outstanding award was based upon the date on which the award was originally granted under the equity compensation programs prior to the Separation. The adjustment of the original awards resulted in $0.6 million of incremental compensation cost in 2016.

F-46

Table of Contents


Notes to Consolidated Financial Statements (Continued)

15. Stock Incentive Plans (Continued)

The following table sets forth information relating to such options during 2017 , 2016 , and 2015 .
Stock Option Activity
Number Of
Shares
 
Average
Exercise
Price
 
Weighted-
Average
Grant Date
Fair Value
Balance, December 31, 2014
2,523,790

 
$
55.77

 
 
Options exercised
(728,408
)
 
36.85

 
 
Options forfeited
(25,000
)
 
92.57

 
 
Options terminated
(500
)
 
100.29

 


Options granted
550,805

 
77.31

 
$
19.28

Balance, December 31, 2015
2,320,687

 
71.01

 
 
Options exercised
(745,938
)
 
36.97

 
 
Options forfeited
(9,458
)
 
73.40

 
 
Options terminated
(2,426
)
 
67.06

 
 
Options granted
377,920

 
68.32

 
12.90

Balance, December 31, 2016
1,940,785

 
66.83

 
 
Options exercised
(386,300
)
 
45.21

 
 
Options forfeited
(34,545
)
 
72.97

 
 
Options terminated
(23,320
)
 
75.60

 
 
Options granted
316,830

 
71.37

 
13.00

Balance, December 31, 2017
1,813,450

 


 
 
The following is a summary of nonvested option activity for the year ended December 31, 2017 .
Stock Option Activity
Number Of
Shares
 
Weighted-
Average
Grant Date
Fair Value
Nonvested options outstanding at beginning of year
878,031

 
$
17.76

Granted
316,830

 
13.00

Vested
(417,969
)
 
18.78

Forfeited
(57,865
)
 
18.09

Nonvested options outstanding at end of year
719,027

 


As of December 31, 2017 , the intrinsic value (the difference between the exercise price and the market price) for options outstanding was $2.8 million and for options exercisable was $2.3 million . The total intrinsic value of all options exercised during the years ended December 31, 2017 , 2016 and 2015 was $10.3 million , $25.9 million and $46.1 million , respectively. A summary of our stock options outstanding and exercisable at December 31, 2017 , follows:
Exercise Price Range
Number
Outstanding
 
Number
Exercisable
 
Outstanding Weighted-
Average
Remaining
Contractual
Life (Years)
 
Exercisable
Weighted-
Average
Exercise
Price
$60 - $70
586,054

 
350,469

 
2.02
 
63.90

$70 - $80
1,200,806

 
724,000

 
2.48
 
75.97

$80 - $90
26,590

 
19,954

 
1.16
 
80.76

 
1,813,450

 
1,094,423

 
 
 
 

F-47

Table of Contents


Notes to Consolidated Financial Statements (Continued)

15. Stock Incentive Plans (Continued)

At December 31, 2017 , the weighted-average remaining contractual term of all options outstanding and exercisable was 2.31  years.
Options Granted      The Company granted approximately 0.3 million , 0.4 million , and 0.6 million nonstatutory stock options in 2017 , 2016 , and 2015 , respectively, under the Stock Incentive Plans.
For the years ended December 31, 2017 , 2016 and 2015 , the Company recognized non-cash stock-based compensation expense of $4.3 million , $6.0 million and $9.9 million , respectively, which is included in "selling, general and administrative expenses" in the Consolidated Statements of Operations. The actual tax benefit realized from stock options exercised totaled $7.4 million , $11.2 million , and $3.3 million for the year ended December 31, 2017 , 2016 and 2015 , respectively.
The Company values options using the Black-Scholes option-pricing model, which was developed for use in estimating the fair value of traded options. The risk-free rate is based on the U.S. Treasury yield curve published as of the grant date, with maturities approximating the expected term of the options. The expected term of the options is estimated using the simplified method as allowed by ASC 718-20, whereby the average between the vesting period and contractual term is used. The expected volatility was estimated using both actual stock volatility and the volatility of an industry peer group. The Company believes its actual stock volatility was not representative of future volatility during the time it was in Chapter 11. The following summarizes the assumptions used for estimating the fair value of stock options granted during 2017 , 2016 and 2015 , respectively.
 
2017
 
2016
 
2015
Expected volatility
24.7% - 25.1%
 
26.2% - 27.5%
 
23.0% - 27.2%
Weighted average expected volatility
24.9%
 
26.6%
 
24.5%
Expected term
3.00 - 4.00 years
 
3.00 - 4.00 years
 
3.00 - 4.00 years
Risk-free rate
1.66%
 
1.01%
 
1.30%
Dividend yield
1.2%
 
1.0%
 
—%
Total unrecognized stock-based compensation expense at December 31, 2017 , was $2.9 million and the weighted-average period over which this expense will be recognized is 0.9 year.
Restricted Stock and Performance Based Units     During 2017 the Company granted 57,600 RSUs and 115,158 Performance Based Units (PBUs) under the Company's Long-term Incentive Plan (LTIP). During 2016 the Company granted 77,358 RSUs and 124,952 PBUs under the LTIP. During 2015 the Company granted 123,846 RSUs and 1,864 PBUs under the LTIP. During 2017 , 2016 , and 2015 , awards covering 16,395 , 15,197 , and 10,641 shares were forfeited, respectively. The PBUs cliff vest after the completion of the performance periods ending December 31, 2019 and 2018, and have a weighted average grant date fair value of $71.37 and $68.50 , respectively. The RSUs granted in 2017 and 2016 vest in three equal annual installments and have a weighted average grant date fair value of $71.37 and $68.90 , respectively. The RSUs granted in 2015 cliff vest in May 2018 and have a weighted average grant date fair value of $67.95 . Vesting for all awards is subject to continued employment through the payment date (subject to certain exceptions for retirement, death or disability, change in control scenarios, and in the discretion of the Compensation Committee).
The Company anticipates that approximately 65% of the awards granted in 2017 will be settled in common stock and approximately 35% will be settled in cash, assuming full vesting. The Company anticipates that approximately 67% of the awards granted in 2016 will be settled in common stock and approximately 33% will be settled in cash, assuming full vesting. The Company anticipates that approximately 53% of the PBUs granted in 2015 will be settled in common stock and approximately 47% will be settled in cash, assuming full vesting.
PBUs and RSUs are recorded at fair value at the date of grant. The common stock settled portion is considered an equity award with the payout being valued based on the Company’s stock price on the grant date. The cash settled portion of the award is considered a liability award with payout being remeasured each reporting period based on the Company’s current stock price. PBU equity and cash awards are remeasured each reporting period based on the expected payout of the award, which may range from 0% to 200% of the targets for such

F-48

Table of Contents


Notes to Consolidated Financial Statements (Continued)

15. Stock Incentive Plans (Continued)

awards; therefore, these portions of the awards are subject to volatility until the payout is finally determined at the end of the performance period. During 2017 , 2016 , and 2015 , the Company recognized $10.3 million , $8.6 million , and $5.8 million in compensation expense for these awards. As of December 31, 2017 , $14.1 million of total unrecognized compensation expense related to the awards is expected to be recognized over the remaining weighted-average service period of 1.3 years .
16. Earnings Per Share
The following table shows a reconciliation of the numerators and denominators used in calculating basic and diluted earnings per share.
(In millions, except per share amounts)
2017
 
2016
 
2015
Numerators
 
 
 
 
 
Income (loss) from continuing operations attributable to W. R. Grace & Co. shareholders
$
11.2

 
$
107.0

 
$
124.0

Income (loss) from discontinued operations, net of income taxes
—

 
(12.9
)
 
20.2

Net income (loss) attributable to W. R. Grace & Co. shareholders
$
11.2

 
$
94.1

 
$
144.2

Denominators
 
 
 
 
 
Weighted average common shares—basic calculation
68.1

 
70.1

 
72.0

Dilutive effect of employee stock options
0.1

 
0.4

 
0.6

Weighted average common shares—diluted calculation
68.2

 
70.5

 
72.6

Basic earnings per share attributable to W. R. Grace & Co. shareholders
 
 
 
 
 
Income (loss) from continuing operations
$
0.16

 
$
1.53

 
$
1.72

Income (loss) from discontinued operations, net of income taxes
—

 
(0.19
)
 
0.28

Net income (loss)
$
0.16

 
$
1.34

 
$
2.00

Diluted earnings per share attributable to W. R. Grace & Co. shareholders
 
 
 
 
 
Income (loss) from continuing operations
$
0.16

 
$
1.52

 
$
1.71

Income (loss) from discontinued operations, net of income taxes
—

 
(0.19
)
 
0.28

Net income (loss)
$
0.16

 
$
1.33

 
$
1.99

There were approximately 1.5 million , 1.3 million and 0.4 million anti-dilutive options outstanding for the years ended December 31, 2017 , 2016 and 2015 , respectively.
On February 4, 2014, the Company announced that its Board of Directors authorized a share repurchase program of up to $500 million , which it completed on January 15, 2015. On February 5, 2015, the Company announced that its Board of Directors had authorized an additional share repurchase program of up to $500 million , which it completed on July 10, 2017. On February 8, 2017, the Company announced that its Board of Directors had authorized a new share repurchase program of up to $250 million , expected to be completed over 24 to 36 months at the discretion of management. The timing of the repurchases and the actual amount repurchased will depend on a variety of factors, including the market price of the Company's shares, the strategic deployment of capital, and general market and economic conditions. During 2017 , 2016 and 2015 , the Company repurchased 935,435 , 2,775,297 , and 3,123,716 shares of Company common stock for $65.0 million , $195.1 million and $301.5 million , respectively, pursuant to the terms of the share repurchase programs. As of December 31, 2017 , $218.9 million remained under the current authorization.
17. Segment Information
Grace is a global producer of specialty chemicals and specialty materials. Grace's two reportable business segments are Grace Catalysts Technologies and Grace Materials Technologies. Grace Catalysts Technologies includes catalysts and related products and technologies used in refining, petrochemical and other chemical

F-49

Table of Contents


Notes to Consolidated Financial Statements (Continued)

17. Segment Information (Continued)

manufacturing applications. Advanced Refining Technologies ("ART"), Grace's joint venture with Chevron Products Company, a division of Chevron U.S.A. Inc. ("Chevron"), is managed in this segment. (See Note 18 .) Grace Catalysts Technologies comprises two operating segments, Grace Refining Technologies and Grace Specialty Catalysts, which are aggregated into one reportable segment based upon similar economic characteristics, the nature of the products and production processes, type and class of customer, and channels of distribution. Grace Materials Technologies includes specialty materials, including silica-based and silica-alumina-based materials, used in coatings, consumer, industrial, and pharmaceutical applications. The table below presents information related to Grace's reportable segments. Only those corporate expenses directly related to the reportable segments are allocated for reporting purposes. All remaining corporate items are reported separately and labeled as such.
Grace excludes defined benefit pension expense from the calculation of segment operating income. Grace believes that the exclusion of defined benefit pension expense provides a better indicator of its reportable segment performance as defined benefit pension expense is not managed at a reportable segment level.
Grace defines Adjusted EBIT to be income from continuing operations attributable to W. R. Grace & Co. shareholders adjusted for interest income and expense; income taxes; costs related to legacy product, environmental and other claims; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; income and expense items related to divested businesses, product lines, and certain other investments; gains and losses on sales of businesses, product lines, and certain other investments; third-party acquisition-related costs and the amortization of acquired inventory fair value adjustment; and certain other items that are not representative of underlying trends.

F-50

Table of Contents


Notes to Consolidated Financial Statements (Continued)

17. Segment Information (Continued)

Reportable Segment Data
 
Year Ended December 31,
(In millions)
2017
 
2016
 
2015
Net Sales
 
 
 
 
 
Catalysts Technologies
$
1,276.5

 
$
1,163.7

 
$
1,162.1

Materials Technologies
440.0

 
434.9

 
466.1

Total
$
1,716.5

 
$
1,598.6

 
$
1,628.2

Adjusted EBIT
 
 
 
 
 
Catalysts Technologies segment operating income
$
395.4

 
$
367.8

 
$
347.3

Materials Technologies segment operating income
100.6

 
104.0

 
96.9

Corporate costs
(69.0
)
 
(59.4
)
 
(79.9
)
Gain on termination and curtailment of postretirement plans related to current businesses
—

 
0.2

 
1.9

Certain pension costs
(13.0
)
 
(12.3
)
 
(20.4
)
Total
$
414.0

 
$
400.3

 
$
345.8

Depreciation and Amortization
 
 
 
 
 
Catalysts Technologies
$
87.1

 
$
77.4

 
$
68.1

Materials Technologies
19.6

 
19.5

 
23.2

Corporate
4.8

 
3.4

 
7.9

Total
$
111.5

 
$
100.3

 
$
99.2

Capital Expenditures
 
 
 
 
 
Catalysts Technologies
$
100.9

 
$
84.9

 
$
66.3

Materials Technologies
20.9

 
24.0

 
24.6

Corporate
3.4

 
8.0

 
27.9

Total
$
125.2

 
$
116.9

 
$
118.8

Total Assets
 
 
 
 
 
Catalysts Technologies
$
1,757.1

 
$
1,675.1

 
$
1,390.8

Materials Technologies
326.8

 
313.1

 
333.4

Corporate
823.1

 
923.6

 
1,051.0

Assets of discontinued operations
—


—

 
870.5

Total
$
2,907.0

 
$
2,911.8

 
$
3,645.7

Corporate costs include corporate support function costs and other corporate costs such as professional fees and insurance premiums. Certain pension costs include only ongoing costs recognized quarterly, which include service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits.

F-51

Table of Contents


Notes to Consolidated Financial Statements (Continued)

17. Segment Information (Continued)

Reconciliation of Reportable Segment Data to Financial Statements
Grace Adjusted EBIT for the years ended December 31, 2017 , 2016 and 2015 is reconciled below to income from continuing operations before income taxes presented in the accompanying Consolidated Statements of Operations.
 
Year Ended December 31,
(In millions)
2017
 
2016
 
2015
Grace Adjusted EBIT
$
414.0

 
$
400.3

 
$
345.8

Pension MTM adjustment and other related costs, net
(51.1
)
 
(60.3
)
 
(30.5
)
Costs related to legacy product, environmental and other claims
(30.8
)
 
(35.4
)
 
(6.1
)
Restructuring and repositioning expenses
(26.7
)
 
(38.6
)
 
(20.4
)
Accounts receivable reserve—Venezuela
(10.0
)
 
—

 
—

Third-party acquisition-related costs
(2.9
)
 
(2.5
)
 
—

Income and expense items related to divested businesses
(2.3
)
 
0.1

 
1.5

Loss on early extinguishment of debt
—

 
(11.1
)
 
—

Amortization of acquired inventory fair value adjustment
—

 
(8.0
)
 
—

Gain (loss) on sale of product line
—

 
1.7

 
—

Gain on termination and curtailment of postretirement plans related to divested businesses
—

 
0.3

 
2.6

Interest expense, net
(78.5
)
 
(80.5
)
 
(99.1
)
Net income (loss) attributable to noncontrolling interests
(0.8
)
 
—

 
(0.1
)
Income (loss) from continuing operations before income taxes
$
210.9

 
$
166.0

 
$
193.7

The table below presents sales of similar products within each reportable segment.
 
Year Ended December 31,
(In millions)
2017
 
2016
 
2015
Catalysts Technologies:
 
 
 
 
 
Refining catalysts
$
758.1

 
$
724.9

 
$
764.5

Polyolefin and chemical catalysts
518.4

 
438.8

 
397.6

Total
$
1,276.5

 
$
1,163.7

 
$
1,162.1

Materials Technologies:
 
 
 
 
 
Coatings
$
142.2

 
$
136.5

 
$
133.6

Consumer/Pharma
123.3

 
121.9

 
125.1

Chemical process
153.5

 
142.6

 
137.0

Other
21.0

 
33.9

 
70.4

Total
$
440.0

 
$
434.9

 
$
466.1


F-52

Table of Contents


Notes to Consolidated Financial Statements (Continued)

17. Segment Information (Continued)

Geographic Area Data
The table below presents information related to the geographic areas in which Grace operates. Sales are attributed to geographic areas based on customer location.
 
Year Ended December 31,
(In millions)
2017
 
2016
 
2015
Net Sales
 
 
 
 
 
United States
$
437.3

 
$
446.2

 
$
444.7

Canada
48.7

 
44.5

 
45.3

Total North America
486.0

 
490.7

 
490.0

Europe Middle East Africa
667.7

 
647.8

 
621.2

Asia Pacific
459.8

 
348.9

 
390.9

Latin America
103.0

 
111.2

 
126.1

Total
$
1,716.5

 
$
1,598.6

 
$
1,628.2

Long-Lived Assets(1)
 
 
 
 
 
United States
$
599.8

 
$
564.5

 
$
464.1

Canada
15.5

 
13.9

 
13.0

Total North America
615.3

 
578.4

 
477.1

Germany
142.2

 
109.7

 
110.9

Rest of Europe Middle East Africa
45.3

 
39.5

 
17.4

Total Europe Middle East Africa
187.5

 
149.2

 
128.3

Asia Pacific
21.1

 
21.5

 
25.9

Latin America
7.9

 
7.5

 
5.5

Total
$
831.8

 
$
756.6

 
$
636.8

___________________________________________________________________________________________________________________
(1)
Long-lived assets include properties and equipment and the noncurrent asset related to a planned hydroprocessing catalyst plant to be transferred to ART upon completion. (See Note 18.)
18. Unconsolidated Affiliate
Grace accounts for its 50% ownership interest in ART, its joint venture with Chevron, using the equity method of accounting. Grace's investment in ART amounted to $125.9 million and $117.6 million as of December 31, 2017 and 2016 , respectively, and the amount included in "equity in earnings of unconsolidated affiliate" in the accompanying Consolidated Statements of Operations totaled $25.9 million , $29.8 million and $20.4 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. ART is a private, limited liability company, taxed as a partnership, and accordingly does not have a quoted market price available.
The following summary presents ART's assets, liabilities and results of operations.

F-53

Table of Contents


Notes to Consolidated Financial Statements (Continued)

18. Unconsolidated Affiliate (Continued)

 
December 31,
(In millions)
2017
 
2016
Summary Balance Sheet information:
 
 
 
Current assets
$
239.8

 
$
249.2

Noncurrent assets
91.5

 
84.8

Total assets
$
331.3

 
$
334.0

 
 
 
 
Current liabilities
$
82.4

 
$
102.0

Noncurrent liabilities
0.3

 
0.3

Total liabilities
$
82.7

 
$
102.3

 
Year Ended December 31,
(In millions)
2017
 
2016
 
2015
Summary Statement of Operations information:
 
 
 
 
 
Net sales
$
447.3

 
$
388.9

 
$
415.3

Costs and expenses applicable to net sales
379.8

 
322.1

 
366.6

Income before income taxes
53.6

 
60.8

 
42.8

Net income
52.1

 
59.3

 
41.1

Grace and ART transact business on a regular basis and maintain several agreements in order to operate the joint venture. These agreements are treated as related party activities with an unconsolidated affiliate. Product manufacturing for ART is accounted for on a net basis, with a mark-up, in "cost of goods sold" in the Consolidated Statements of Operations. Grace also receives reimbursement from ART for fixed costs, research and development, selling, general and administrative services, and depreciation. Grace records reimbursements against the respective line items on Grace's Consolidated Statement of Operations. The table below presents summary financial data related to transactions between Grace and ART.
 
Year Ended December 31,
(In millions)
2017
 
2016
 
2015
Product manufactured for ART
$
213.8

 
$
210.4

 
$
258.9

Mark-up on product manufactured for ART included as a reduction of Grace's cost of goods sold
4.2

 
4.2

 
5.1

Charges for fixed costs; research and development; selling, general and administrative services; and depreciation to ART
41.7

 
33.8

 
31.6

The table below lists Grace balances related to ART.
 
December 31,
(in millions)
2017
 
2016
Accounts receivable
$
20.1

 
$
14.9

Noncurrent asset
32.7

 
27.0

Accounts payable
22.3

 
28.7

Debt payable within one year
8.6

 
7.6

Debt payable after one year
33.8

 
31.9

Noncurrent liability
32.7

 
27.0


F-54

Table of Contents


Notes to Consolidated Financial Statements (Continued)

18. Unconsolidated Affiliate (Continued)

The noncurrent asset and noncurrent liability in the table above represent spending to date related to a planned residue hydroprocessing catalyst production plant in Lake Charles, Louisiana. Grace manages the design and construction of the plant, and the asset will be included in "other assets" in Grace's Consolidated Balance Sheets until construction is completed. Grace has likewise recorded a liability for the transfer of the asset to ART upon completion, included in "other liabilities" in the Consolidated Balance Sheets.
Grace and Chevron provide lines of credit in the amount of $15.0 million each at a commitment fee of 0.1% of the credit amount. These agreements have been approved by the ART Executive Committee for renewal until February 2019. No amounts were outstanding at December 31, 2017 and 2016 .
19. Acquisitions
On December 14, 2017, Grace signed a definitive agreement to acquire the polyolefin catalysts business of Albemarle Corporation for $416 million , subject to regulatory approvals and other customary closing conditions. This acquisition would be complementary to Grace's specialty catalysts business and would strengthen Grace's catalysts technology portfolio, commercial relationships, and manufacturing network.
On June 30, 2016, Grace acquired the assets of BASF's polyolefin catalysts business for total consideration of $250.6 million , including an estimated $3.3 million holdback liability, which was paid during the 2017 second quarter. The business is included in the Specialty Catalysts operating segment of the Catalysts Technologies reportable segment. The acquisition purchase price was allocated to the tangible and identifiable intangible assets acquired based on their estimated fair values at the acquisition date in accordance with ASC 805 "Business Combinations." The excess of the purchase price over the fair value of the tangible and intangible assets acquired was recorded as goodwill. The goodwill recognized is attributable to the expected growth and operating synergies that Grace expects to realize from this acquisition. Approximately $43 million of goodwill generated from the acquisition will be deductible for U.S. income tax purposes over a period of 15 years.
 
(In millions)
Inventories
$
30.2

Properties and equipment
95.0

Goodwill
63.8

Intangible assets
61.6

Net assets acquired
$
250.6

The table below presents the intangible assets acquired as part of the acquisition of the assets of BASF's polyolefin catalysts business and the periods over which they will be amortized.
 
Amount
(In millions)
 
Weighted Average Amortization Period
(in years)
Customer Lists
$
39.9

 
20.0
Trademarks
13.4

 
20.0
Technology
8.3

 
20.0
Total
$
61.6

 
20.0
20. Discontinued Operations
As a result of the Separation and Distribution, GCP is now an independent public company and its common stock is listed under the symbol “GCP” on the New York Stock Exchange. Grace does not beneficially own any shares of GCP common stock and will not consolidate the financial results of GCP in its future financial reporting, as GCP is no longer a related party to Grace subsequent to the Separation. GCP’s historical financial results

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Notes to Consolidated Financial Statements (Continued)

20. Discontinued Operations (Continued)

through the Distribution Date are reflected in Grace’s Consolidated Financial Statements as discontinued operations.
Separation and Distribution Agreement     Prior to the completion of the Separation and the Distribution, W. R. Grace & Co., Grace–Conn. and GCP entered into a Separation and Distribution Agreement and certain related agreements that govern the post-Separation relationship between Grace and GCP. The Separation and Distribution Agreement identifies the transfer of Grace's assets and liabilities that are specifically identifiable or otherwise allocable to GCP, the elimination of Grace’s equity interest in GCP, the removal of certain non-recurring separation costs directly related to the Separation and Distribution, the cash distribution from GCP to Grace, the reduction in Grace's debt using the cash received from GCP, and it provides for when and how these transfers, assumptions and assignments have occurred or will occur.
Tax Sharing Agreement       W. R. Grace & Co., Grace–Conn. and GCP entered into a Tax Sharing Agreement that generally governs the parties’ respective rights, responsibilities and obligations after the Distribution with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the Distribution and certain related transactions to qualify under Sections 355 and certain other relevant provisions of the Internal Revenue Code (the “Code”)), tax attributes, the preparation and filing of tax returns, tax elections, tax contests, and certain other tax matters.
In addition, the Tax Sharing Agreement imposes certain restrictions on GCP and its subsidiaries (including restrictions on share issuances, business combinations, sales of assets and similar transactions) that are designed to preserve the qualification of the Distribution and certain related transactions under Sections 355 and certain other relevant provisions of the Code. The Tax Sharing Agreement provides special rules that allocate tax liabilities in the event the Distribution, together with certain related transactions, does not so qualify. In general, under the Tax Sharing Agreement, each party is expected to be responsible for any taxes imposed on, and certain related amounts payable by, GCP or Grace that arise from the failure of the Distribution and certain related transactions, to qualify under Sections 355 and certain other relevant provisions of the Code, to the extent that the failure to so qualify is attributable to actions, events or transactions relating to such party’s respective stock, assets or business, or a breach of the relevant representations or covenants made by that party in the Tax Sharing Agreement.
The foregoing is a summary of the Separation and Distribution Agreement and the Tax Sharing Agreement. Grace has filed the full texts of the Separation and Distribution Agreement and the Tax Sharing Agreement with the SEC, which are readily available on the Internet at www.sec.gov.

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Notes to Consolidated Financial Statements (Continued)

20. Discontinued Operations (Continued)

GCP’s historical financial results through the Distribution Date and other effects of the Separation are presented as discontinued operations as summarized below:
 
Year Ended December 31,
(In millions)
2016
 
2015
Net sales
$
99.6

 
$
1,423.3

Cost of goods sold
62.6

 
907.5

Gross profit
37.0

 
515.8

Selling, general and administrative expenses
21.6

 
251.2

Research and development expenses
1.7

 
22.5

Loss in Venezuela
—

 
59.6

Repositioning expenses
22.0

 
55.1

Interest expense and related financing costs
0.7

 
1.5

Other expense, net
3.9

 
9.9

Total costs and expenses
49.9

 
399.8

(Loss) Income from discontinued operations before income taxes
(12.9
)
 
116.0

Benefit from (provision for) income taxes
0.1

 
(95.0
)
(Loss) Income from discontinued operations after income taxes
(12.8
)
 
21.0

Less: Net income attributable to noncontrolling interests
(0.1
)
 
(0.8
)
Net (loss) income from discontinued operations
$
(12.9
)
 
$
20.2

In January 2016, GCP completed the sale of $525.0 million aggregate principal amount of 9.500% Senior Notes due in 2023. GCP used a portion of these proceeds to fund a $500.0 million distribution to Grace in connection with the Separation and the Distribution.
In February 2016, GCP entered into a credit agreement that provides for new senior secured credit facilities in an aggregate principal amount of $525.0 million , consisting of term loans in an aggregate principal amount of $275.0 million maturing in 2022 and of revolving loans in an aggregate principal amount of $250.0 million maturing in 2021, which were undrawn at closing. GCP used a portion of these proceeds to fund a $250.0 million distribution to Grace in connection with the Separation and the Distribution.

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Notes to Consolidated Financial Statements (Continued)

21. Quarterly Summary and Statistical Information (Unaudited)

(In millions, except per share amounts)
March 31
 
June 30
 
September 30
 
December 31(3)
2017
 
 
 
 
 
 
 
Net sales
$
398.0

 
$
429.5

 
$
429.5

 
$
459.5

Gross profit
153.2

 
169.3

 
173.3

 
167.5

Net income (loss)
42.9

 
43.5

 
47.1

 
(123.1
)
Net income (loss) attributable to W. R. Grace & Co. shareholders
42.9

 
43.9

 
47.4

 
(123.0
)
Net income (loss) per share:(1)
 
 
 
 
 
 
 
Basic earnings (loss) per share:
 
 
 
 
 
 
 
Net income (loss)
$
0.63

 
$
0.64

 
$
0.70

 
$
(1.81
)
Diluted earnings (loss) per share:
 
 
 
 
 
 
 
Net income (loss)
0.63

 
0.64

 
0.70

 
(1.81
)
Dividends declared per share
0.21

 
0.21

 
0.21

 
0.21

Market price of common stock:(2)
 
 
 
 
 
 
 
High
$
74.63

 
$
72.72

 
$
73.77

 
$
77.37

Low
67.54

 
67.12

 
65.84

 
69.37

Close
69.71

 
72.01

 
72.15

 
70.13

___________________________________________________________________________________________________________________
(1)
Per share results for the four quarters may differ from full-year per share results, as a separate computation of the weighted average number of shares outstanding is made for each quarter presented.
(2)
Principal market: New York Stock Exchange.
(3)
Fourth quarter "gross profit," "net income (loss)," and "net income (loss) attributable to W. R. Grace & Co. shareholders" include the effects of the annual pension mark-to-market adjustment, as well as adjustments related to the estimated impacts of the U.S. Tax Cuts and Jobs Act of 2017.
(In millions, except per share amounts)
March 31
 
June 30
 
September 30
 
December 31(5)
2016
 
 
 
 
 
 
 
Net sales
$
362.8

 
$
390.5

 
$
404.5

 
$
440.8

Gross profit
152.7

 
173.2

 
168.2

 
161.8

Net income (loss)
0.3

 
38.5

 
39.7

 
15.6

Net income (loss) attributable to W. R. Grace & Co. shareholders
0.5

 
38.7

 
39.6

 
15.3

Net income (loss) per share:(1)
 
 
 
 
 
 
 
Basic earnings (loss) per share:
 
 
 
 
 
 
 
Net income (loss)
$
0.01

 
$
0.55

 
$
0.56

 
$
0.22

Diluted earnings (loss) per share:
 
 
 
 
 
 
 
Net income (loss)
0.01

 
0.55

 
0.56

 
0.22

Dividends declared per share
—

 
0.17

 
0.17

 
0.17

Market price of common stock:(2)(3)
 
 
 
 
 
 
 
High
$
98.15

(4)
$
80.39

 
$
80.56

 
$
74.38

Low
63.84

 
70.59

 
71.47

 
63.37

Close
71.18

 
73.21

 
73.80

 
67.64

___________________________________________________________________________________________________________________
(1)
Per share results for the four quarters may differ from full-year per share results, as a separate computation of the weighted average number of shares outstanding is made for each quarter presented.
(2)
Principal market: New York Stock Exchange.
(3)
Share prices subsequent to February 3, 2016, reflect the Separation and exclude separate trading of GCP common stock.
(4)
Price is a pre-Separation market price of common stock.
(5)
Fourth quarter "gross profit," "net income (loss)," and "net income (loss) attributable to W. R. Grace & Co. shareholders" include the effects of the annual pension mark-to-market adjustment.

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SELECTED FINANCIAL DATA
(In millions, except per share amounts)
2017
 
2016
 
2015
 
2014
 
2013
Statement of Operations
 
 
 
 
 
 
 
 
 
Net sales
$
1,716.5

 
$
1,598.6

 
$
1,628.2

 
$
1,757.3

 
$
1,609.5

Income (loss) from continuing operations(1)(2)
10.4

 
107.0

 
123.9

 
116.9

 
120.5

Financial Position
 
 
 
 
 
 
 
 
 
Total assets
2,907.0

 
2,911.8

 
3,645.7

 
4,057.1

 
5,390.1

Debt payable after one year(3)
1,523.8

 
1,507.6

 
2,111.5

 
1,882.5

 
25.1

Liabilities subject to compromise (a subset of total liabilities)
—

 
—

 
—

 
—

 
3,776.1

Shareholders' equity
263.3

 
372.4

 
212.5

 
369.0

 
571.2

Data Per Common Share
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations - basic
$
0.16

 
$
1.53

 
$
1.72

 
$
1.55

 
$
1.58

Income (loss) from continuing operations - diluted
0.16

 
1.52

 
1.71

 
1.54

 
1.55

Cash dividends declared
0.84

 
0.51

 
—

 
—

 
—

Other Statistics
 
 
 
 
 
 
 
 
 
Common shareholders of record
4,646

 
4,895

 
5,142

 
5,839

 
7,077

___________________________________________________________________________________________________________________
(1)
Adjustments related to our legacy liabilities, Chapter 11, and pension mark-to-market accounting are included in and affect the period-to-period comparability of "income (loss) from continuing operations" and the related data per common share. See Note 17 to the Consolidated Financial Statements for a detail of these items.
(2)
For 2017, iIncome (loss) from continuing operations" includes a charge of $143.0 million related to the estimated impacts of the U.S. Tax Cuts and Jobs Act of 2017.
(3)
Amount for 2013 excludes amounts classified within "liabilities subject to compromise." In connection with its emergence from bankruptcy in 2014, Grace entered into a Credit Agreement. Grace also issued $1,000 million of senior unsecured notes in 2014. (See Note 5.)

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Management's Discussion and Analysis of Financial Condition and Results of Operations
See "Analysis of Operations" for a discussion of our non-GAAP performance measures. Our references to "advanced economies" and "emerging regions" refer to classifications established by the International Monetary Fund.
Results of Operations
2017 Performance Summary
Following is a summary of our financial performance for the year ended December 31, 2017 , compared with the prior year.
•
Net sales increased 7.4% to $1,716.5 million .
•
Income from continuing operations attributable to Grace decreased to $11.2 million , due to the $143.0 million provisional charge to reflect the estimated effects of U.S. tax reform.
•
Diluted earnings per share from continuing operations decreased to $0.16 per diluted share.
•
Adjusted EPS increased 9.7% to $3.40 per diluted share.
•
Adjusted EBIT increased 3.4% to $414.0 million .
Summary Description of Business
We are engaged in specialty chemicals and specialty materials businesses on a worldwide basis through our two reportable segments, Grace Catalysts Technologies and Grace Materials Technologies. See Item 1 (Business—Business Overview) of this Report for a summary description of our core business.
Analysis of Operations
We have set forth in the table below our key operating statistics with percentage changes for the years ended December 31, 2017 , 2016 , and 2015 . Please refer to this Analysis of Operations when reviewing this Management's Discussion and Analysis of Financial Condition and Results of Operations. In the table we present financial information in accordance with U.S. GAAP, as well as the non-GAAP financial information described below. We believe that the non-GAAP financial information provides useful supplemental information about the performance of our businesses, improves period-to-period comparability and provides clarity on the information our management uses to evaluate the performance of our businesses. In the table, we have provided reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. The non-GAAP financial measures should not be considered as a substitute for financial measures calculated in accordance with U.S. GAAP, and the financial results calculated in accordance with U.S. GAAP and reconciliations from those results should be evaluated carefully.
We define Adjusted EBIT (a non-GAAP financial measure) to be income from continuing operations attributable to W. R. Grace & Co. shareholders adjusted for interest income and expense; income taxes; costs related to legacy product, environmental and other claims; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; income and expense items related to divested businesses, product lines, and certain other investments; gains and losses on sales of businesses, product lines, and certain other investments; third-party acquisition-related costs and the amortization of acquired inventory fair value adjustment; and certain other items that are not representative of underlying trends.
We define Adjusted EBITDA (a non-GAAP financial measure) to be Adjusted EBIT adjusted for depreciation and amortization.
We define Adjusted EBIT Return On Invested Capital (a non-GAAP financial measure) to be Adjusted EBIT (on a trailing four quarters basis) divided by the sum of net working capital, properties and equipment and certain other assets and liabilities.

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We define Adjusted Gross Margin (a non-GAAP financial measure) to be gross margin adjusted for pension-related costs included in cost of goods sold and the amortization of acquired inventory fair value adjustment.
We define Adjusted Earnings Per Share (EPS) (a non-GAAP financial measure) to be diluted EPS from continuing operations adjusted for costs related to legacy product, environmental and other claims; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; income and expense items related to divested businesses, product lines, and certain other investments; gains and losses on sales of businesses, product lines and certain other investments; third-party acquisition-related costs and the amortization of acquired inventory fair value adjustment; certain other items that are not representative of underlying trends; and certain discrete tax items.
We use Adjusted EBIT as a performance measure in significant business decisions and in determining certain incentive compensation. We use Adjusted EBIT as a performance measure because it provides improved period-to-period comparability for decision making and compensation purposes, and because it better measures the ongoing earnings results of our strategic and operating decisions by excluding the earnings effects of our legacy product, environmental, and other claims; restructuring and repositioning activities; divested businesses; the effects of acquisitions; and certain other items that are not representative of underlying trends.
We use Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, and Adjusted EPS as performance measures and may use these measures in determining certain incentive compensation. We use Adjusted EBIT Return On Invested Capital in making operating and investment decisions and in balancing the growth and profitability of our operations.
Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, and Adjusted EPS do not purport to represent income measures as defined under U.S. GAAP, and should not be used as alternatives to such measures as an indicator of our performance. These measures are provided to investors and others to improve the period-to-period comparability and peer-to-peer comparability of our financial results, and to ensure that investors understand the information we use to evaluate the performance of our businesses. They distinguish the operating results of Grace's current business base from the costs of Grace's legacy product, environmental and other claims; restructuring and repositioning activities; divested businesses; and certain other items. These measures may have material limitations due to the exclusion or inclusion of amounts that are included or excluded, respectively, in the most directly comparable measures calculated and presented in accordance with U.S. GAAP and thus investors and others should review carefully the financial results calculated in accordance with U.S. GAAP.
Adjusted EBIT has material limitations as an operating performance measure because it excludes costs related to legacy product, environmental and other claims, and may exclude income and expenses from restructuring and repositioning activities and divested businesses, which historically have been material components of our net income. Adjusted EBITDA also has material limitations as an operating performance measure because it excludes the impact of depreciation and amortization expense. Our business is substantially dependent on the successful deployment of capital, and depreciation and amortization expense is a necessary element of our costs. We compensate for the limitations of these measurements by using these indicators together with net income as measured under U.S. GAAP to present a complete analysis of our results of operations. Adjusted EBIT and Adjusted EBITDA should be evaluated together with net income attributable to Grace shareholders, measured under U.S. GAAP, for a complete understanding of our results of operations.

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Table of Contents

Analysis of Operations
(In millions, except per share amounts)
2017
 
2016
 
% Change
 
2015
 
% Change
Net sales:
 
 
 
 
 
 
 
 
 
Catalysts Technologies
$
1,276.5

 
$
1,163.7

 
9.7
 %
 
$
1,162.1

 
0.1
 %
Materials Technologies
440.0

 
434.9

 
1.2
 %
 
466.1

 
(6.7
)%
Total Grace net sales
$
1,716.5

 
$
1,598.6

 
7.4
 %
 
$
1,628.2

 
(1.8
)%
Net sales by region:
 
 
 
 
 
 
 
 
 
North America
$
486.0

 
$
490.7

 
(1.0
)%
 
$
490.0

 
0.1
 %
Europe Middle East Africa
667.7

 
647.8

 
3.1
 %
 
621.2

 
4.3
 %
Asia Pacific
459.8

 
348.9

 
31.8
 %
 
390.9

 
(10.7
)%
Latin America
103.0

 
111.2

 
(7.4
)%
 
126.1

 
(11.8
)%
Total net sales by region
$
1,716.5

 
$
1,598.6

 
7.4
 %
 
$
1,628.2

 
(1.8
)%
Performance measures:
 
 
 
 
 
 
 
 
 
Adjusted EBIT(A):
 
 
 
 
 
 
 
 
 
Catalysts Technologies segment operating income
$
395.4

 
$
367.8

 
7.5
 %
 
$
347.3

 
5.9
 %
Materials Technologies segment operating income
100.6

 
104.0

 
(3.3
)%
 
96.9

 
7.3
 %
Corporate costs
(69.0
)
 
(59.4
)
 
(16.2
)%
 
(79.9
)
 
25.7
 %
Gain on termination and curtailment of postretirement plans related to current businesses
—

 
0.2

 
NM

 
1.9

 
NM

Certain pension costs(B)
(13.0
)
 
(12.3
)
 
(5.7
)%
 
(20.4
)
 
39.7
 %
Adjusted EBIT
414.0

 
400.3

 
3.4
 %
 
345.8

 
15.8
 %
Pension MTM adjustment and other related costs, net
(51.1
)
 
(60.3
)
 
 
 
(30.5
)
 
 
Costs related to legacy product, environmental and other claims, net
(30.8
)
 
(35.4
)
 
 
 
(6.1
)
 
 
Restructuring and repositioning expenses
(26.7
)
 
(38.6
)
 
 
 
(20.4
)
 
 
Accounts receivable reserve—Venezuela
(10.0
)
 
—

 
 
 
—

 
 
Third-party acquisition-related costs
(2.9
)
 
(2.5
)
 
 
 
—

 
 
Income and expense items related to divested businesses
(2.3
)
 
0.1

 
 
 
1.5

 
 
Loss on early extinguishment of debt
—

 
(11.1
)
 
 
 
—

 
 
Amortization of acquired inventory fair value adjustment
—

 
(8.0
)
 
 
 
—

 
 
Gain (loss) on sale of product line
—

 
1.7

 
 
 
—

 
 
Gain on termination and curtailment of postretirement plans related to divested businesses
—

 
0.3

 
 
 
2.6

 
 
Interest expense, net
(78.5
)
 
(80.5
)
 
2.5
 %
 
(99.1
)
 
18.8
 %
(Provision for) benefit from income taxes
(200.5
)
 
(59.0
)
 
NM

 
(69.8
)
 
15.5
 %
Income (loss) from continuing operations attributable to W. R. Grace & Co. shareholders
$
11.2

 
$
107.0

 
(89.5
)%
 
$
124.0

 
(13.7
)%
Diluted EPS from continuing operations
$
0.16

 
$
1.52

 
(89.5
)%
 
$
1.71

 
(11.1
)%
Adjusted EPS
$
3.40

 
$
3.10

 
9.7
 %
 
$
2.18

 
42.2
 %

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Table of Contents

Analysis of Operations
(In millions)
2017
 
2016
 
% Change
 
2015
 
% Change
Adjusted performance measures:
 
 
 
 
 
 
 
 
 
Gross Margin:
 
 
 
 
 
 
 
 
 
Catalysts Technologies
40.8
 %
 
44.4
 %
 
(3.6) pts

 
42.2
 %
 
2.2 pts

Materials Technologies
37.9
 %
 
39.6
 %
 
(1.7) pts

 
38.8
 %
 
0.8 pts

Adjusted Gross Margin
40.1
 %
 
43.1
 %
 
(3.0) pts

 
41.2
 %
 
1.9 pts

Amortization of acquired inventory fair value adjustment
—
 %
 
(0.5
)%
 
NM

 
—
 %
 
NM

Pension costs in cost of goods sold
(1.5
)%
 
(1.6
)%
 
0.1 pts

 
(1.2
)%
 
(0.4) pts

Total Grace
38.6
 %
 
41.0
 %
 
(2.4) pts

 
40.0
 %
 
1.0 pts

Adjusted EBIT:
 
 
 
 
 
 
 
 
 
Catalysts Technologies
$
395.4

 
$
367.8

 
7.5
 %
 
$
347.3

 
5.9
 %
Materials Technologies
100.6

 
104.0

 
(3.3
)%
 
96.9

 
7.3
 %
Corporate, pension, and other
(82.0
)
 
(71.5
)
 
(14.7
)%
 
(98.4
)
 
27.3
 %
Total Grace
414.0

 
400.3

 
3.4
 %
 
345.8

 
15.8
 %
Depreciation and amortization:
 
 
 
 
 
 
 
 
 
Catalysts Technologies
$
87.1

 
$
77.4

 
12.5
 %
 
$
68.1

 
13.7
 %
Materials Technologies
19.6

 
19.5

 
0.5
 %
 
23.2

 
(15.9
)%
Corporate
4.8

 
3.4

 
41.2
 %
 
7.9

 
(57.0
)%
Total Grace
111.5

 
100.3

 
11.2
 %
 
99.2

 
1.1
 %
Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
Catalysts Technologies
$
482.5

 
$
445.2

 
8.4
 %
 
$
415.4

 
7.2
 %
Materials Technologies
120.2

 
123.5

 
(2.7
)%
 
120.1

 
2.8
 %
Corporate, pension, and other
(77.2
)
 
(68.1
)
 
(13.4
)%
 
(90.5
)
 
24.8
 %
Total Grace
525.5

 
500.6

 
5.0
 %
 
445.0

 
12.5
 %
Adjusted EBIT margin:
 
 
 
 
 
 
 
 
 
Catalysts Technologies
31.0
 %
 
31.6
 %
 
(0.6) pts

 
29.9
 %
 
1.7 pts

Materials Technologies
22.9
 %
 
23.9
 %
 
(1.0) pts

 
20.8
 %
 
3.1 pts

Total Grace
24.1
 %
 
25.0
 %
 
(0.9) pts

 
21.2
 %
 
3.8 pts

Adjusted EBITDA margin:
 
 
 
 
 
 
 
 
 
Catalysts Technologies
37.8
 %
 
38.3
 %
 
(0.5) pts

 
35.7
 %
 
2.6 pts

Materials Technologies
27.3
 %
 
28.4
 %
 
(1.1) pts

 
25.8
 %
 
2.6 pts

Total Grace
30.6
 %
 
31.3
 %
 
(0.7) pts

 
27.3
 %
 
4.0 pts


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Table of Contents

Analysis of Operations
(In millions)
2017
 
2016
 
2015
Calculation of Adjusted EBIT Return On Invested Capital (trailing four quarters):
 
 
 
 
 
Adjusted EBIT
$
414.0

 
$
400.3

 
$
345.8

Invested Capital:
 
 
 
 
 
Trade accounts receivable
285.2

 
273.9

 
254.5

Inventories
230.9

 
228.0

 
198.8

Accounts payable
(210.3
)
 
(195.4
)
 
(157.8
)
 
305.8

 
306.5

 
295.5

Other current assets (excluding income taxes)
42.1

 
32.0

 
43.2

Properties and equipment, net
799.1

 
729.6

 
621.7

Goodwill
402.4

 
394.2

 
336.5

Technology and other intangible assets, net
255.4

 
269.1

 
227.5

Investment in unconsolidated affiliate
125.9

 
117.6

 
103.2

Other assets (excluding capitalized financing fees)
37.4

 
34.9

 
31.8

Other current liabilities (excluding income taxes, legacy environmental matters, accrued interest, and restructuring)
(158.6
)
 
(144.4
)
 
(158.5
)
Other liabilities (excluding income taxes and legacy environmental matters)
(113.7
)
 
(89.3
)
 
(81.4
)
Total invested capital
$
1,695.8

 
$
1,650.2

 
$
1,419.5

Adjusted EBIT Return On Invested Capital
24.4
%
 
24.3
%
 
24.4
%
___________________________________________________________________________________________________________________
Amounts may not add due to rounding.
(A)
Grace's segment operating income includes only Grace's share of income of consolidated and unconsolidated joint ventures.
(B)
Certain pension costs include only ongoing costs recognized quarterly, which include service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits. Catalysts Technologies and Materials Technologies segment operating income and corporate costs do not include any amounts for pension expense. Other pension related costs including annual mark-to-market adjustments and actuarial gains and losses are excluded from Adjusted EBIT. These amounts are not used by management to evaluate the performance of Grace's businesses and significantly affect the peer-to-peer and period-to-period comparability of our financial results. Mark-to-market adjustments and actuarial gains and losses relate primarily to changes in financial market values and actuarial assumptions and are not directly related to the operation of Grace's businesses.
NM—Not Meaningful

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Grace Overview
Following is an overview of our financial performance for the years ended December 31, 2017 , 2016 , and 2015 .
Net Sales and Gross Margin
Sales were $1,716.5 million , $1,598.6 million , and $1,628.2 million for the years ended December 31, 2017 , 2016 , and 2015 . Gross margin was 38.6% , 41.0% , and 40.0% for the years ended December 31, 2017 , 2016 , and 2015 . Adjusted Gross Margin was 40.1% , 43.1% , and 41.2% for the years ended December 31, 2017 , 2016 , and 2015 .
CHART-D85D8203EEF55C7FBF9A04.JPG
The following tables identify the year-over-year increase or decrease in sales attributable to changes in sales volume and/or mix, product price, and the impact of currency translation.
 
2017 as a Percentage Increase (Decrease) from 2016
Net Sales Variance Analysis
Volume
 
Price
 
Currency
Translation
 
Total
Catalysts Technologies
9.7
 %
 
(0.3
)%
 
0.3
 %
 
9.7
 %
Materials Technologies
0.3
 %
 
(0.2
)%
 
1.1
 %
 
1.2
 %
Net sales
7.2
 %
 
(0.3
)%
 
0.5
 %
 
7.4
 %
By Region:
 
 
 
 
 
 

North America
(0.5
)%
 
(0.5
)%
 
—
 %
 
(1.0
)%
Europe Middle East Africa
2.6
 %
 
(0.6
)%
 
1.1
 %
 
3.1
 %
Asia Pacific
31.3
 %
 
0.6
 %
 
(0.1
)%
 
31.8
 %
Latin America
(7.9
)%
 
(0.2
)%
 
0.7
 %
 
(7.4
)%
Sales for 2017 increased 7.4% overall compared with the prior year. Catalysts sales volumes increased primarily due to higher demand in Asia and the full-year benefit of the 2016 polyolefin catalysts acquisition, partially offset by lower demand in Latin America. Lower pricing in Catalysts Technologies was primarily due to customer mix. Sales in Materials Technologies increased, primarily driven by higher sales volumes and favorable currency translation. Higher sales volumes in the silicas business, primarily in Asia, were partially offset by the impact related to the exit of certain products lines in the 2016 first half and lower pharmaceutical fine chemicals sales in North America.
Gross margin decreased 240 basis points to 38.6% from 41.0% for the prior year. Adjusted Gross Margin decreased 300 basis points to 40.1% from 43.1% for the prior year. The decreases were primarily due to higher manufacturing costs, including 110 basis points related to higher raw materials costs, and product and regional mix.

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2016 as a Percentage Increase (Decrease) from 2015
Net Sales Variance Analysis
Volume
 
Price
 
Currency
Translation
 
Total
Catalysts Technologies
1.6
 %
 
(1.2
)%
 
(0.3
)%
 
0.1
 %
Materials Technologies
(5.6
)%
 
0.1
 %
 
(1.2
)%
 
(6.7
)%
Net sales
(0.5
)%
 
(0.8
)%
 
(0.5
)%
 
(1.8
)%
By Region:
 
 
 
 
 
 
 
North America
2.5
 %
 
(2.4
)%
 
—
 %
 
0.1
 %
Europe Middle East Africa
4.9
 %
 
0.2
 %
 
(0.8
)%
 
4.3
 %
Asia Pacific
(9.4
)%
 
(1.1
)%
 
(0.2
)%
 
(10.7
)%
Latin America
(10.6
)%
 
1.4
 %
 
(2.6
)%
 
(11.8
)%
Sales for 2016 decreased 1.8% overall compared with the prior year. Weaker demand in Asia Pacific unfavorably impacted sales volumes for both businesses compared with the prior-year period. In addition, Catalysts Technologies sales volumes benefited from the polyolefin catalysts acquisition, and Materials Technologies sales volumes decreased due to the exit of certain product lines earlier in the year. Lower sales volumes in Latin America were primarily due to order timing in Catalysts Technologies during the fourth quarter. Currency translation negatively impacted both reportable segments.
Gross margin increased 100 basis points to 41.0% from 40.0% for the prior year. Adjusted Gross Margin increased 190 basis points to 43.1% from 41.2% for the prior year. The increases were primarily due to lower manufacturing costs, including 200 basis points related to lower raw materials costs, and improved productivity.
Grace Income From Continuing Operations
CHART-BD69EF01CCE9562D842A04.JPG
Income from continuing operations was $11.2 million for 2017 compared with $107.0 million for the prior year. The decrease was primarily due to a higher provision for income taxes due to a $143.0 million provisional charge for the estimated impacts of the U.S. Tax Cuts and Jobs Act of 2017 (see Note 7 to the Consolidated Financial Statements) and an accounts receivable reserve for a customer in Venezuela, partially offset by higher segment operating income, lower restructuring and repositioning expenses, and a lower pension mark-to-market adjustment.
Income from continuing operations was $107.0 million for 2016 , a decrease of 13.7% compared with $124.0 million for the prior year. The decrease was primarily due to a higher pension mark-to-market adjustment, a higher provision for environmental remediation primarily related to vermiculite-related matters, higher restructuring and repositioning expenses, and a loss on early extinguishment of debt due to the accelerated amortization of capitalized financing costs associated with the pay down of $600 million of debt in the 2016 first quarter, partially offset by lower corporate costs, higher segment operating income, and lower net interest expenses resulting from the pay-down of debt. Income in the prior year included a $9.0 million gain reflecting the final resolution of certain bankruptcy liabilities, as well as a gain on the sale of an operating asset.
We are currently in the process of conducting a depreciation study to review the useful lives of machinery and equipment, including an evaluation of historical retirement data as well as industry review and analysis. This

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evaluation will be completed by the end of the 2018 first quarter. We expect this review to result in increased useful lives (and lower depreciation expense) and will apply the change to new and existing assets on a prospective basis as a change in accounting estimate effective January 1, 2018.
Adjusted EBIT
CHART-1B71412CFD7F51A2AD5A04.JPG
Adjusted EBIT was $414.0 million for 2017 , an increase of 3.4% compared with the prior year primarily due to higher sales volumes and business interruption insurance recoveries for lost profits as a result of a customer outage. The increase was partially offset by higher manufacturing costs, unfavorable product and regional mix, and higher operating expenses.
Adjusted EBIT was $400.3 million for 2016 , an increase of 15.8% compared with the prior year primarily due to higher Adjusted Gross Margin, lower operating expenses including lower corporate costs, and increased income from our ART joint venture, partially offset by the effect of lower sales volumes, lower pricing and unfavorable currency translation. The prior year, prepared on a discontinued operations basis, includes certain costs which were either assumed by GCP at the time of the Separation or eliminated through restructuring or other cost reduction actions.
Adjusted EPS
The following table reconciles our Diluted EPS (GAAP) to our Adjusted EPS (non-GAAP):
 
2017
(In millions, except per share amounts)
Pre-Tax
 
Tax Effect
 
After-Tax
 
Per Share
Diluted Earnings Per Share (GAAP)
 
 
 
 
 
 
$
0.16

Pension MTM adjustment and other related costs, net
$
51.1

 
$
17.4

 
$
33.7

 
0.49

Costs related to legacy product, environmental and other claims, net
30.8

 
11.4

 
19.4

 
0.28

Restructuring and repositioning expenses
26.7

 
8.9

 
17.8

 
0.26

Accounts receivable reserve—Venezuela
10.0

 
3.5

 
6.5

 
0.10

Third-party acquisition-related costs
2.9

 
1.1

 
1.8

 
0.03

Income and expense items related to divested businesses
2.3

 
0.8

 
1.5

 
0.02

Discrete tax items:
 
 
 
 
 
 
 
Provisional charge related to the U.S. Tax Cuts and Jobs Act of 2017
 
 
(143.0
)
 
143.0

 
2.10

Discrete tax items, including adjustments to uncertain tax positions
 
 
2.7

 
(2.7
)
 
(0.04
)
Adjusted EPS (non-GAAP)
 
 
 
 
 
 
$
3.40


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2016
(In millions, except per share amounts)
Pre-Tax
 
Tax Effect
 
After-Tax
 
Per Share
Diluted Earnings Per Share (GAAP)
 
 
 
 
 
 
$
1.52

Pension MTM adjustment and other related costs, net
$
60.3

 
$
19.8

 
$
40.5

 
0.57

Restructuring and repositioning expenses
38.6

 
11.6

 
27.0

 
0.38

Costs related to legacy product, environmental and other claims, net
35.4

 
13.2

 
22.2

 
0.31

Amortization of acquired inventory fair value adjustment
8.0

 
3.0

 
5.0

 
0.07

Third-party acquisition-related costs
2.5

 
0.7

 
1.8

 
0.03

(Gain) loss on sale of product line
(1.7
)
 
(0.6
)
 
(1.1
)
 
(0.02
)
Gain on termination and curtailment of postretirement plans related to divested businesses
(0.3
)
 
(0.1
)
 
(0.2
)
 
—

Income and expense items related to divested businesses
(0.1
)
 
—

 
(0.1
)
 
—

Loss on early extinguishment of debt
11.1

 
4.1

 
7.0

 
0.10

Discrete tax items:
 
 
 
 
 
 
 
Discrete tax items, including adjustments to uncertain tax positions
 
 
(9.8
)
 
9.8

 
0.14

Adjusted EPS (non-GAAP)
 
 
 
 
 
 
$
3.10

 
2015
(In millions, except per share amounts)
Pre-Tax
 
Tax Effect
 
After-Tax
 
Per Share
Diluted Earnings Per Share (GAAP)
 
 
 
 
 
 
$
1.71

Pension MTM adjustment and other related costs, net
$
30.5

 
$
12.1

 
$
18.4

 
0.25

Restructuring and repositioning expenses
20.4

 
7.2

 
13.2

 
0.18

Costs related to legacy product, environmental and other claims, net
6.1

 
2.2

 
3.9

 
0.05

Gain on termination and curtailment of postretirement plans related to divested businesses
(2.6
)
 
(1.0
)
 
(1.6
)
 
(0.02
)
Income and expense items related to divested businesses
(1.5
)
 
(0.6
)
 
(0.9
)
 
(0.01
)
Discrete tax items:
 
 
 
 
 
 
 
Discrete tax items, including adjustments to uncertain tax positions
 
 
(1.3
)
 
1.3

 
0.02

Adjusted EPS (non-GAAP)
 
 
 
 
 
 
$
2.18

Adjusted EBIT Return On Invested Capital
CHART-7A319E85431A68FD5B5A04.JPG
Adjusted EBIT Return On Invested Capital for 2017 was 24.4% on a trailing four quarters basis, essentially flat compared with 2016 and 2015 on the same basis. We manage our operations with the objective of maximizing sales, earnings and cash flow over time. Doing so requires that we successfully balance our growth, profitability and working capital and other investments to support sustainable, long-term financial performance. We use Adjusted EBIT Return On Invested Capital as a performance measure in evaluating operating results, in making operating and investment decisions and in balancing the growth and profitability of our operations.

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Segment Overview—Grace Catalysts Technologies
Following is an overview of the financial performance of Catalysts Technologies for the years ended December 31, 2017 , 2016 , and 2015 .
Net Sales—Grace Catalysts Technologies
CHART-8CDF8063D75852728EAA04.JPG
Sales were $1,276.5 million for 2017 , an increase of 9.7% compared with the prior year. The increase was due to higher sales volumes ( +9.7% ) and favorable currency translation ( +0.3% ), partially offset by lower pricing ( -0.3% ). Higher sales volumes were driven by higher demand, primarily in Asia, and the full-year benefit of the 2016 polyolefin catalysts acquisition. Specialty Catalysts sales volumes increased due to the acquisition and organic growth in the existing businesses driven by higher demand in all markets. Refining Catalysts sales volumes increased primarily in Asia, due to demand for new products, bid business, and new customer acquisition. Sales volumes in Latin America decreased primarily due to a delay in contract renewals in the region and lower sales into Venezuela. Lower pricing was primarily due to customer mix. Favorable currency translation affected both product groups as the U.S. dollar weakened against multiple currencies, especially the euro, compared with the prior year.
Sales were $1,163.7 million for 2016 , an increase of 0.1% compared with the prior year. The increase was due to higher sales volumes ( +1.6% ), partially offset by lower pricing ( -1.2% ) and unfavorable currency translation ( -0.3% ). Specialty Catalysts sales volumes increased in all regions except Latin America, with the majority of the increase coming from Europe. Sales volumes were higher in Asia despite declines in China as customers reduced inventories to align with lower projected growth rates and decreased demand for chemical catalysts. The higher Specialty Catalyst sales volumes reflected a favorable impact related to the polyolefin catalysts acquisition. In January 2016, we reduced our least efficient production capacity by 10,000 tons at our Curtis Bay plant, which contributed to a decline in Refining Catalysts sales volumes. Reductions in customer trials and higher refinery turnarounds also impacted sales volumes of Refining Catalysts. Unfavorable currency translation primarily affected Refining Catalysts.

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Segment Operating Income (SOI) and Margin—Grace Catalysts Technologies
CHART-EDA88D0EAAA1560885FA04.JPG
Gross profit was $521.2 million for 2017 , an increase of 0.9% compared with the prior year. Gross margin was 40.8% compared with 44.4% for the prior year. The decrease in gross margin was primarily due to higher manufacturing costs, including 130 basis points related to higher raw materials costs, and product and regional mix, including the full-year effect of the 2016 polyolefin catalysts acquisition.
Segment operating income was $395.4 million for 2017 , an increase of 7.5% compared with the prior year, primarily due to higher sales volumes and business interruption insurance recoveries, partially offset by higher manufacturing costs and product and regional mix. The ART joint venture contributed $25.9 million to operating income, a decrease of $3.9 million from the prior-year period, primarily due to a change in costs included in the service level agreements with ART. Segment operating margin for 2017 decreased to 31.0% , a decline of 60 basis points compared with the prior year.
In January 2017, a Catalysts Technologies customer experienced an explosion and fire resulting in an extended outage. We recognized a benefit of and received $25.0 million in payments from our third-party insurer during 2017, under our business interruption insurance policy for a portion of profits lost as a result of the outage. The policy had a $25.0 million limit for this event.
In the 2017 third quarter, we recorded a $10.0 million charge to fully reserve for a trade receivable from a Venezuela-based customer related to increased economic uncertainty and the recent political unrest and sanctions. This charge has been excluded from Adjusted EBIT due to the nature of the situation.
Gross profit was $516.8 million for 2016 , an increase of 5.4% compared with the prior year. Gross margin was 44.4% compared with 42.2% for the prior year. Gross margin increased as lower manufacturing costs, including 250 basis points related to lower raw materials costs, and improved productivity more than offset the effect of the polyolefin catalysts acquisition.
Segment operating income was $367.8 million  for 2016 , an increase of 5.9% compared with the prior year, primarily due to improved gross margins, higher ART income, and the polyolefin catalysts acquisition, partially offset by higher operating expenses. The ART joint venture contributed $29.8 million to operating income, an increase of $9.4 million from the prior-year period. Segment operating margin for 2016 increased to 31.6% , an improvement of 170 basis points compared with the prior year.

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Segment Overview—Grace Materials Technologies
Following is an overview of the financial performance of Materials Technologies for the years ended December 31, 2017 , 2016 , and 2015 .
Net Sales—Grace Materials Technologies
CHART-96A70B7CBED58BEE7F6A04.JPG
Sales were $440.0 million for 2017 , an increase of 1.2% compared with the prior year. The increase was due to favorable currency translation ( +1.1% ) and higher sales volumes ( +0.3% ), partially offset by lower pricing ( -0.2% ). Higher sales volumes in the silicas business, primarily in Asia, were partially offset by the impact related to the exit of certain products lines in the 2016 first half and lower pharmaceutical fine chemicals sales in North America. Favorable currency translation was due to the U.S. dollar weakening against multiple currencies, especially the euro, compared with the prior year.
Sales were $434.9 million for 2016 , a decrease of 6.7% compared with the prior year. The decrease was due to lower sales volumes ( -5.6% ) and unfavorable currency translation ( -1.2% ), partially offset by improved pricing ( +0.1% ). Sales volumes declined in all regions, including a 4.8% impact related to the exit of certain product lines. Lower sales volumes in North America were also impacted by lower demand compared with the prior year, and Asia sales volumes declined as customers reduced inventory levels in the 2016 first quarter.
Segment Operating Income (SOI) and Margin—Grace Materials Technologies
CHART-9DE903050C375E2F95CA04.JPG
Gross profit was $166.9 million for 2017 , a decrease of 3.2% compared with the prior year, primarily due to product lines exited and higher manufacturing costs. Gross margin was 37.9% compared with 39.6% for the prior

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year. The decrease in gross margin was primarily due to higher manufacturing costs, including 60 basis points related to higher raw materials costs.
Segment operating income was $100.6 million for 2017 , a decrease of 3.3% compared with the prior year, primarily due to higher manufacturing costs and higher operating expenses, partially offset by higher sales volumes and favorable currency translation. Segment operating margin for 2017 decreased to 22.9% , a decline of 100 basis points compared with the prior year.
Gross profit was $172.4 million for 2016 , a decrease of 4.7% compared with the prior year, primarily due to the exited product lines. Gross margin was 39.6% compared with 38.8% for the prior year. The increase in gross margin was primarily due to lower manufacturing costs including improved productivity, and improved pricing.
Segment operating income was $104.0 million  for 2016 , an increase of 7.3% compared with the prior year, primarily due to lower operating expenses, partially offset by lower gross profit related to the exited product lines. Segment operating margin for 2016 increased to 23.9% , an improvement of 310 basis points compared with the prior year, primarily due to lower operating expenses and the effect of exiting lower margin product lines.
Corporate Overview
CHART-A0AB06D3CEBC55FF854A04.JPG
Corporate costs include corporate functional costs and other corporate costs such as professional fees and insurance premiums. Corporate costs for 2017 increased 16.2% compared with the prior year, primarily due to a favorable settlement of a claim in 2016 and higher incentive compensation in 2017.
Corporate costs for 2016 decreased 25.7% compared with the prior year. Certain costs included in the prior years were either assumed by GCP at the time of the Separation or were eliminated through restructuring or other cost reduction actions.
Restructuring and Repositioning Expenses
During 2017 , we incurred $11.5 million of restructuring expenses primarily related to workforce reduction programs in Manufacturing, Supply Chain, Finance and IT, compared with $24.3 million in 2016 that was related to workforce reductions and the exit of certain non-strategic product lines in Materials Technologies. Restructuring costs of $11.3 million in 2015 were in part due to the Separation.
We incurred $15.2 million of repositioning expenses in 2017 primarily for third-party costs related to business and functional productivity and transformation projects, as well as costs related to the Separation. We incurred $14.3 million and $9.1 million of repositioning costs, primarily related to the Separation, in 2016 and 2015 , respectively.
In 2017, we initiated a multi-year program to transform our manufacturing and business processes to extend our competitive advantages and improve our cost position. We expect to significantly improve our manufacturing performance, reduce our manufacturing costs, and improve our demand and supply planning capabilities. We also expect to invest significant capital in our manufacturing plants to accelerate growth and improve performance.

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Defined Benefit Pension Expense
Defined benefit pension expense includes costs under U.S. and non-U.S. defined benefit pension plans that provide benefits to business segment and corporate employees, as well as retirees and former employees of divested businesses where we retained these obligations.
Under mark-to-market accounting, our pension costs consist of two elements: 1) "certain pension costs"—ongoing costs recognized quarterly, which include service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; and 2) "pension mark-to-market adjustment and other related costs, net"—mark-to-market gains and losses recognized annually in the fourth quarter, or at an interim period should a significant event occur, resulting from changes in actuarial assumptions, such as discount rates and the difference between actual and expected returns on plan assets.
Certain pension costs were $13.0 million , $12.3 million and $20.4 million for 2017 , 2016 and 2015 , respectively. As of December 31, 2015, we changed the approach used to determine the service and interest cost components of defined benefit pension expense. Previously, we estimated service and interest costs using a single weighted average discount rate derived from the same yield curve used to measure the projected benefit obligation. For 2016 and 2017, we elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. We believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve.
Pension mark-to-market adjustment and other related costs, net were $51.1 million , $60.3 million and $30.5 million for 2017 , 2016 and 2015 , respectively. These costs are reported in "cost of goods sold" and in "selling, general and administrative expenses” in our Consolidated Financial Statements based upon the functions of the employees to which the pension costs relate. The 2017 mark-to-market pension expense of $51.1 million was primarily due to the decrease in discount rates used to value the projected benefit obligations of our plans from year-end 2016 to year-end 2017, partially offset by higher than expected return on assets in the U.S. The 2016 mark-to-market pension expense of $60.3 million was primarily due to the decrease in discount rates used to value the projected benefit obligations of our plans from year-end 2015 to year-end 2016, partially offset by higher than expected return on assets in the U.S. The 2015 mark-to-market pension expense of $30.5 million was primarily due to lower than expected return on assets in the U.S., partially offset by the increase in discount rates from year-end 2014 to year-end 2015.
Interest and Financing Expenses
Net interest and financing expenses were $78.5 million for 2017 , a decrease of 2.5% compared with 2016 , primarily due to voluntary prepayments of our term loans in February and March 2016, partially offset by higher interest expense due to borrowings on our floating rate term loans and revolving credit facility. Interest and financing expenses were $80.5 million for 2016 , a decrease of 18.8% compared with 2015 , primarily due to the 2016 prepayments on our term loans.
Income Taxes
Income tax expense (benefit) for 2017 , 2016 and 2015 was $200.5 million , $59.0 million and $69.8 million , respectively, on income from continuing operations before income taxes of $210.9 million , $166.0 million and $193.7 million in 2017 , 2016 and 2015 , respectively.
Our 2017 effective tax rate includes $143.0 million in charges related to U.S. Tax Cuts and Jobs Act of 2017 (the "Act"). The effective tax rate without the impact of the Act was 27.3%, lower than the 35% U.S. statutory rate, primarily due to geographic mix of income and the R&D credit.
Our 2016 effective tax rate of was 35.5% was slightly higher than the 35% U.S. statutory rate. The benefit from the geographic mix of income and stock compensation windfall was nearly fully offset by state income taxes and other permanent items.
Our 2015 effective tax rate was 36% was slightly higher than the 35% U.S. statutory rate.
See Note 7 to the Consolidated Financial Statements for additional information regarding income taxes.

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Financial Condition, Liquidity, and Capital Resources
Following is an analysis of our financial condition, liquidity and capital resources at December 31, 2017 .
Our principal uses of cash are generally capital investments and acquisitions; working capital investments; compensation paid to employees, including contributions to our defined benefit pension plans and defined contribution plans; the repayment of debt and interest payments thereon; and the return of cash to shareholders through repurchase of shares and dividends.
On February 5, 2015, we announced that the Board of Directors had authorized a share repurchase program of up to $500 million, which we completed on July 10, 2017. On February 8, 2017, we announced that the Board of Directors had authorized a new share repurchase program of up to $250 million. Under these programs, during 2017 we repurchased 935,435 shares of Company common stock for $65.0 million . As of December 31, 2017 , $218.9 million remained under this authorization.
In the 2016 second quarter, we began to pay a quarterly cash dividend, at an annual rate of $0.68 per share of Company common stock. On February 8, 2017, we announced that the Board of Directors had approved an increase in the annual dividend rate, to $0.84 per share of Company common stock. On February 8, 2018, we announced that the Board of Directors had approved another increase in the annual dividend rate, to $0.96 per share of Company common stock. We paid cash dividends of $57.3 million during 2017.
We believe that the cash we expect to generate during 2018 and thereafter, together with other available liquidity and capital resources, are sufficient to finance our operations, growth strategy, share repurchase program and expected dividend payments, and meet our debt and pension obligations.
On December 14, 2017, we signed a definitive agreement to acquire the polyolefin catalysts business of Albemarle Corporation for $416 million, which we expect to finance with a combination of debt and cash. We expect the transaction to close in the 2018 first quarter, subject to regulatory approvals and other customary closing conditions.
Cash Resources and Available Credit Facilities
At December 31, 2017 , we had available liquidity of $445.0 million , consisting of $152.8 million in cash and cash equivalents ($64.0 million in the U.S.), $262.8 million available under our revolving credit facility, and $29.4 million of available liquidity under various non-U.S. credit facilities. The $300 million revolving credit facility includes a $150 million sublimit for letters of credit.
Our non-U.S. credit facilities are extended to various subsidiaries that use them primarily to issue bank guarantees supporting trade activity and to provide working capital during occasional cash shortfalls. We generally renew these credit facilities as they expire. In December 2017, we repaid and terminated the credit facility we had maintained in Germany.
The following table summarizes our non-U.S. credit facilities as of December 31, 2017 :

(In millions)
Maximum
Borrowing
Amount
 
Available
Liquidity
 
Expiration Date
China
$
23.1

 
$
12.2

 
Various through 2020
Other countries
28.4

 
17.2

 
Various through 2020
Total
$
51.5

 
$
29.4

 
 

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Analysis of Cash Flows
The following table summarizes our cash flows for the years ended December 31, 2017 , 2016 , and 2015 :
 
Year Ended December 31,
(In millions)
2017
 
2016
 
2015
Net cash provided by (used for) operating activities from continuing operations
$
319.2

 
$
267.5

 
$
(189.8
)
Net cash provided by (used for) investing activities from continuing operations
(129.9
)
 
(345.0
)
 
(112.0
)
Net cash provided by (used for) financing activities from continuing operations
(134.8
)
 
(60.2
)
 
(40.5
)
Effect of currency exchange rate changes on cash and cash equivalents
7.7

 
(3.0
)
 
(1.7
)
Increase (decrease) in cash and cash equivalents from continuing operations
62.2

 
(140.7
)
 
(344.0
)
Increase (decrease) in cash and cash equivalents from discontinued operations
—

 
44.8

 
116.4

Net increase (decrease) in cash and cash equivalents
62.2

 
(95.9
)
 
(227.6
)
Less: cash and cash equivalents of discontinued operations
—

 
(143.4
)
 
—

Cash and cash equivalents, beginning of period
90.6

 
329.9

 
557.5

Cash and cash equivalents, end of period
$
152.8

 
$
90.6

 
$
329.9

Net cash provided by operating activities in 2017 was $319.2 million compared with $267.5 million in the prior year. The year-over-year change in cash flow was primarily due to higher income from continuing operations before income taxes and lower net cash paid for income taxes, partially offset by a 2017 payment of $30 million to satisfy a deferred payment obligation to the asbestos property damage trust required under the joint plan of reorganization.
Net cash provided by operating activities in 2016 was $267.5 million compared with net cash used for operating activities of $189.8 million in the prior year. The year-over-year change in cash flow was primarily due to the 2015 first quarter payment of $490 million to repurchase a warrant issued to the asbestos personal injury trust at emergence, partially offset by higher net cash paid for income taxes in 2016.
Net cash used for investing activities in 2017 was $129.9 million compared with $345.0 million in the prior year. Net cash used for investing activities primarily includes the net cash paid for capital expenditures, businesses acquired, and transfers in/out of restricted cash. Our capital expenditures include investments in new capacity, improved productivity, information technology, and maintenance of our manufacturing and office facilities. We expect to fund our capital expenditures from net cash provided by operating activities. Net cash used for investing activities in 2016 was $345.0 million compared with $112.0 million in the prior year.
In 2016, we completed the polyolefin catalysts acquisition for $246.5 million in cash, which was partially offset by $11.3 million in proceeds from the sale of assets.
Net cash used for financing activities in 2017 was $134.8 million compared with $60.2 million in the prior year. In 2016, we received a $750 million distribution of cash from GCP, of which we used $600 million to pay down our euro and U.S. dollar term loans in the first quarter. Cash paid for repurchases of common stock in 2017 was $65.0 million compared with $195.1 million in 2016 . In 2017 , we also paid cash dividends of  $57.3 million , compared with $36.0 million in the prior year.
Net cash used for financing activities in 2016 was $60.2 million compared with net cash provided by financing activities of $40.5 million in the prior year. The change in cash provided by financing activities is primarily due to the $750 million distribution from GCP received in 2016 and lower 2016 payments to repurchase common stock, partially offset by the prepayment of debt and cash dividends paid in 2016.
Included in net cash provided by (used for) operating activities from continuing operations are legacy product, environmental and other claims paid of $54.5 million , $24.6 million and $507.4 million ; restructuring expenses paid of $13.8 million , $16.0 million , and $5.6 million ; and repositioning expenses paid of $11.0 million , $35.5 million and $38.6 million for 2017 , 2016 and 2015 , respectively; cash paid for third-party acquisition-related costs of $0.7 million and $2.3 million for 2017 and 2016, respectively; and cash paid for taxes related to repositioning of $5.0 million and $6.1 million for 2016 and 2015, respectively. Included in capital expenditures are $2.0 million and $7.5 million related to repositioning for 2016 and 2015, respectively. These cash flows totaled

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$80.0 million , $85.4 million and $565.2 million for 2017 , 2016 and 2015 , respectively. We do not include these cash flows when evaluating the performance of our businesses.
Debt and Other Contractual Obligations
Total debt outstanding at December 31, 2017 , was $1,543.9 million . Set forth below are our contractual obligations as of December 31, 2017 :
 
Payments Due by Period
(In millions)
Total
 
Less than
1 Year
 
2-3
Years
 
4-5
Years
 
More Than 5 Years
Debt
$
1,543.9

 
$
20.1

 
$
16.1

 
$
1,203.2

 
$
304.5

Expected interest payments on debt(1)
320.3

 
70.5

 
141.2

 
74.6

 
34.0

Operating lease obligations
68.3

 
10.4

 
12.8

 
5.8

 
39.3

Operating commitments(2)
127.4

 
110.4

 
17.0

 
—

 
—

Pension funding requirements per ERISA(3)
17.4

 
—

 
7.4

 
10.0

 
—

Pension funding requirements for non-U.S. pension plans(4)
46.1

 
9.0

 
18.0

 
19.1

 
—

Total Contractual Obligations
$
2,123.4

 
$
220.4

 
$
212.5

 
$
1,312.7

 
$
377.8

___________________________________________________________________________________________________________________
(1)
Amounts are based on current interest rates as of December 31, 2017 , for principal debt outstanding as of December 31, 2017 .
(2)
Amounts do not include open purchase commitments, which are routine in nature and normally settle within 90 days, or obligations to employees under annual or long-term incentive programs.
(3)
Based on the U.S. qualified pension plans' status as of December 31, 2017 , minimum funding requirements under ERISA have been estimated for the next five years. Amounts in subsequent years or additional payments have not yet been determined.
(4)
Based on the non-U.S. pension plans' status as of December 31, 2017 , funding requirements have been estimated for the next five years. Amounts in subsequent years have not yet been determined.
See Note 10 to the Consolidated Financial Statements for a discussion of Financial Assurances.
Employee Benefit Plans
See Note 8 to the Consolidated Financial Statements for further discussion of Pension Plans and Other Postretirement Benefit Plans.
Defined Contribution Retirement Plan
We sponsor a defined contribution retirement plan for our employees in the United States. This plan is qualified under section 401(k) of the U.S. tax code. Currently, we contribute an amount equal to 100% of employee contributions, up to 6% of an individual employee's salary or wages. Our costs related to this benefit plan were $11.5 million , $11.1 million and $10.4 million for the years ended December 31, 2017 , 2016 and 2015 , respectively.
Defined Benefit Pension Plans
We sponsor defined benefit pension plans for our employees in the U.S., Canada, Germany, and a number of other countries, and fund government-sponsored programs in other countries where we operate. Certain of our defined benefit pension plans are advance-funded and others are pay-as-you-go. The advance-funded plans are administered by trustees who direct the management of plan assets and arrange to have obligations paid when due. Our most significant advance-funded plans cover current and former salaried employees in the U.S. and employees covered by collective bargaining agreements at certain of our U.S. facilities. Our U.S. advance-funded plans are qualified under the U.S. tax code.

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The following table presents the funded status of our underfunded and unfunded pension plans:
 
Underfunded
Pension Plans(1)
 
Unfunded
Pension Plans(2)
(In millions)
2017
 
2016
 
2017
 
2016
Projected benefit obligation
$
1,241.8

 
$
1,187.7

 
$
406.9

 
$
355.6

Fair value of plan assets
1,131.3

 
1,104.6

 
—

 
—

Funded status (PBO basis)
$
(110.5
)
 
$
(83.1
)
 
$
(406.9
)
 
$
(355.6
)
___________________________________________________________________________________________________________________
(1)
Plans intended to be advance-funded.
(2)
Plans intended to be pay-as-you-go.
Underfunded plans include a group of advance-funded plans that are underfunded on a PBO basis by a total of $110.5 million as of December 31, 2017 . Additionally, we have several plans that are funded on a pay-as-you-go basis, and therefore, the entire PBO of $406.9 million at December 31, 2017 , is unfunded. The combined balance of the underfunded and unfunded plans was $517.4 million as of December 31, 2017 , and is presented as a liability on the Consolidated Balance Sheets as follows: $15.0 million in "other current liabilities" and $502.4 million included in "underfunded and unfunded defined benefit pension plans."
At the December 31, 2017 , measurement date for the U.S. advance-funded plans, the PBO was approximately $ 1,217 million as measured under U.S. GAAP. The PBO is measured as the present value (using a 3.57 % weighted average discount rate as of December 31, 2017 ) of vested and non-vested benefits earned from employee service to date, based upon current services and estimated future pay increases for active employees. Of the participants in the U.S. advance-funded plans, approximately 88 % are retired or former employees or employees of our former businesses, which shortens the duration of the PBO. Assets available to fund the PBO for the U.S. advance-funded plans at December 31, 2017 , were approximately $1,110 million , or approximately $107 million less than the measured obligation.
The following table presents the components of cash contributions for the advance-funded and pay-as-you-go plans:
(In millions)
2017
 
2016
 
2015
U.S. advance-funded plans
$
2.1

 
$
—

 
$
—

U.S. pay-as-you-go plans
7.5

 
7.5

 
7.3

Non-U.S. advance-funded plans
1.1

 
1.3

 
1.5

Non-U.S. pay-as-you-go plans
7.1

 
7.1

 
6.6

Total Cash Contributions
$
17.8

 
$
15.9

 
$
15.4

Based on the U.S. advance-funded plans' status as of December 31, 2017 , there are no minimum required payments under ERISA for 2018.
We intend to fund non-U.S. pension plans based upon applicable legal requirements and actuarial and trustee recommendations. We contributed $8.2 million to these plans in 2017 .
Other Contingencies
See Note 10 to the Consolidated Financial Statements for a discussion of our other contingent matters.
Inflation
We recognize that inflationary pressures may have an adverse effect on us through higher asset replacement costs and higher raw materials and other operating costs. We experienced raw materials cost inflation during the 2017 second half and expect to see continued inflation in 2018. We try to minimize these impacts through effective control of operating expenses and productivity improvements as well as price increases to customers.

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We estimate that the cost of replacing our property and equipment today is greater than its historical cost. Accordingly, our depreciation expense over the life of the asset would be greater if the expense were stated on a current cost basis.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires that we make estimates and assumptions affecting the assets and liabilities reported at the date of the Consolidated Financial Statements, and the revenues and expenses reported for the periods presented. We believe that our accounting estimates are appropriate and the related balances are reasonable; however, actual amounts could differ from the original estimates, requiring adjustments in future periods. Changes in estimates are recorded in the period in which the change is identified. Our accounting policies are described in Note 1 to the Consolidated Financial Statements. Critical accounting estimates are described in this section.
An accounting estimate is considered critical if the estimate requires management to make assumptions and judgments about matters that were highly uncertain at the time the estimate was made, if different estimates reasonably could have been used, or if changes in the estimate are reasonably likely to occur from period to period that could have a material impact on our financial condition or results of operations. As part of our quarterly disclosure controls and procedures, management has discussed the development, selection and disclosure of the critical accounting estimates with the Audit Committee of the Board of Directors.
Contingent Liabilities
We have recorded a liability for the resolution of contingencies related to asbestos property damage, environmental remediation, income taxes and litigation. We record a liability if we have determined that a loss is probable and we are able to reasonably estimate the amount of the loss or have another reasonable basis for recording a liability. We have determined that each of the contingencies discussed below involves an accounting judgment that is material to our Consolidated Financial Statements.
Legacy Product Liabilities
We emerged from an asbestos-related Chapter 11 bankruptcy on February 3, 2014, as discussed in Note 10 to the Consolidated Financial Statements. Under the plan of reorganization, all pending and future asbestos-related claims are channeled for resolution to either the PI Trust or the PD Trust. The trusts are the sole recourse for holders of asbestos-related claims. The channeling injunctions issued by the bankruptcy court prohibit holders of asbestos-related claims from asserting such claims directly against us.
We have satisfied all of our financial obligations to the PI Trust. We have contingent financial obligations remaining to the PD Trust. With respect to property damage claims related to ZAI PD Claims, the PD Trust was funded with $34.4 million on the Effective Date and $30 million on February 3, 2017. We are also obligated to make up to 10 contingent deferred payments of $8 million per year to the PD Trust in respect of ZAI PD Claims during the 20 -year period beginning on the fifth anniversary of the Effective Date, with each such payment due only if the assets of the PD Trust in respect of ZAI PD Claims fall below $10 million during the preceding year. We have not accrued for the 10 additional payments as we do not currently believe they are probable. We are not obligated to make additional payments to the PD Trust in respect of ZAI PD Claims beyond the payments described above. We have satisfied all of our financial obligations with respect to Canadian ZAI PD Claims.
With respect to Other PD Claims, claims unresolved as of the Effective Date are to be litigated in the bankruptcy court and any future claims are to be litigated in a federal district court, in each case pursuant to procedures approved by the bankruptcy court. To the extent any such Other PD Claims are determined to be allowed claims, they are to be paid in cash by the PD Trust. We are obligated to make a payment to the PD Trust every six months in the amount of any Other PD Claims allowed during the preceding six months plus interest (if applicable) and the amount of PD Trust expenses for the preceding six months. We have not paid any Other PD Claims since emergence. Annual expenses have been approximately $0.2 million per year. The aggregate amount to be paid under the PD Obligation is not capped, and we may be obligated to make additional payments to the PD Trust in respect of the PD Obligation. We have accrued for those unresolved Other PD Claims that we believe are probable and estimable. We have not accrued for other unresolved or unasserted Other PD Claims as we do not believe that payment is probable.

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All payments to the PD Trust required after the Effective Date are secured by our obligation to issue 77,372,257 shares of Company common stock to the PD Trust in the event of default, subject to customary anti-dilution provisions.
Environmental Remediation
We are obligated under applicable law to remediate certain properties related to our business or former businesses. At some sites we outsource all or a portion of the remediation to third parties, and at others we perform the required remediation ourselves. Our environmental remediation obligation has a significant impact on our Consolidated Financial Statements. See disclosure in this Report in Item 1 (Business—Environment, Health and Safety Matters) and in Note 10 to the Consolidated Financial Statements for a discussion of our environmental remediation liabilities.
At sites where third parties conduct remediation, we estimate our obligations from information available to us through such third parties, including actual costs incurred, expected future costs and time to completion. At sites where we conduct remediation, we use available information, work with regulatory authorities to define compliance requirements, and then estimate the cost required to meet those requirements. We base our estimates on our historical knowledge and engineering assessments specific to conditions at each site, and we update our estimates as necessary.
Our estimates can fluctuate significantly due to the extended duration of some remediation projects. The accuracy of our estimates is dependent on the validity of assumptions regarding regulatory approaches and such matters as labor rates, indirect costs and capital costs, which are each difficult to forecast over extended periods. It is not practicable to estimate the impact on our Consolidated Financial Statements of using other reasonably possible assumptions. Future changes in estimates, if required, will more than likely lead to material adjustments to our Consolidated Financial Statements, and we expect the ultimate resolution of these obligations to have a material impact on our liquidity and capital resources.
We purchased a vermiculite mine in Libby, Montana, in 1963 and operated it until 1990. Vermiculite concentrate from the Libby mine was used in the manufacture of attic insulation and other products. Some of the vermiculite ore contained naturally occurring asbestos. We are engaged with the EPA and other federal, state and local governmental agencies in a remedial investigation and feasibility study of the Libby mine and the surrounding area. In its 2017 Annual Project Update for the Libby Asbestos Superfund Site, the EPA announced a narrowing of its focus from the former "OU3 Study Area" to a smaller Operable Unit 3 ("OU3"). Within this revised area, the RI/FS will determine the specific areas requiring remediation and will identify possible remedial action alternatives. Possible remedial actions within OU3 are wide-ranging, from institutional controls such as land use restrictions, to more active measures involving soil removal, containment projects, or other protective measures. Based on communications from regulatory agencies, we expect the RI/FS and a record of decision to be completed by the end of 2019. When meaningful new information becomes available, we will reevaluate estimated liability for the costs for remediation of the mine and surrounding area and adjust our reserves accordingly.
The EPA is also investigating or remediating formerly owned or operated sites that processed Libby vermiculite into finished products. We are cooperating with the EPA on these investigation and remediation activities and have recorded a liability to the extent that our review has indicated that a probable liability has been incurred and the cost is estimable. These liabilities cover the estimated cost of investigations and, to the extent an assessment has indicated that remediation is necessary, the estimable cost of response actions. Response actions typically involve soil excavation and removal, and replacement with clean fill. The EPA may commence additional investigations in the future at other sites that processed Libby vermiculite, but we do not believe, based on our knowledge of prior and current operations and site conditions, that liability for remediation at such other sites is probable.
Our current estimates of our environmental remediation obligations do not include the cost to remediate the Libby vermiculite mine and surrounding area or costs related to any additional EPA claims, whether resulting from the EPA's investigation of former vermiculite processing sites or otherwise, which may be material but are not currently estimable. It is probable that our ultimate liability for environmental remediation will exceed our current estimates by material amounts.

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Litigation
We are subject to legal proceedings and claims arising out of the normal course of business. To estimate the cost to resolve our legal obligations, we review the facts of each matter to determine the merits of the case and the corresponding probability of a loss. If we determine that a loss is probable, we determine if there is sufficient information to make a reasonable estimate of the loss amount. Our estimates regarding the outcome of our legal proceedings and claims involve substantial uncertainties that could cause our actual losses to differ materially from our estimates. In estimating the likely outcome of a legal proceeding, we consider the nature of the specific claim (or unasserted claim), our experience with similar claims, the jurisdiction in which the proceeding is filed, court rulings, the status of any settlement negotiations, the likelihood of resolution through settlement or alternative dispute resolution, the proceeding's current status and other relevant information and events. We adjust our recorded liability for litigation contingencies as necessary to reflect our current evaluation of these and other factors.
Goodwill
We review our goodwill for impairment on an annual basis at October 31 and whenever events or a change in circumstances indicate that the carrying amount may not be fully recoverable. We have identified our operating segments as reporting units for goodwill impairment testing. Our Catalysts Technologies reportable segment has two reporting units for goodwill impairment testing, which are our Refining Technologies and Specialty Catalysts operating segments. Our Materials Technologies operating segment represents a single reporting unit for goodwill impairment testing.
We performed a quantitative analysis as of October 31, 2017 , and concluded that the estimated fair value of all of our reporting units substantially exceeded their carrying values.
Pension Expenses and Liabilities
We sponsor defined benefit pension plans for our employees in the United States and a number of other countries, including Canada and Germany, and fund government-sponsored programs in other countries where we operate. See Note 8 to the Consolidated Financial Statements for a detailed discussion of our pension plans and other postretirement benefit plans.
In order to estimate our pension expenses and liabilities we evaluate the range of possible assumptions to be used in the calculation of pension expenses and liabilities. We select the assumptions that we believe to be most indicative of factors such as participant demographics, past experiences and market indices, and provide the assumptions to independent actuaries. These assumptions are updated annually and primarily include factors such as discount rates, expected return on plan assets, mortality rates, retirement rates, and rate of compensation increase. The independent actuaries review our assumptions for reasonableness, and use the assumptions to calculate our estimated liability and future pension expense. We review the actuarial reports for reasonableness and adjust our expenses, assets and liabilities to reflect the amounts calculated in the actuarial reports.
The two key assumptions used in determining our pension benefit obligations and pension expense are the discount rate and expected return on plan assets. Our most significant pension assets and pension liabilities relate to U.S. pension plans.
The assumed discount rate for pension plans reflects the market rates for high-quality corporate bonds currently available and is subject to change based on changes in overall market interest rates. For the U.S. pension plans, the assumed weighted average discount rate was selected in consultation with our independent actuaries, based on a yield curve constructed from a portfolio of high quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plan.
We selected the expected return on plan assets for the U.S. qualified pension plans for 2017 in consultation with our independent actuaries, using an expected return model. The model determines the weighted average return for an investment portfolio based on the target asset allocation and expected future returns for each asset class, which were developed using a building block approach based on observable inflation, available interest rate information, current market characteristics, and historical results.

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The following table reflects the sensitivity of 2018 pre-tax expense (excluding the effects of the annual mark-to-market adjustment) and our year-end projected benefit obligation, or PBO, to a change in the discount rate and expected rate of return on plan assets assumptions for the U.S. pension plans:
Change in Assumption
(In millions)
Effect on 2018
Pre-Tax Pension
Expense
 
Effect on December 31, 2017 PBO
25 basis point decrease in discount rate
$
(1
)
 
$
38

25 basis point increase in discount rate
1

 
(36
)
25 basis point decrease in expected return on plan assets
3

 
—

25 basis point increase in expected return on plan assets
(3
)
 
—

Income Taxes
Our effective tax rate is primarily determined based on our pre-tax income and the statutory income tax rates in the jurisdictions in which we operate. The effective tax rate also reflects the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred income tax assets and liabilities. Deferred income tax assets are also recorded for NOL and federal tax credit carryforwards.
Deferred income tax assets and liabilities are recognized by applying enacted tax rates to temporary differences that exist as of the balance sheet date. We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed quarterly. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard, we give appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability and foreign source income ("FSI"), the duration of statutory carryforward periods, and our experience with operating loss and tax credit carryforward expirations. A history of cumulative losses is a significant piece of negative evidence used in our assessment. If a history of cumulative losses is incurred for a tax jurisdiction, forecasts of future profitability are not used as positive evidence related to the realization of the deferred tax assets in the assessment.
As further described in Note 7 to the Consolidated Financial Statements, our Consolidated Balance Sheet as of December 31, 2017 , includes net deferred income tax assets of $548.3 million . Included in this amount are deferred U.S. federal income tax assets representing federal tax credit carryforwards of $269.6 million , federal NOL carryforwards of $89.5 million , state NOL deferred income tax assets of $58.2 million , and foreign NOL deferred tax assets of $6.6 million . We have established valuation allowances in the amount of $12.3 million , consisting of $9.2 million for state net operating loss carryforwards, $2.8 million for foreign deferred tax assets, primarily foreign operating loss carryforwards, and $0.3 million for federal tax credits.
In order to fully utilize our U.S. federal tax credits before they expire from 2021 to 2027, we will need to generate domestic and foreign source income of approximately $1.2 billion and approximately $200 million , respectively. We estimate that we will need to generate future U.S. taxable income of approximately $440 million before 2035 to fully utilize the federal net operating losses. We will need to generate approximately $1.5 billion for state income tax purposes during the respective realization periods (ranging from 2018 to 2035) in order to fully realize the net deferred income tax assets.
Inherent in determining our effective tax rate are judgments regarding business plans and expectations about future operations. These judgments include the amount and geographic mix of future taxable income, the amount of FSI, limitations on the usage of NOL carryforwards, the impact of ongoing or potential tax audits, and other future tax consequences.
The federal tax credit carryforwards arose primarily as a result of the payment of intercompany dividends from our foreign affiliates, from the mandatory repatriation under the Act, and from research and development credits. The federal and state NOLs arose primarily as a result of the amounts paid as a result of our bankruptcy proceedings.

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Our ability to utilize deferred tax assets may be impacted by certain future events, such as changes in tax legislation or insufficient future taxable income or FSI prior to expiration of certain deferred tax assets.
We recognize the tax benefits of an uncertain tax position if those benefits are more likely than not to be sustained based on existing tax law. Additionally, we establish a reserve for tax positions that are more likely than not to be sustained based on existing tax law, but uncertain in the ultimate benefit to be sustained upon examination by the relevant taxing authorities. Unrecognized tax benefits are subsequently recognized at the time the more likely than not recognition threshold is met, the tax matter is effectively settled or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired, whichever is earlier.
Recent Accounting Pronouncements
See Note 1 to the Consolidated Financial Statements for a discussion of recent accounting pronouncements and their effect on us.

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W. R. GRACE & CO. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In millions)

For the Year Ended December 31, 2017
Description
Balance at beginning of period
 
Additions charged to costs and expenses
 
Deductions
 
Other,
net(1)
 
Balance at end of period
Valuation and qualifying accounts deducted from assets:
 
 
 
 
 
 
 
 
 
Allowances for notes and accounts receivable(2)
$
2.8

 
$
10.6

 
$
(1.3
)
 
$
(0.1
)
 
$
12.0

Valuation allowance for deferred tax assets(3)
31.4

 
0.3

 
(19.7
)
 
—

 
12.0

Reserves:
 
 
 
 
 
 
 
 
 
Reserves for environmental remediation
66.3

 
24.4

 
(20.4
)
 
—

 
70.3

Reserves for retained obligations of divested businesses
11.7

 
1.5

 
(0.4
)
 
—

 
12.8


For the Year Ended December 31, 2016
Description
Balance at beginning of period
 
Additions charged to costs and expenses
 
Deductions
 
Other,
net(1)
 
Balance at end of period
Valuation and qualifying accounts deducted from assets:
 
 
 
 
 
 
 
 
 
Allowances for notes and accounts receivable
$
1.4

 
$
2.4

 
$
(1.1
)
 
$
0.1

 
$
2.8

Valuation allowance for deferred tax assets(4)
8.4

 
11.6

 
(9.1
)
 
20.5

 
31.4

Reserves:
 
 
 
 
 
 
 
 
 
Reserves for environmental remediation
55.2

 
29.2

 
(18.1
)
 
—

 
66.3

Reserves for retained obligations of divested businesses
13.5

 
—

 
(1.8
)
 
—

 
11.7


For the Year Ended December 31, 2015
Description
Balance at beginning of period
 
Additions charged to costs and expenses
 
Deductions
 
Other,
net(1)
 
Balance at end of period
Valuation and qualifying accounts deducted from assets:
 
 
 
 
 
 
 
 
 
Allowances for notes and accounts receivable
$
1.0

 
$
0.5

 
$
(0.1
)
 
$
—

 
$
1.4

Valuation allowance for deferred tax assets(5)
10.7

 
0.4

 
(2.6
)
 
(0.1
)
 
8.4

Reserves:
 
 
 
 
 
 
 
 
 
Reserves for environmental remediation
61.1

 
6.4

 
(12.3
)
 
—

 
55.2

Reserves for retained obligations of divested businesses
13.5

 
—

 
—

 
—

 
13.5

___________________________________________________________________________________________________________________
(1)
Effects of currency translation and the Separation.
(2)
The allowance for accounts receivable increased primarily due to a $10.0 million charge to fully reserve for a trade receivable from a Venezuela-based customer related to increased economic uncertainty and the recent political unrest and sanctions.
(3)
The valuation allowance decreased $19.4 million from December 31, 2016 , to December 31, 2017 . The decrease was primarily due to the effects of U.S. tax reform.
(4)
The valuation allowance increased $23.0 million from December 31, 2015 , to December 31, 2016 . The increase was primarily due to the adoption of ASU 2016-09 as well as the ability to utilize NOL carryforwards as a result of the Separation.
(5)
The valuation allowance decreased $2.3 million from December 31, 2014 , to December 31, 2015 . The decrease was primarily due to a reduction in the valuation allowance on state NOL carryforwards.

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EXHIBIT 12
W. R. GRACE & CO. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS(1)
(In millions, except ratios)
(Unaudited)

 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
 
2014
 
2013
Net income attributable to W. R. Grace & Co. shareholders
 
$
11.2

 
$
94.1

 
$
144.2

 
$
276.3

 
$
256.1

Provision for (benefit from) income taxes
 
200.5

 
59.0

 
69.8

 
(12.4
)
 
29.2

Equity in earnings of unconsolidated affiliate
 
(25.9
)
 
(29.8
)
 
(20.4
)
 
(19.7
)
 
(22.9
)
Distributed income of earnings of unconsolidated affiliate
 
19.0

 
31.0

 
11.8

 
11.2

 
2.8

Interest expense and related financing costs, including amortization of capitalized interest, less interest capitalized
 
79.6

 
92.1

 
99.8

 
123.5

 
40.7

Estimated amount of rental expense deemed to represent the interest factor
 
7.5

 
8.0

 
7.9

 
8.2

 
7.6

Income as adjusted
 
$
291.9

 
$
254.4

 
$
313.1

 
$
387.1

 
$
313.5

Combined fixed charges and preferred stock dividends:
 
 
 
 
 
 
 
 
 
 
Interest expense and related financing costs, including capitalized interest
 
$
81.0

 
$
93.2

 
$
100.5

 
$
124.8

 
$
41.8

Estimated amount of rental expense deemed to represent the interest factor
 
7.5

 
8.0

 
7.9

 
8.2

 
7.6

Fixed charges
 
88.5

 
101.2

 
108.4

 
133.0

 
49.4

Combined fixed charges and preferred stock dividends
 
$
88.5

 
$
101.2

 
$
108.4

 
$
133.0

 
$
49.4

Ratio of earnings to fixed charges
 
3.30

 
2.51

 
2.89

 
2.91

 
6.35

Ratio of earnings to fixed charges and preferred stock dividends
 
3.30

 
2.51

 
2.89

 
2.91

 
6.35

___________________________________________________________________________________________________________________
(1)
Grace did not have preferred stock from 2013 through 2017 .


Table of Contents

EXHIBIT 31.(i).1
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, A. E. Festa, certify that:
1.
I have reviewed this annual report on Form 10-K of W. R. Grace & Co.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 22, 2018
 
 
/s/ A. E. FESTA
 
 
A. E. Festa
Chief Executive Officer


Table of Contents

EXHIBIT 31.(i).2
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Thomas E. Blaser, certify that:
1.
I have reviewed this annual report on Form 10-K of W. R. Grace & Co.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 22, 2018
 
 
/s/ THOMAS E. BLASER
 
 
Thomas E. Blaser
Senior Vice President and Chief Financial Officer


Table of Contents

EXHIBIT 32
CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), the undersigned certifies that (1) this Annual Report of W. R. Grace & Co. (the "Company") on Form 10-K for the period ended December 31, 2017 , as filed with the Securities and Exchange Commission on the date hereof (this "Report"), fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ A. E. FESTA
 
 
A. E. Festa
Chief Executive Officer
 
 
 
 
 
/s/ THOMAS E. BLASER
 
 
Thomas E. Blaser
Senior Vice President and Chief Financial Officer
 
 
Date: 2/22/2018
 
 
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EXECUTION COPY







AMENDED AND RESTATED SALE AND PURCHASE AGREEMENT
BETWEEN
ALBEMARLE CORPORATION
And
W. R. GRACE & CO.–CONN.

Dated as of February 21, 2018


114884650
TABLE OF CONTENTS

Article I
DEFINITIONS    1
Section 1.1
Act of Sale    1
Section 1.2
Action    1
Section 1.3
Accounts Receivable    1
Section 1.4
Affiliate    2
Section 1.5
Agreement    2
Section 1.6
Allocation Schedule    2
Section 1.7
Alternative Financing    2
Section 1.8
Anti-Corruption Laws    2
Section 1.9
Antitrust Termination Fee    2
Section 1.10
Assets    2
Section 1.11
Assumed Liabilities    2
Section 1.12
Baseline Company Net Working Capital    2
Section 1.13
Baseline Transferred Assets Net Working Capital    2
Section 1.14
Basket    2
Section 1.15
Baton Rouge Manufacturing Facility    2
Section 1.16
Baton Rouge Manufacturing Facility Services Agreement    2
Section 1.17
Bromine Assets    3
Section 1.18
Business    3
Section 1.19
Business Day    3
Section 1.20
Business Employee    3
Section 1.21
Business Financial Statements    3
Section 1.22
Closing    3
Section 1.23
Closing Date    3
Section 1.24
Closing Date Cash    3
Section 1.25
Closing Date Company Employees    4
Section 1.26
Closing Date Indebtedness    4
Section 1.27
Closing Date NOL    4
Section 1.28
Closing Date Offered Employees    4
Section 1.29
Closing Date Transaction Expenses    4
Section 1.30
Code    4
Section 1.31
Commercial Tax Agreement    4
Section 1.32
Company    4
Section 1.33
Company Accounts Receivable    4
Section 1.34
Company Adjustment Amount    4
Section 1.35
Company Assets    4
Section 1.36
Company Contracts    5
Section 1.37
Company Employee    5
Section 1.38
Company Equipment    5
Section 1.39
Company Financial Statements    5
Section 1.40
Company Interests    5
Section 1.41
Company Interests Transfer Agreement    5
Section 1.42
Company Inventory    5
Section 1.43
Company IP Agreements    5

 
i
 

TABLE OF CONTENTS
(continued)
Page

Section 1.44
Company Net Working Capital    5
Section 1.45
Company Owned Intellectual Property    6
Section 1.46
Company Permits    6
Section 1.47
Company Released Parties    6
Section 1.48
Company Releasing Parties    6
Section 1.49
Company Subsidiary    6
Section 1.50
Compliant    6
Section 1.51
Confidentiality Agreement    6
Section 1.52
Confidential Information Presentation    6
Section 1.53
Contract    6
Section 1.54
control    6
Section 1.55
Conveyance Taxes    7
Section 1.56
Cooperation Indemnitees    7
Section 1.57
Current Offered Employees    7
Section 1.58
Debt Commitment Letter    7
Section 1.59
Debt Financing    7
Section 1.60
Debt Financing Agreements    7
Section 1.61
Deed and Declaration of Easement    7
Section 1.62
De Minimis Claim    7
Section 1.63
Disclosure Schedules    7
Section 1.64
Dispute Notice    7
Section 1.65
Disputed Items    7
Section 1.66
Employee Records    7
Section 1.67
Encumbrance    7
Section 1.68
Environmental Law    8
Section 1.69
Environmental Permit    8
Section 1.70
ERISA    8
Section 1.71
Estimated Purchase Price Statement    8
Section 1.72
Ethyl Indemnity    8
Section 1.73
Excluded Assets    8
Section 1.74
Excluded Claim    8
Section 1.75
Excluded Liabilities    8
Section 1.76
Excluded Metal Alkyls    8
Section 1.77
Excluded Products    9
Section 1.78
Excluded Taxes    9
Section 1.79
Exemption Documentation    9
Section 1.80
Existing Stock    9
Section 1.81
Extended Termination Date    9
Section 1.82
Fee Letter    9
Section 1.83
Final Closing Date Cash    9
Section 1.84
Final Closing Date Indebtedness    9
Section 1.85
Final Closing Date Transaction Expenses    9
Section 1.86
Final Company Closing Date Payment    10
Section 1.87
Final Company Net Working Capital    10
Section 1.88
Final Transferred Assets Closing Date Payment    10

 
ii
 

TABLE OF CONTENTS
(continued)
Page

Section 1.89
Final Transferred Assets Net Working Capital    10
Section 1.90
Financial Statements    10
Section 1.91
Financing Sources    10
Section 1.92
Financing Termination Fee    10
Section 1.93
Foreign Seller    10
Section 1.94
GAAP    10
Section 1.95
Goodwill    10
Section 1.96
Governmental Authority    10
Section 1.97
Governmental Order    10
Section 1.98
Hazardous Material    10
Section 1.99
HSR Act    11
Section 1.100
Improvements    11
Section 1.101
In-Licensed Intellectual Property    11
Section 1.102
Indebtedness    11
Section 1.103
Indemnified Party    11
Section 1.104
Indemnifying Party    11
Section 1.105
Independent Accountant    11
Section 1.106
Intellectual Property    12
Section 1.107
Intellectual Property Assignment Agreement    12
Section 1.108
Inventory    12
Section 1.109
IP Agreements    12
Section 1.110
IT Assets    12
Section 1.111
Key Customers    12
Section 1.112
Key Suppliers    12
Section 1.113
KNTS    12
Section 1.114
Korean Accounting Standards    13
Section 1.115
Korean Capital Gains Tax    13
Section 1.116
Korean Plans    13
Section 1.117
Land    13
Section 1.118
Law    13
Section 1.119
Leave Offered Employees    13
Section 1.120
Liabilities    13
Section 1.121
License Agreement    13
Section 1.122
Local Conveyances    13
Section 1.123
Loss    13
Section 1.124
Manufacturing Facilities    13
Section 1.125
Marketing Period    13
Section 1.126
Material Adverse Effect    14
Section 1.127
Material Contracts    14
Section 1.128
Maximum Closing Date Cash    15
Section 1.129
Most Cost-Effective Manner    15
Section 1.130
NOL Reduction Tax Increase    15
Section 1.131
Non U.S. Albemarle Plans    15
Section 1.132
Non U.S. Employees    15
Section 1.133
Non U.S. Offered Employees    15

 
iii
 

TABLE OF CONTENTS
(continued)
Page

Section 1.134
Non U.S. Transferred Employee    15
Section 1.135
Offer Date    15
Section 1.136
Offered Employee    15
Section 1.137
Orangeburg SC Facility    15
Section 1.138
Orangeburg Transferred Equipment    15
Section 1.139
OTA Lease    15
Section 1.140
Owned Intellectual Property    16
Section 1.141
Owned Real Property    16
Section 1.142
PDC Lease    16
Section 1.143
Permits    16
Section 1.144
Permitted Encumbrances    16
Section 1.145
Person    16
Section 1.146
Pilot Plant    17
Section 1.147
Pilot Plant Assets    17
Section 1.148
Plan    17
Section 1.149
Post-Closing Adjustment    17
Section 1.150
Post-Closing Tax Period    17
Section 1.151
Post-Signing Insurance Proceeds    17
Section 1.152
Pre-Closing Tax Period    17
Section 1.153
Pre-Closing Restructuring    17
Section 1.154
Preliminary Closing Date Cash    17
Section 1.155
Preliminary Closing Date Indebtedness    17
Section 1.156
Preliminary Closing Date Transaction Expenses    17
Section 1.157
Preliminary Company Closing Date Payment    17
Section 1.158
Preliminary Company Net Working Capital    18
Section 1.159
Preliminary Transferred Assets Closing Date Payment    18
Section 1.160
Preliminary Transferred Assets Net Working Capital    18
Section 1.161
Pro Forma Company Financial Statements    18
Section 1.162
Protected Communications    18
Section 1.163
Public Announcement    18
Section 1.164
Purchase Price    18
Section 1.165
Purchase Price for the Transferred Assets    18
Section 1.166
Purchase Price for the Company Interests    18
Section 1.167
Purchaser    18
Section 1.168
Purchaser 401(k) Plan    18
Section 1.169
Purchaser Benefit Plan    18
Section 1.170
Purchaser Disclosure Schedule    18
Section 1.171
Purchaser Environmental Liabilities    18
Section 1.172
Purchaser FSA Plan    19
Section 1.173
Purchaser Fundamental Representations    19
Section 1.174
Purchaser Indemnified Party    19
Section 1.175
Registered IP    19
Section 1.176
Regulations    19
Section 1.177
Related Party    19
Section 1.178
Related Party Contract    19

 
iv
 

TABLE OF CONTENTS
(continued)
Page

Section 1.179
Release    19
Section 1.180
Remedial Action    19
Section 1.181
Representatives    20
Section 1.182
Required Information    20
Section 1.183
Required Lease Amendment    20
Section 1.184
Required Operating Agreement Amendment    20
Section 1.185
Research and Development Assets    20
Section 1.186
Research and Development Lab    20
Section 1.187
Retained Names and Marks    20
Section 1.188
Return Deadline    20
Section 1.189
Second Request    21
Section 1.190
Seller    21
Section 1.191
Seller 401(k) Plan    21
Section 1.192
Seller Benefit Plan    21
Section 1.193
Seller Disclosure Schedule    21
Section 1.194
Seller Environmental Liabilities    21
Section 1.195
Seller FSA Plan    21
Section 1.196
Seller Fundamental Representations    21
Section 1.197
Seller Indemnified Environmental Noncompliance    21
Section 1.198
Seller Indemnified Party    22
Section 1.199
Seller Law Firms    22
Section 1.200
Seller Released Parties    22
Section 1.201
Seller Releasing Parties    22
Section 1.202
Seller Restricted Parties    22
Section 1.203
Seller’s Knowledge; Knowledge of the Seller    22
Section 1.204
Services Agreements    22
Section 1.205
Servitudes    22
Section 1.206
Shared Contracts    22
Section 1.207
Shared Information    22
Section 1.208
SI Group Operating Agreement    22
Section 1.209
Specified Key Customer    22
Section 1.210
Straddle Period    23
Section 1.211
Subsidiary    23
Section 1.212
Supply Agreement Sites    23
Section 1.213
Supply Agreements    23
Section 1.214
Survey    23
Section 1.215
Tax; Taxes    23
Section 1.216
Tax Proceeding    23
Section 1.217
Tax Return    24
Section 1.218
Termination Date    24
Section 1.219
Third-Party Claim    24
Section 1.220
Third-Party Rights    24
Section 1.221
Title Commitment    24
Section 1.222
Title Company    24
Section 1.223
Title Policy    24

 
v
 

TABLE OF CONTENTS
(continued)
Page

Section 1.224
Tolling Agreement    24
Section 1.225
Trade Accounts Payable    24
Section 1.226
Transaction Documents    24
Section 1.227
Transfer Date    24
Section 1.228
Transferred Accounts Receivable    24
Section 1.229
Transferred Assets    25
Section 1.230
Transferred Assets Adjustment Amount    25
Section 1.231
Transferred Assets Net Working Capital    25
Section 1.232
Transferred Contracts    25
Section 1.233
Transferred Employee    25
Section 1.234
Transferred Equipment    25
Section 1.235
Transferred Information    25
Section 1.236
Transferred Inventory    25
Section 1.237
Transferred IP Agreements    26
Section 1.238
Transferred Owned Intellectual Property    26
Section 1.239
Transferred Permits    26
Section 1.240
Transferred Rail Cars    26
Section 1.241
Transferred Records    26
Section 1.242
Transferred Tanks    26
Section 1.243
Transition Services Agreement    27
Section 1.244
U.S. Albemarle Plans    27
Section 1.245
U.S. Employee    27
Section 1.246
U.S. Offered Employee    27
Section 1.247
U.S. Transferred Employee    27
Section 1.248
WARN Act    27
Section 1.249
2018 Bonus Stub Period    27
Article II
SALE AND PURCHASE    27
Section 2.1
Sale and Purchase of Company Interests    27
Section 2.2
Sale and Purchase of Transferred Assets    27
Section 2.3
Assumption and Exclusion of Liabilities    30
Section 2.4
Procedures for the Transfer of Transferred Assets    31
Section 2.5
Shared Contracts; Assignment of Contracts and Rights; Post-Signing Insurance Proceeds    31
Section 2.6
Purchase Price; Allocation of Purchase Price    32
Section 2.7
Closing    33
Section 2.8
Closing Deliveries by the Seller    34
Section 2.9
Closing Deliveries by the Purchaser    35
Section 2.10
Preliminary Adjustment of Purchase Price    35
Section 2.11
Final Adjustment of Purchase Price    36
Article III
REPRESENTATIONS AND WARRANTIES OF THE SELLER    38
Section 3.1
Organization, Authority and Qualification of the Seller, the Foreign Seller and the Company    39
Section 3.2
Capitalization; Subsidiaries    40

 
vi
 

TABLE OF CONTENTS
(continued)
Page

Section 3.3
No Conflict    40
Section 3.4
Governmental Consents and Approvals    40
Section 3.5
Financial Information    41
Section 3.6
Absence of Changes    41
Section 3.7
Litigation    42
Section 3.8
Compliance with Laws    42
Section 3.9
Intellectual Property    42
Section 3.10
Real Property    44
Section 3.11
Employees; Employee Benefit Matters    46
Section 3.12
Labor Matters    47
Section 3.13
Taxes    48
Section 3.14
Material Contracts    50
Section 3.15
Environmental Matters    52
Section 3.16
Customers and Suppliers    53
Section 3.17
Inventory    54
Section 3.18
Title to Assets; Sufficiency of Assets    54
Section 3.19
Brokers    54
Section 3.20
Transferred Permits; Company Permits    54
Section 3.21
Product Liability; Product Warranties    55
Section 3.22
Accounts Receivable    55
Section 3.23
Insurance    55
Section 3.24
Relationships with Related Parties    56
Section 3.25
Disclaimer of the Seller    56
Article IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER    57
Section 4.1
Organization, Authority and Qualification of the Purchaser    57
Section 4.2
No Conflict    57
Section 4.3
Governmental Consents and Approvals    58
Section 4.4
Litigation    58
Section 4.5
Brokers    58
Section 4.6
Debt Financing    58
Section 4.7
Independent Investigation; Seller’s Representations    59
Article V
ADDITIONAL AGREEMENTS    60
Section 5.1
Conduct of Business Prior to the Closing    60
Section 5.2
Access to Information and Manufacturing Facilities    63
Section 5.3
Confidentiality    65
Section 5.4
Regulatory and Other Authorizations; Notices and Consents    66
Section 5.5
Retained Names and Marks    67
Section 5.6
Insurance    69
Section 5.7
Employees    69
Section 5.8
Pre-Closing Restructuring    76
Section 5.9
Privileged Matters    76
Section 5.10
Further Action; Third Party Consents    76
Section 5.11
Misdirected Payments; Mail; Misallocated Assets    77

 
vii
 

TABLE OF CONTENTS
(continued)
Page

Section 5.12
Release    78
Section 5.13
Termination of Related Party Contracts    79
Section 5.14
Company Matters    79
Section 5.15
Seller Disclosure Schedule Amendment    79
Section 5.16
Financing    80
Article VI
TAX MATTERS    82
Section 6.1
Tax Cooperation and Exchange of Information    82
Section 6.2
Korean Capital Gains Tax, Conveyance Taxes and Straddle Period Taxes    83
Section 6.3
Tax Covenants    85
Section 6.4
Control of Audit or Tax Litigation    85
Section 6.5
Miscellaneous    86
Article VII
CONDITIONS TO CLOSING    87
Section 7.1
Conditions to Obligations of the Seller    87
Section 7.2
Conditions to Obligations of the Purchaser    88
Article VIII
INDEMNIFICATION    89
Section 8.1
Survival of Representations, Warranties and Covenants    89
Section 8.2
Indemnification by the Seller    89
Section 8.3
Indemnification by the Purchaser    90
Section 8.4
Limitations on Indemnification    90
Section 8.5
Notice of Loss; Third-Party Claims    92
Section 8.6
Remedies    93
Section 8.7
Further Environmental Provisions    93
Section 8.8
Subrogation    97
Section 8.9
Right to Set Off    97
Article IX
TERMINATION    97
Section 9.1
Termination    97
Section 9.2
Effect of Termination    99
Section 9.3
Termination Fee    99
Article X
RESTRICTIVE COVENANTS    100
Section 10.1
Non-Competition    100
Section 10.2
Non-Retention and Non-Solicitation of Employees    100
Section 10.3
Non-Solicitation or Interference with Customers and Suppliers    101
Section 10.4
Acknowledgments; Enforcement    101
Article XI
GENERAL PROVISIONS    101
Section 11.1
Expenses    101
Section 11.2
Seller Disclosure Schedule    102
Section 11.3
Notices    102
Section 11.4
Public Announcements    103
Section 11.5
Severability    103

 
viii
 

TABLE OF CONTENTS
(continued)
Page

Section 11.6
Entire Agreement    104
Section 11.7
Assignment    104
Section 11.8
Amendment    104
Section 11.9
Waiver    104
Section 11.10
No Third-Party Beneficiaries    105
Section 11.11
Specific Performance    105
Section 11.12
Governing Law    105
Section 11.13
Waiver of Jury Trial    106
Section 11.14
Counterparts    106
Section 11.15
Interpretation and Rules of Construction    106


 
ix
 




EXHIBIT

Exhibit A    Form of Baton Rouge Manufacturing Facility Services Agreement
Exhibit B    Form of Company Interests Transfer Agreement
Exhibit C    Form of Intellectual Property Assignment Agreement
Exhibit D    Form of License Agreement
Exhibit E    Form of Bill of Sale and Assignment and Assumption Agreement
Exhibit F    Required Lease Amendment
Exhibit G-1    Form of Services Agreement – Tank Cleaning (New Johnsonville)
Exhibit G-2    Services Term Sheet – CREF and Analytical Services (Baton Rouge)
Exhibit H-1    Form of Supply Agreement – DMAC & Organometallics (Pasadena)
Exhibit H-2    Form of Supply Agreement – Ligands, Metallocenes and Organoborons (Tyrone)
Exhibit I
Form of Tolling Agreement – DEAOE, TMA, eTMA, TMA-HP Alkyl Blends (Orangeburg/Baton Rouge)
Exhibit J    Form of Transition Services Agreement

SELLER DISCLOSURE SCHEDULE

Section 1.17    Bromine Assets
Section 1.21    Business Financial Statements
Section 1.39    Company Financial Statements
Section 1.44    Company Net Working Capital
Section 1.77    Excluded Products
Section 1.100    Improvements
Section 1.138    Orangeburg Transferred Equipment
Section 1.141    Owned Real Property
Section 1.144    Permitted Encumbrances
Section 1.146    Pilot Plant
Section 1.147    Pilot Plant Assets
Section 1.161    Pro Forma Company Financial Statements
Section 1.185    Research and Development Assets
Section 1.203    Seller’s Knowledge; Knowledge of the Seller
Section 1.205    Servitudes
Section 1.206    Shared Contracts
Section 1.212    Supply Agreement Sites
Section 1.231    Transferred Assets Net Working Capital
Section 1.232    Transferred Contracts
Section 1.234    Transferred Equipment
Section 1.237    Transferred IP Agreements
Section 1.238    Transferred Owned Intellectual Property
Section 1.240    Transferred Rail Cars
Section 1.241    Transferred Records
Section 2.2(a)(xiv)    Transferred Tanks
Section 2.2(b)(xix)    Excluded Assets

 
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Section 3.2(a)    Company Interests
Section 3.3    No Conflict
Section 3.4(c)    Governmental Consents and Approvals
Section 3.5(a)    Business Financial Statements Methodology
Section 3.9(a)    Owned Intellectual Property
Section 3.9(f)    IP Royalty Payments
Section 3.10    Owned Real Property
Section 3.11(a)    Business Employees
Section 3.11(b)    Seller Benefit Plans
Section 3.12(a)    Labor Matters
Section 3.13(c)    No Tax Claims
Section 3.13(h)    LITEP Louisiana Property Tax Abatement Contracts
Section 3.13(k)    Company Letter Rulings
Section 3.14(a)    Material Contracts
Section 3.15    Environmental Matters
Section 3.16(a)    Key Customers
Section 3.16(b)    Key Suppliers
Section 3.16(c)    Relationships with Key Customers and Key Suppliers
Section 3.16(d)    Specified Key Customers
Section 3.20(a)    Transferred Permits and Company Permits
Section 3.23    Company Insurance Policies
Section 3.24    Relationships with Related Parties
Section 5.1    Conduct of Business
Section 5.8    Pre-Closing Restructuring
Section 5.10(d)    Form of Authorization to Share Information
Section 5.14(a)    Director and Officer Resignations
Section 7.1(b)    Jurisdictions with Filings or Notifications
Section 7.2(f)    Third-Party Consents
Section 8.2(h)    Specified Indemnity

[Copies of schedules will be furnished supplementally to the Securities and Exchange Commission upon request.]

 
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AMENDED AND RESTATED SALE AND PURCHASE AGREEMENT
This AMENDED AND RESTATED SALE AND PURCHASE AGREEMENT , is made as of February 21, 2018, by and between Albemarle Corporation, a Virginia corporation (the “ Seller ”), and W. R. Grace & Co.–Conn., a Connecticut corporation (the “ Purchaser ”) and amends and restates that certain Sale and Purchase Agreement, dated as of December 14, 2017, by and between the Seller and the Purchaser (the “ Original Agreement ”).
WHEREAS , the Seller and the Purchaser desire to amend and restate the Original Agreement in its entirety as set forth herein;
WHEREAS, the Seller and certain of its Subsidiaries (including the Company) are engaged in the Business (each as hereinafter defined);
WHEREAS , the Seller owns all of the Transferred Assets (as hereinafter defined) and the Foreign Seller owns all of the Company Interests (as hereinafter defined); and
WHEREAS, (i) the Seller wishes to sell to the Purchaser, and the Purchaser wishes to purchase from the Seller, the Transferred Assets, and (ii) the Seller wishes to cause the Foreign Seller to sell to the Purchaser, and the Purchaser wishes to purchase from the Foreign Seller, the Company Interests, and in connection therewith the Purchaser is willing to assume from the Seller the Assumed Liabilities (as hereinafter defined), upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the respective representations, warranties, covenants and agreements contained in this Agreement, and intending to be legally bound hereby, the Seller and the Purchaser hereby agree to amend and restate the Original Agreement as follows:
Article I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings specified:
Section 1.1      Act of Sale . “ Act of Sale ” means an act of sale from the Seller to the Purchaser for the transfer of those Improvements that are buildings or other constructions permanently attached to the ground together with a declaration of the separate ownership of all of such buildings or other constructions by Ethyl Corporation sufficient to rebut the presumption of Louisiana Civil Code Article 491 in recordable form.
Section 1.2      Action . “ Action ” means any claim, action, law, litigation, suit, arbitration, charge, grievance, labor dispute, audit, inquiry, proceeding or investigation by or before any Governmental Authority or arbitral board or body.
Section 1.3      Accounts Receivable . “ Accounts Receivable ” means the Company Accounts Receivable and the Transferred Accounts Receivable.




Section 1.4      Affiliate . “ Affiliate ” means, with respect to any specified Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person; provided that, (a) the Company Subsidiary shall be deemed to be an Affiliate of the Company prior to and until the consummation of the Pre-Closing Restructuring and shall not be deemed to be an Affiliate of the Company after the consummation of the Pre-Closing Restructuring, and (b) the Company shall be deemed to be an Affiliate of the Seller prior to and until the Closing and shall be deemed to be an Affiliate of the Purchaser from and after the Closing.
Section 1.5      Agreement . “ Agreement ” means this Sale and Purchase Agreement among the parties hereto (including the Disclosure Schedules hereto) and all amendments hereto made in accordance with the provisions of Section 11.8 .
Section 1.6      Allocation Schedule . “ Allocation Schedule ” shall have the meaning set forth in Section 2.6(b) .
Section 1.7      Alternative Financing . “ Alternative Financing ” shall have the meaning set forth in Section 5.16(a) .
Section 1.8      Anti-Corruption Laws . “ Anti-Corruption Laws ” means the U.S. Foreign Corrupt Practices Act of 1977, as amended; the U.S. Travel Act, 18 U.S.C. § 1952; the U.K. Bribery Act of 2010; any applicable Law enacted in connection with, or arising under, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions; or any other applicable Laws or regulations of any Governmental Authority relating to bribery or corruption.
Section 1.9      Antitrust Termination Fee . “ Antitrust Termination Fee ” shall have the meaning set forth in Section 9.3(a) .
Section 1.10      Assets . “ Assets ” means the Company Assets and the Transferred Assets.
Section 1.11      Assumed Liabilities . “ Assumed Liabilities ” shall have the meaning set forth in Section 2.3(a) .
Section 1.12      Baseline Company Net Working Capital . “ Baseline Company Net Working Capital ” means $3,268,000.
Section 1.13      Baseline Transferred Assets Net Working Capital . “ Baseline Transferred Assets Net Working Capital ” means $28,638,000.
Section 1.14      Basket . “ Basket ” shall have the meaning set forth in Section 8.4(b) .
Section 1.15      Baton Rouge Manufacturing Facility . “ Baton Rouge Manufacturing Facility ” shall have the meaning set forth in Section 1.124 .
Section 1.16      Baton Rouge Manufacturing Facility Services Agreement. “ Baton Rouge Manufacturing Facility Services Agreement ” means the Baton Rouge Manufacturing Facility

 
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Services Agreement to be entered into by the Purchaser and the Seller as of the Closing with respect to, among other things, the services to be provided in connection with the operations by the Seller of the Bromine Assets, the Pilot Plant and the Research and Development Lab, substantially in the form attached hereto as Exhibit A .
Section 1.17      Bromine Assets . “ Bromine Assets ” means the assets set forth on Section 1.17 of the Seller Disclosure Schedule (as amended pursuant to Section 5.15 ).
Section 1.18      Business . “ Business ” means the business of the Seller and certain of its Subsidiaries (including the Company), consisting of developing, manufacturing, producing, marketing, and selling (i) finished polyolefin catalysts, (ii) polyolefin catalyst components, and (iii) polyolefin catalyst activators, wherein (ii) and (iii) are metallocene and post metallocene components and activators. “ Business ” shall include bench scale testing of polyolefin catalyst performance and analysis in parallel polymerization reactors. The “ polyolefin catalyst components ” shall include precursor molecules of the polyolefin catalyst metallocenes and post-metallocene molecules and solutions thereof. The “ polyolefin catalysts activators ” shall include (x) fluorinated boranes, fluorinated borate salts, and fluorinated aluminate salts and, in each case, solutions thereof, aluminoxane and methylaluminoxane and modifications thereof either in solution or solid form, in all instances as used in finished polyolefin catalysts or their production and (y) TMA used in the production of finished metallocene and post metallocene polyolefin catalysts.
Section 1.19      Business Day . “ Business Day ” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in the City of New York.
Section 1.20      Business Employee . “ Business Employee ” means each employee, independent contractor, or other service provider of the Seller, the Company or any of their Affiliates who (i) is employed or retained by the Seller, the Company or any of their Affiliates at the Manufacturing Facilities primarily in connection with the Business and is identified on Section 3.11(a) of the Seller Disclosure Schedule, (ii) is employed or retained by the Seller, the Company or any of their Affiliates at the Research and Development Lab primarily in connection with the Business and is identified on Section 3.11(a) of the Seller Disclosure Schedule, or (iii) is otherwise employed or retained by the Seller, the Company or any of their Affiliates primarily in connection with the Business and is identified on Section 3.11(a) of the Seller Disclosure Schedule.
Section 1.21      Business Financial Statements . “ Business Financial Statements ” means the combined carve-out statements of income of the Business set forth on Section 1.21 of the Seller Disclosure Schedule.
Section 1.22      Closing . “ Closing ” shall have the meaning set forth in Section 2.7 .
Section 1.23      Closing Date . “ Closing Date ” shall have the meaning set forth in Section 2.7 .

 
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Section 1.24      Closing Date Cash . “ Closing Date Cash ” means the sum of all cash and cash equivalents of the Company as of the close of business South Korea time on the Closing Date, determined in accordance with Korean Accounting Standards.
Section 1.25      Closing Date Company Employees . “ Closing Date Company Employees ” shall have the meaning set forth in Section 5.7(a)(ii) .
Section 1.26      Closing Date Indebtedness . “ Closing Date Indebtedness ” means the Indebtedness of the Company as of immediately prior to the Closing, determined in accordance with Korean Accounting Standards.
Section 1.27      Closing Date NOL. “ Closing Date NOL ” shall have the meaning set forth in Section 6.2(d) .
Section 1.28      Closing Date Offered Employees . “ Closing Date Offered Employees ” shall have the meaning set forth in Section 5.7(a)(i) .
Section 1.29      Closing Date Transaction Expenses . “ Closing Date Transaction Expenses ” means all fees, costs and expenses incurred, accrued or to be paid by the Company in connection with the transactions contemplated by the Transaction Documents, including (a) fees and disbursements of counsel, financial advisors, consultants and accountants; (b) filing fees and expenses in connection with any filing with a Governmental Authority; and (c) severance or bonuses paid or payable as a result of or in connection with the consummation of the transactions contemplated by the Transaction Documents (including the employer portion of any payroll Tax payments in connection therewith), to the extent not paid as of the close of business South Korea time on the Closing Date.
Section 1.30      Code . “ Code ” means the Internal Revenue Code of 1986, as amended from time to time.
Section 1.31      Commercial Tax Agreement . “ Commercial Tax Agreement ” means customary commercial agreements not primarily related to Taxes, entered into in the ordinary course of business, that contain agreements or arrangements relating to the apportionment, sharing, assignment or allocation of Taxes (including any such financing agreements with customary Tax gross-up obligations or any such leases with customary Tax escalation provisions).
Section 1.32      Company . “ Company ” means Albemarle Chemicals Korea Limited, a limited liability company ( Yuhan Hoesa ) organized and existing under the laws of the Republic of Korea.
Section 1.33      Company Accounts Receivable . “ Company Accounts Receivable ” means all accounts receivable, notes receivable, rebates receivable, employee advances and other miscellaneous receivables of the Company.
Section 1.34      Company Adjustment Amount . “ Company Adjustment Amount ” shall have the meaning set forth in Section 2.11(e) .

 
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Section 1.35      Company Assets . “ Company Assets ” means all of the assets, properties and rights owned, leased, held, used, held for use or licensed by the Company, including, without limitation, (a) the Yeosu Manufacturing Facility, together with the Owned Real Property associated therewith, the buildings, fixtures and improvements located thereon, (b) the Company Accounts Receivable, (c) the Company Contracts, (d) the Company Equipment, (e) the Company Inventory, (f) the Company Owned Intellectual Property, and (g) the Company Permits.
Section 1.36      Company Contracts . “ Company Contracts ” means the Contracts to which the Company is a party.
Section 1.37      Company Employee . “ Company Employee ” means any Business Employee whose employment will remain with the Company after the Closing Date by operation of law.
Section 1.38      Company Equipment . “ Company Equipment ” means all tangible machinery, equipment, vehicles, tools, supplies, accessories, materials, office equipment, furniture and IT Assets that are owned, used or held for use by the Company.
Section 1.39      Company Financial Statements . “ Company Financial Statements ” means the audited statements of financial position of the Company as at December 31, 2015 and December 31, 2016, and the related audited statements of operations, changes in equity and cash flows for the years ended December 31, 2015 and December 31, 2016, together with all notes and schedules thereto, set forth on Section 1.39 of the Seller Disclosure Schedule.
Section 1.40      Company Interests . “ Company Interests ” means all of the issued and outstanding capital stock or other equity interests of the Company.
Section 1.41      Company Interests Transfer Agreement . “ Company Interests Transfer Agreement ” means the transfer agreement to be entered into between the Purchaser and the Foreign Seller as of the Closing to transfer the Company Interests to the Purchaser at the Closing in accordance with the Laws of the Republic of Korea, substantially in the form attached hereto as Exhibit B .
Section 1.42      Company Inventory . “ Company Inventory ” means all inventories, raw materials, packaging materials, work in process, semi-finished and finished goods, purchased supplies, other supplies and spare parts and materials used for maintaining production machinery and equipment, in each case, to the extent such inventories are owned, used or held for use by the Company.
Section 1.43      Company IP Agreements . “ Company IP Agreements ” means all IP Agreements to which the Company is a party.
Section 1.44      Company Net Working Capital . “ Company Net Working Capital ” means, as of the close of business South Korea time on the Closing Date, the amount that is equal to (a) the current assets of the Company identified on Section 1.44 of the Seller Disclosure Schedule (excluding Closing Date Cash) minus (b) the current liabilities of the Company identified on Section 1.44 of the Seller Disclosure Schedule (excluding Closing Date Indebtedness), in each case,

 
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calculated in accordance with the policies and procedures set forth on Section 1.44 of the Seller Disclosure Schedule. No amounts or accruals in respect of Tax assets or Tax Liabilities (including deferred Tax assets and deferred Tax Liabilities) shall be considered current assets or liabilities for purposes of calculating Company Net Working Capital.
Section 1.45      Company Owned Intellectual Property . “ Company Owned Intellectual Property ” means the Registered IP and the unregistered Intellectual Property owned by the Company.
Section 1.46      Company Permits . “ Company Permits ” means all Permits, including Environmental Permits, held for use or used by the Company.
Section 1.47      Company Released Parties . “ Company Released Parties ” shall have the meaning set forth in Section 5.12(a) .
Section 1.48      Company Releasing Parties . “ Company Releasing Parties ” shall have the meaning set forth in Section 5.12(b) .
Section 1.49      Company Subsidiary . “ Company Subsidiary ” means Albemarle Korea Corporation, a corporation organized and existing under the laws of the Republic of Korea.
Section 1.50      Compliant . “ Compliant ” means, with respect to the Required Information, that (a) such Required Information does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the Required Information, in light of the circumstances under which the statements contained therein are made, not misleading; (b) the auditors of any historical financial statements included in the Required Information have not withdrawn any audit opinion with respect to any such audited financial statements; and (c) it has not become necessary to restate any historical financial statements contained in the Required Information and no such restatement shall be under consideration by the Seller, any of its Subsidiaries or the auditors of any historical financial statements included in the Required Information.
Section 1.51      Confidentiality Agreement . “ Confidentiality Agreement ” shall have the meaning set forth in Section 5.3(a) .
Section 1.52      Confidential Information Presentation . “ Confidential Information Presentation ” means the Project Poseidon Management Presentation dated August 2, 2017, and the Project Skyline Confidential Information Presentation on Performance Catalysts Solutions (PCS), dated June 2017, each as provided to the Purchaser in connection with the transactions contemplated by this Agreement.
Section 1.53      Contract . “ Contract ” means any written or oral contract (including unwritten undertakings or practices based on any course of dealing), subcontract, agreement, lease, license, note, mortgage, indenture, deed of trust, commitment, sale or purchase order and any other instrument or agreement of any kind, and any amendments or supplements thereto.

 
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Section 1.54      control . “ control ” (including the terms “ controlled by ” and “ under common control with ”), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, or as trustee, personal representative or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee, personal representative or executor, by contract or otherwise.
Section 1.55      Conveyance Taxes . “ Conveyance Taxes ” means any sales, use, transfer, conveyance, ad valorem, stamp, stamp duty, recording or other similar tax, fee or charge (excluding the Korean securities transaction tax and the Korean deemed acquisition tax, and excluding, for the avoidance of doubt, the Korean Capital Gains Tax and any other Tax that is based upon or measured by income or gain) imposed by any Governmental Authority upon the sale, transfer or assignment of the Company Interests or the Transferred Assets pursuant to this Agreement, or upon the recording of such sale, transfer or assignment, together with any interest, additions or penalties imposed in respect thereof. For the avoidance of doubt, “ Conveyance Taxes ” shall exclude any Taxes relating to the Pre-Closing Restructuring.
Section 1.56      Cooperation Indemnitees . “ Cooperation Indemnitees ” shall have the meaning set forth in Section 5.16(b) .
Section 1.57      Current Offered Employees . “ Current Offered Employees ” shall have the meaning set forth in Section 5.7(a)(i) .
Section 1.58      Debt Commitment Letter . “ Debt Commitment Letter ” shall have the meaning set forth in Section 4.6(a) .
Section 1.59      Debt Financing . “ Debt Financing ” shall have the meaning set forth in Section 4.6(a) .
Section 1.60      Debt Financing Agreements . “ Debt Financing Agreements ” shall have the meaning set forth in Section 4.6(a) .
Section 1.61      Deed and Declaration of Easement . “ Deed and Declaration of Easement ” means that certain Deed and Declaration of Easement, dated as of August 29, 2002, by Ethyl Corporation in favor of the Seller, as amended by the Required Lease Amendment.
Section 1.62      De Minimis Claim . “ De Minimis Claim ” shall have the meaning set forth in Section 8.4(b) .
Section 1.63      Disclosure Schedules . “ Disclosure Schedules ” means the Seller Disclosure Schedule and the Purchaser Disclosure Schedule, each of which forms a part of this Agreement.
Section 1.64      Dispute Notice . “ Dispute Notice ” shall have the meaning set forth in Section 2.11(c) .
Section 1.65      Disputed Items . “ Disputed Items ” shall have the meaning set forth in Section 2.11(c) .

 
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Section 1.66      Employee Records . “ Employee Records ” means job application, training, personnel, discipline, performance, employee compensation, medical and benefits and labor relations records relating to the employment of the Offered Employees.
Section 1.67      Encumbrance . “ Encumbrance ” means any security interest, pledge, hypothecation, mortgage, lien, encumbrance, license, easement, right of way, servitude, lease or sublease, deed of trust, option, right of first refusal, attachment, levy, charge, claim, imposition, conditional sale or title retention arrangement or other restriction of any kind or any other interest in property or assets (or the income or profits therefrom) designed to secure the repayment of Indebtedness, whether consensual or nonconsensual and whether arising by Contract or under any Law or otherwise.
Section 1.68      Environmental Law . “ Environmental Law ” means any Law, consent decree or judgment relating to (a) human health or the environment; (b) human or environmental exposure to any Hazardous Material; or (c) employee or occupational safety.
Section 1.69      Environmental Permit . “ Environmental Permit ” means any permit, approval, identification number, registration, notification, license or other authorization that the Business is required to possess or obtain pursuant to any applicable Environmental Law.
Section 1.70      ERISA . “ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
Section 1.71      Estimated Purchase Price Statement . “ Estimated Purchase Price Statement ” shall have the meaning set forth in Section 2.10 .
Section 1.72      Ethyl Indemnity . “ Ethyl Indemnity ” means the Indemnification Agreement, dated as of February 28, 1994, by and between the Seller and Ethyl Corporation.
Section 1.73      Excluded Assets . “ Excluded Assets ” shall have the meaning set forth in Section 2.2(b) .
Section 1.74      Excluded Claim . “ Excluded Claim ” means all claims related to any Action that the Seller or its Subsidiaries (other than the Company) have or may have against third parties, solely to the extent such claim is not primarily related to the Business, the Transferred Assets or the Assumed Liabilities or primarily arises from, or primarily relates to, the Excluded Assets or the Excluded Liabilities.
Section 1.75      Excluded Liabilities . “ Excluded Liabilities ” shall have the meaning set forth in Section 2.3(b) .
Section 1.76      Excluded Metal Alkyls . “ Excluded Metal Alkyls ” means (a) any organometallic compound containing at least a hydrocarbon group and a metal that can be useful as a co-catalyst, or useful as a component, raw material or reagent in producing, co-catalyst, wherein the co-catalyst is useful in Ziegler Natta catalysis of polymerization of olefins or dienes; (b) any organometallic compound containing at least a hydrocarbon group and a metal that can be useful

 
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as a catalyst, co-catalyst, or useful as a component, raw material or reagent in producing, catalyst or co-catalyst, wherein the catalyst or co-catalyst is useful in any of the following applications: polymerization, other than polyolefin polymerization, oligomerization, chain length growth Cn, where n<75, and/or cyclization reactions; reducing agents; alkylation and/or acylation reactions; or thin film metallization applications and (c) any organometallic compound containing at least a hydrocarbon group and a metal that can be useful in or purified to be useful in epitaxy applications, high efficiency photovoltaic cells, light emitting diodes and other electronic applications, and (d) lithium alkyls and cesium alkyls, except to the extent used in the Business at either or both of the Manufacturing Facilities as of the Closing Date. The following are not Excluded Metal Alkyls: (i) polyolefin catalyst components and polyolefin catalyst activators, wherein each are metallocene and post metallocene components and activators, including aluminoxane and methylaluminoxane and modifications thereof either in solution or solid form, and TMA, (ii) co-catalysts developed, manufactured and sold by the Seller as Activcat® product, and (iii) Ziegler Natta catalysts developed, manufactured and sold by the Seller as Advantage® product sold for use in polymerization of olefins or dienes.
Section 1.77      Excluded Products . “ Excluded Products ” means the products set forth on Section 1.77 of the Seller Disclosure Schedule.
Section 1.78      Excluded Taxes . “ Excluded Taxes ” means (1) all Taxes for any Pre-Closing Tax Period (including any Taxes that are allocable under Section 6.2(d) to a Pre-Closing Tax Period), (1) any Taxes relating to the Pre-Closing Restructuring, (1) any Taxes attributable to any deferred revenue or prepaid amount received prior to the Closing by the Seller with respect to the Business or by the Company, (1) the Seller’s share of any Conveyance Taxes pursuant to Section 6.2(b) , (1) any Korean securities transaction tax attributable to the sale of the Company Interests hereunder, (1) any Tax for a Post-Closing Tax Period arising out of or resulting from a breach of any representation or warranty contained in Section 3.13(f) , Section 3.13(h) , Section 3.13(i) or Section 3.13(k) , and (1) any Korean Capital Gains Tax incurred in connection with the sale of the Company Interests hereunder; provided , that Excluded Taxes shall not include (i) Taxes attributable to the Purchaser’s failure to satisfy any of its obligations pursuant to this Agreement; (ii) the Purchaser’s share of any Conveyance Taxes pursuant to Section 6.2(b) ; (iii) Taxes for any taxable period beginning after the Closing Date resulting from the Company’s use of a method of accounting described in clause (B) of Section 3.13(i) for a taxable period beginning after the Closing Date; and (iv) any Tax to the extent withheld in accordance with Section 6.5(f) .
Section 1.79      Exemption Documentation. “ Exemption Documentation ” shall have the meaning set forth in Section 6.2(a)(i) .
Section 1.80      Existing Stock . “ Existing Stock ” shall have the meaning set forth in Section 5.5(b) .
Section 1.81      Extended Termination Date . “ Extended Termination Date ” shall have the meaning set forth in Section 9.1(a) .
Section 1.82      Fee Letter . “ Fee Letter ” shall have the meaning set forth in Section 4.6(b) .

 
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Section 1.83      Final Closing Date Cash . “ Final Closing Date Cash ” shall have the meaning set forth in Section 2.11(a) .
Section 1.84      Final Closing Date Indebtedness . “ Final Closing Date Indebtedness ” shall have the meaning set forth in Section 2.11(a) .
Section 1.85      Final Closing Date Transaction Expenses . “ Final Closing Date Transaction Expenses ” shall have the meaning set forth in Section 2.11(a) .
Section 1.86      Final Company Closing Date Payment . “ Final Company Closing Date Payment ” shall have the meaning set forth in Section 2.11(a) .
Section 1.87      Final Company Net Working Capital. “ Final Company Net Working Capital ” shall have the meaning set forth in Section 2.11(a) .
Section 1.88      Final Transferred Assets Closing Date Payment . “ Final Transferred Assets Closing Date Payment ” shall have the meaning set forth in Section 2.11(a) .
Section 1.89      Final Transferred Assets Net Working Capital . “ Final Transferred Assets Net Working Capital ” shall have the meaning set forth in Section 2.11(a) .
Section 1.90      Financial Statements . “ Financial Statements ” means the Business Financial Statements and the Company Financial Statements.
Section 1.91      Financing Sources . “ Financing Sources ” means each party to the Debt Financing Agreements and any other lender, agent, lead arranger, arranger, administrative agent, collateral agent or any other agent in respect of the Debt Financing (including any Alternative Financing) and any Affiliates and Representatives of any of the foregoing.
Section 1.92      Financing Termination Fee . “ Financing Termination Fee ” shall have the meaning set forth in Section 9.3(a) .
Section 1.93      Foreign Seller . “ Foreign Seller ” means Albemarle Netherlands B.V., a private limited liability company ( besloten vennootschap met beperkte aansprakelijkheid ) incorporated under the laws of the Netherlands.
Section 1.94      GAAP . “ GAAP ” means United States generally accepted accounting principles applied on a basis consistent with the Seller’s audited financial statements.
Section 1.95      Goodwill . “ Goodwill ” means the goodwill of the Seller and its Subsidiaries (other than the Company) related to, associated with or attributable to the Business.
Section 1.96      Governmental Authority . “ Governmental Authority ” means any federal, national, supranational, state, provincial, municipal, local or other government, governmental, foreign or domestic, quasi-governmental, regulatory, self-regulatory or administrative authority, agency, commission, branch, department, official or entity or any court of competent jurisdiction or arbitrator.

 
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Section 1.97      Governmental Order . “ Governmental Order ” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.
Section 1.98      Hazardous Material . “ Hazardous Material ” means (a) petroleum and petroleum products, by-products or breakdown products, lead, radon, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and dangerous or toxic organisms (including Legionella and Stachybotrys species); or (b) any other chemicals, materials, wastes or substances defined or regulated by any Governmental Authority under applicable Environmental Laws as or included in the definition of “hazardous substances,” “hazardous wastes,” “toxic substances,” “pollutants,” “contaminants,” “hazardous materials” or similar substances.
Section 1.99      HSR Act . “ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.
Section 1.100      Improvements . “ Improvements ” means (a) all improvements, buildings, structures and fixtures located within the fence line outlined in red on the map attached to Section 1.100 of the Seller Disclosure Schedule, including the Off-Premises Water Discharge Line, the 001 Outfall and all those certain structures, fixtures and equipment related to the operation and maintenance of the 001 Outfall, and (b) any other improvements, buildings, structures and fixtures owned by the Seller or any of its Subsidiaries (other than the Company) that are located on land covered by a Servitude, including (i) the piperacks, pipelines, lines and other pipes shown above and to the left of the red line in the photograph set forth on Section 1.100 of the Seller Disclosure Schedule and (ii) the transformer shown outside of the fence line (location 1) in the photograph set forth on Section 1.100 of the Seller Disclosure Schedule, which transformer is to be relocated within the fence line (location 2) prior to the Closing.
Section 1.101      In-Licensed Intellectual Property . “ In-Licensed Intellectual Property ” means all Intellectual Property that the Seller or any of its Subsidiaries is licensed or otherwise authorized to use pursuant to the Transferred IP Agreements.
Section 1.102      Indebtedness . “ Indebtedness ” of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by any note, bond, debenture, other debt security or similar instruments, (c) all lease obligations of such Person which are required to be capitalized in accordance with GAAP or Korean Accounting Standards, as applicable, (d) interest rate or currency obligations of such Person, including swaps, hedges or similar agreements, (e) obligations of such Person evidenced by letters of credit, surety bonds, bank guarantees and similar instruments (to the extent drawn), (f) obligations of such Person in respect of accrued but unpaid dividends, (g) obligations of such Person in respect of the deferred purchase price of goods, equity or services, including earn-outs, contingent payments or similar arrangements, (h) guarantees, directly or indirectly, by such Person of any of the items set forth in this Section 1.102 of any other Person and (i) with respect to each of the foregoing, the outstanding principal amount plus any unpaid interest, breakage costs, prepayment or redemption penalties or premiums, or other unpaid fees, expenses or obligations owed in respect of the acceleration, termination or cancellation thereof.

 
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Section 1.103      Indemnified Party . “ Indemnified Party ” means a Purchaser Indemnified Party or a Seller Indemnified Party, as the case may be.
Section 1.104      Indemnifying Party . “ Indemnifying Party ” means the Seller pursuant to Section 8.2 or the Purchaser pursuant to Section 8.3 , as the case may be.
Section 1.105      Independent Accountant . “ Independent Accountant ” means Ernst & Young (or, if such firm shall decline or is unable to act, another nationally recognized firm with expertise in accounting matters reasonably acceptable to the Seller and the Purchaser).
Section 1.106      Intellectual Property . “ Intellectual Property ” means all of the following rights in any jurisdiction throughout the world: (a) patents and patent applications, and all related continuations, continuations-in-part, divisionals, reissues, reexaminations, substitutions and extensions thereof, utility models and utility model applications, and industrial designs; (b) trademarks, service marks, trade names, logos, trade dress, and internet domain names, social media names, together with the goodwill connected with the use thereof and symbolized thereby; (c) copyrights, including copyrights in computer software; (d) registrations and applications for registration of any of the foregoing under subclauses (a) – (c) of this definition; (e) trade secrets, know-how, methods, techniques, processes (including manufacturing processes), formulae, design or technical specifications, test results, testing methods, procedures, data, metadata, inventions, customer and business lists and other confidential and proprietary information, and (f) the right to sue at law or in equity for all claims or causes of action arising out of or related to any past, present or future infringement, misappropriation or violation of any of the foregoing, including the right to receive all proceeds and damages therefrom.
Section 1.107      Intellectual Property Assignment Agreement . “ Intellectual Property Assignment Agreement ” means the Intellectual Property Assignment Agreement, to be entered into by the Purchaser and the Seller as of the Closing, substantially in the form attached hereto as Exhibit C .
Section 1.108      Inventory . “ Inventory ” means the Company Inventory and the Transferred Inventory.
Section 1.109      IP Agreements . “ IP Agreements ” means all Contracts concerning Intellectual Property or IT Assets to which the Seller or any of its Subsidiaries is a party or beneficiary or by which the Seller or any of its Subsidiaries, or any of its or their properties or assets, may be bound, including all (a) licenses of Intellectual Property by the Seller or any of its Subsidiaries to any Person, (b) licenses of Intellectual Property by any Person to the Seller or any of its Subsidiaries, (c) Contracts between any Person and the Seller or any of its Subsidiaries relating to the transfer, development, maintenance or use of Intellectual Property or IT Assets, and (d) consents, settlements, decrees, orders, injunctions, judgments or rulings governing the use, validity or enforceability of Intellectual Property or IT Assets.
Section 1.110      IT Assets . “ IT Assets ” means software (together with its configuration and customization), systems, servers, computers, hardware, firmware, middleware, networks, data

 
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communications lines, routers, hubs, switches and all other information technology equipment, and all associated documentation.
Section 1.111      Key Customers . “ Key Customers ” shall have the meaning set forth in Section 3.16(a) .
Section 1.112      Key Suppliers . “ Key Suppliers ” shall have the meaning set forth in Section 3.16(b) .
Section 1.113      KNTS. “ KNTS ” means the Korean National Tax Service.
Section 1.114      Korean Accounting Standards . “ Korean Accounting Standards ” means the Accounting Standards for Non-Public Entities in the Republic of Korea, applied on a basis consistent with the Company Financial Statements.
Section 1.115      Korean Capital Gains Tax . “ Korean Capital Gains Tax ” means any Tax imposed under the Tax laws of Korea (or any national, provincial, district, or local subdivisions or agencies thereof) or applicable income tax treaties with respect to capital gains.
Section 1.116      Korean Plans . “ Korean Plans ” shall have the meaning set forth in Section 3.11(b) .
Section 1.117      Land . “ Land ” means the land subject to the PDC Lease, the land subject to the OTA Lease and the land over which the Servitudes are granted.
Section 1.118      Law . “ Law ” means any statute, law, ordinance, regulation, rule, code, requirement, international treaty or convention or rule of law (including common law requirement or rule) or other requirement with similar effect promulgated or issued by any Governmental Authority or any Governmental Order.
Section 1.119      Leave Offered Employees . “ Leave Offered Employees ” shall have the meaning set forth in Section 5.7(a)(i) .
Section 1.120      Liabilities . “ Liabilities ” means any and all debts, liabilities, claims, demands, expenses, guarantees, commitments or obligations of any kind, character or nature whatsoever, whether direct or indirect, accrued or unaccrued, fixed or variable, known or unknown, absolute or contingent, asserted or unasserted, matured or unmatured or determined or determinable, due or to become due, including those arising under any Law, Action or Governmental Order and those arising under any Contract.
Section 1.121      License Agreement . “ License Agreement ” means the license agreement to be entered by the Purchaser and the Seller as of the Closing, substantially in the form attached hereto as Exhibit D .
Section 1.122      Local Conveyances . “ Local Conveyances ” means (a) the Intellectual Property Assignment Agreement, (b) the Bill of Sale and Assignment and Assumption Agreement,

 
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substantially in the form attached hereto as Exhibit E , (c) the Act of Sale and (d) the Company Interests Transfer Agreement.
Section 1.123      Loss . “ Loss ” shall have the meaning set forth in Section 8.2 .
Section 1.124      Manufacturing Facilities . “ Manufacturing Facilities ” means the manufacturing facilities used in the operation of the Business and (a) known as the Process Development Center and located in Baton Rouge, Louisiana, excluding the Pilot Plant (the “ Baton Rouge Manufacturing Facility ”) and (b) located in Yeosu, South Korea (the “ Yeosu Manufacturing Facility ”).
Section 1.125      Marketing Period . “ Marketing Period ” means the first period of 15 consecutive Business Days after the date of the Original Agreement throughout which the Purchaser shall have received from the Seller all Required Information (and the Financing Sources shall have access to all such Required Information), all of which is and remains Compliant; provided , that if any Required Information ceases to be Compliant, the Marketing Period shall be deemed to have not commenced until such time as all Required Information is Compliant; provided , further , that if such consecutive 15 Business Day period was not completed on or prior to December 22, 2017, then it will be deemed to have restarted anew on January 2, 2018.
Section 1.126      Material Adverse Effect . “ Material Adverse Effect ” means any event, circumstance, condition, state of facts, change or effect, that (a) is, or would reasonably be expected to be, materially adverse to the assets, liabilities, business, results of operations or the financial condition of the Business, taken as a whole or (b) would reasonably be expected to prevent or materially delay the ability of the Seller to perform its obligations under this Agreement or to consummate the transactions contemplated hereby; provided , however , that none of the following, either alone or in combination, shall be deemed to constitute a “Material Adverse Effect”, or taken into account in determining, whether there has been a “Material Adverse Effect” for purposes of clause (a): (i) events, circumstances, changes or effects that generally affect the industries or segments thereof in which the Business operates, including legal and regulatory changes and changes in the price of commodities or raw materials; (ii) general business, economic or political conditions (or changes therein); (iii) events, circumstances, changes or effects generally affecting the financial, credit or securities markets in the United States or in any other country or region in the world, including changes in interest rates or foreign exchange rates; (iv) events, circumstances, changes or effects arising out of, or attributable to, the public announcement of the execution of this Agreement; (v) any actions taken or not taken by the Seller in accordance with the express requirements of this Agreement (other than Section 5.1(A) ) or any other Transaction Document, or actions taken or not taken by the Seller at the written request of the Purchaser or any public communication by the Purchaser in respect of plans or intentions with respect to the Business, the Company or the Business Employees; (vi) events, circumstances, changes or effects arising out of, or attributable to, strikes, slowdowns, lockouts or work stoppages (pending or threatened); (vii) events, circumstances, changes or effects arising out of, or attributable to, acts of armed hostility, sabotage, terrorism or war (whether or not declared), including any escalation or worsening thereof; (viii) events, circumstances, changes or effects arising out of, or attributable to, earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides or other natural disasters, weather-related

 
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conditions, explosions or fires, or any force majeure events in any country or region in the world; (ix) events, circumstances, changes or effects arising out of, or attributable to, changes or modifications in GAAP, Korean Accounting Standards or applicable Law after the date of the Original Agreement; or (x) the failure, in and of itself, by the Business to meet any internal or other estimates, expectations, forecasts, plans, projections or budgets for any period; provided , that, with respect to a matter described in clauses (i) , (ii) , (iii) , (vi) , (vii) , (viii) and (ix) , such matter shall be deemed to constitute a “Material Adverse Effect”, or shall be taken into account in determining whether there has been a “Material Adverse Effect”, to the extent it has a disproportionate effect on the Business relative to other comparable businesses operating in the industries in which the Business operates.
Section 1.127      Material Contracts . “ Material Contracts ” shall have the meaning set forth in Section 3.14(a) .
Section 1.128      Maximum Closing Date Cash . “ Maximum Closing Date Cash ” means an amount equal to $2,000,000; provided , that if the Closing shall not have occurred on or prior to March 31, 2018, the Maximum Closing Date Cash shall be increased by an amount equal to $700,000 on April 1, 2018 and on the first day of each calendar month that has elapsed after such date and prior to the Closing Date.
Section 1.129      Most Cost-Effective Manner . “ Most Cost-Effective Manner ” shall have the meaning set forth in Section 8.7(a)(iii) .
Section 1.130      NOL Reduction Tax Increase . “ NOL Reduction Tax Increase ” means any increase in the total amount of Taxes paid by the Company for any Post-Closing Tax Period that ends on or before December 31, 2026, to the extent such increase is attributable to a reduction in the Closing Date NOL pursuant to Section 6.4(d) (determined on a with-and-without basis).
Section 1.131      Non U.S. Albemarle Plans . “ Non U.S. Albemarle Plans ” shall have the meaning set forth in Section 3.11(b) .
Section 1.132      Non U.S. Employees . “ Non U.S. Employees ” means all Business Employees employed and located outside the United States immediately prior to the Closing Date other than Company Employees.
Section 1.133      Non U.S. Offered Employees. “ Non U.S. Offered Employees ” means each Offered Employee who is employed outside the United States immediately prior to the Closing Date.
Section 1.134      Non U.S. Transferred Employee . “ Non U.S. Transferred Employee ” shall have the meaning set forth in Section 5.7(b)(ii) .
Section 1.135      Offer Date . “ Offer Date ” shall have the meaning set forth in Section 5.7(a)(i) .

 
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Section 1.136      Offered Employee . “ Offered Employee ” means any Business Employee who is not a Company Employee; provided , however , that no individual who is an independent contractor or other non-employee service provider shall be designated an “Offered Employee” for purposes of this Agreement.
Section 1.137      Orangeburg SC Facility . “ Orangeburg SC Facility ” shall have the meaning set forth in Section 1.137 .
Section 1.138      Orangeburg Transferred Equipment. “ Orangeburg Transferred Equipment ” means the tangible machinery, equipment, vehicles, tools, supplies, hardware, accessories, materials, office equipment, furniture and computers that are owned by the Seller and used or held for use in connection with the production of TMA in Orangeburg, South Carolina (the “ Orangeburg SC Facility ”), including the items identified on Section 1.138 of the Seller Disclosure Schedule.
Section 1.139      OTA Lease . “ OTA Lease ” means that certain Lease Agreement for Office Trailer Area, dated as of June 1, 2012, by and between the Seller and Ethyl Corporation.
Section 1.140      Owned Intellectual Property . “ Owned Intellectual Property ” means the Company Owned Intellectual Property and the Transferred Owned Intellectual Property.
Section 1.141      Owned Real Property . “ Owned Real Property ” means the land owned by the Company, including the land upon which the Yeosu Manufacturing Facility is located, together with all buildings, improvements and fixtures thereon and all easements, rights-of-way, licenses, rights to use real property, appurtenances and other rights and benefits associated with such land and together with all improvements, fixtures and other rights and appurtenants thereto, including as are more fully described on Section 1.141 of the Seller Disclosure Schedule.
Section 1.142      PDC Lease . “ PDC Lease ” means that certain Baton Rouge, Louisiana Lease Agreement, dated as of February 28, 1994, between the Seller and Ethyl Corporation, as amended by that certain Letter Agreement, dated as of August 29, 2002, between the Seller and Ethyl Corporation (as amended effective as of the Closing by the Required Lease Amendment).
Section 1.143      Permits . “ Permits ” means all permits, licenses, franchises, qualifications, orders, agreements and authorizations issued by any Governmental Authority, including Environmental Permits.
Section 1.144      Permitted Encumbrances . “ Permitted Encumbrances ” means (1) statutory liens for current Taxes not yet due or delinquent (or the validity or amount of which is being contested in good faith by appropriate proceedings and for which appropriate reserves have been established in the Financial Statements); (1) Encumbrances expressly and specifically approved by the Purchaser in writing; (1) mechanics’, materialmens’, carriers’, workers’, repairers’, landlords’ and other Encumbrances or security obligations arising by operation of Law, or pledges, deposits or other Encumbrances securing the performance of bids, trade contracts, leases or statutory obligations (including workers’ compensation, unemployment insurance or other social security legislation), in each case, incurred in the ordinary course of business consistent with past practice, and for amounts which are not yet due or delinquent and which are not, individually or in the aggregate,

 
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material; (1) Encumbrances arising under conditional sales contracts and equipment leases with third parties; (1) variations, if any, between tax lot lines and property lines; (1) minor deviations, if any, of fences or shrubs from designated property lines; (1) Encumbrances identified on Section 1.144 of the Seller Disclosure Schedule; (1) any zoning, entitlement, conservation restriction and other land use and environmental regulations, in each case, imposed by Governmental Authorities. and which are not violated by the current use or occupancy of such real property or the operation of the Business thereon; (1) Encumbrances that will be released and fully discharged at or prior to the Closing; (1) following the Closing, easements, rights of way, access rights and any other Encumbrance on the Transferred Assets explicitly reserved for the benefit of the Seller pursuant to a Transaction Document; and (1) any non-exclusive license granted to customers in connection the sale or provision of goods or services in the ordinary course of business consistent with past practice.
Section 1.145      Person . “ Person ” means any individual, partnership, firm, corporation, limited liability company, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
Section 1.146      Pilot Plant . “ Pilot Plant ” means the stand alone pilot plant described on Section 1.146 of the Seller Disclosure Schedule.
Section 1.147      Pilot Plant Assets . “ Pilot Plant Assets ” means the assets located at the Pilot Plant (including items of tangible personal property) that are listed on Section 1.147 of the Seller Disclosure Schedule (as amended pursuant to Section 5.15 ).
Section 1.148      Plan . “ Plan ” means each (i) “employee benefit plan” as defined in Section 3(3) of ERISA, whether or not subject to ERISA, (ii) employment, consulting, severance, change in control, transaction bonus, retention or other similar agreement or plan or (iii) other plan, agreement or arrangement providing for compensation, bonuses, equity or equity-based compensation, incentives, deferred compensation, severance, change in control, health, medical, dental, vision, life insurance, welfare, fringe benefits, perquisites, disability or sick leave benefits, supplemental unemployment benefits, post-employment or retirement or other benefits, in each case that is sponsored, maintained, administered, or contributed to by any Person or any of its Affiliates, or with respect to which the Person or any of its Affiliates is a party, for the benefit of any current or former employee, director or independent contractor of the Person or any of its Affiliates, and/or their spouses, dependents or beneficiaries, or with respect to which the Person or any of its Affiliates has any Liabilities contingent or otherwise.
Section 1.149      Post-Closing Adjustment . “ Post-Closing Adjustment ” shall have the meaning set forth in Section 2.11(a) .
Section 1.150      Post-Closing Tax Period . “ Post-Closing Tax Period ” means any Tax period beginning after the Closing Date, including the portion of any Straddle Period beginning after the Closing Date.
Section 1.151      Post-Signing Insurance Proceeds . “ Post-Signing Insurance Proceeds ” shall have the meaning set forth in Section 2.2(a)(ix) .

 
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Section 1.152      Pre-Closing Tax Period . “ Pre-Closing Tax Period ” means any Tax period ending on or prior to the Closing Date, including the portion of any Straddle Period ending on the Closing Date.
Section 1.153      Pre-Closing Restructuring . “ Pre-Closing Restructuring ” shall have the meaning set forth in Section 5.8 .
Section 1.154      Preliminary Closing Date Cash . “ Preliminary Closing Date Cash ” shall have the meaning set forth in Section 2.10 .
Section 1.155      Preliminary Closing Date Indebtedness . “ Preliminary Closing Date Indebtedness ” shall have the meaning set forth in Section 2.10 .
Section 1.156      Preliminary Closing Date Transaction Expenses . “ Preliminary Closing Date Transaction Expenses ” shall have the meaning set forth in Section 2.10 .
Section 1.157      Preliminary Company Closing Date Payment . “ Preliminary Company Closing Date Payment ” shall have the meaning set forth in Section 2.10 .
Section 1.158      Preliminary Company Net Working Capital . “ Preliminary Company Net Working Capital ” shall have the meaning set forth in Section 2.10 .
Section 1.159      Preliminary Transferred Assets Closing Date Payment . “ Preliminary Transferred Assets Closing Date Payment ” shall have the meaning set forth in Section 2.10 .
Section 1.160      Preliminary Transferred Assets Net Working Capital . “ Preliminary Transferred Assets Net Working Capital ” shall have the meaning set forth in Section 2.10 .
Section 1.161      Pro Forma Company Financial Statements . “ Pro Forma Company Financial Statements ” means the unaudited pro forma statement of financial position of the Company as of September 30, 2017 set forth on Section 1.161 of the Seller Disclosure Schedule.
Section 1.162      Protected Communications . “ Protected Communications ” shall have the meaning set forth in Section 5.9 .
Section 1.163      Public Announcement . “ Public Announcement ” shall have the meaning set forth in Section 11.4 .
Section 1.164      Purchase Price . “ Purchase Price ” shall have the meaning set forth in Section 2.6(a) .
Section 1.165      Purchase Price for the Transferred Assets . “ Purchase Price for the Transferred Assets ” shall have the meaning set forth in Section 2.6(a) .
Section 1.166      Purchase Price for the Company Interests . “ Purchase Price for the Company Interests ” shall have the meaning set forth in Section 2.6(a) .

 
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Section 1.167      Purchaser . “ Purchaser ” shall have the meaning set forth in the Preamble.
Section 1.168      Purchaser 401(k) Plan . “ Purchaser 401(k) Plan ” shall have the meaning set forth in Section 5.7(j) .
Section 1.169      Purchaser Benefit Plan . “ Purchaser Benefit Plan ” means any Plan to which the Purchaser or any Affiliate is a party, or with respect to which the Purchaser or any Affiliate has any obligations or Liabilities or which are maintained, contributed to or sponsored by the Purchaser or any Affiliate, in each case for the benefit of any current or former employees, directors or independent contractors of the Purchaser or any Affiliate and/or their spouses, dependents or beneficiaries.
Section 1.170      Purchaser Disclosure Schedule . “ Purchaser Disclosure Schedule ” means the Disclosure Schedules delivered by the Purchaser to the Seller in connection with this Agreement.
Section 1.171      Purchaser Environmental Liabilities . “ Purchaser Environmental Liabilities ” means any Liability or Loss to the extent relating to, or arising out of, (a) any Releases of Hazardous Materials at, in, on or from any Manufacturing Facility or Owned Real Property; (b) any Releases of Hazardous Materials at any third-party site to which such Hazardous Materials were sent from any Manufacturing Facility or Owned Real Property; (c) any exposure to Hazardous Materials at any Manufacturing Facility or Owned Real Property and any exposure to any Hazardous Material included in any product or material sent or distributed from any Manufacturing Facility or Owned Real Property; (d) any violation of or noncompliance with Environmental Laws or Environmental Permits occurring or existing at any Manufacturing Facility or Owned Real Property; and (e) any Actions under any Environmental Law or Environmental Permit brought with respect to any Manufacturing Facility or Owned Real Property; other than, in the case of clauses (a) through (e), any Seller Environmental Liability.
Section 1.172      Purchaser FSA Plan . “ Purchaser FSA Plan ” shall have the meaning set forth in Section 5.7(k) .
Section 1.173      Purchaser Fundamental Representations . “ Purchaser Fundamental Representations ” shall have the meaning set forth in Section 7.1(a) .
Section 1.174      Purchaser Indemnified Party . “ Purchaser Indemnified Party ” shall have the meaning set forth in Section 8.2 .
Section 1.175      Registered IP . “ Registered IP ” means all the following rights issued by, registered or filed with, renewed by or the subject of a pending application before any Governmental Authority or Internet domain name registrar in any jurisdiction throughout the world: (a) patents and patent applications, and all related continuations, continuations-in-part, divisionals, reissues, reexaminations, substitutions and extensions thereof; (b) registered trademarks, service marks, and internet domain names or other registrations related to trademarks, or applications related thereto; (c) registered copyrights and applications for copyright registration.

 
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Section 1.176      Regulations . “ Regulations ” means the Treasury Regulations (including Temporary Regulations) promulgated by the United States Department of Treasury with respect to the Code or other federal tax statutes.
Section 1.177      Related Party . “ Related Party ” means, with respect to any Person, such Person’s Affiliates and its and their respective current and former directors, officers and controlling persons.
Section 1.178      Related Party Contract . “ Related Party Contract ” means any Contract between the Seller or any of its Subsidiaries (including the Company), on the one hand, and a Related Party of such Person, on the other hand.
Section 1.179      Release . “ Release ” means disposing, discharging, injecting, spilling, leaking, pumping, pouring, leaching, dumping, emitting, escaping or emptying into or onto the environment, including upon any soil, sediment, subsurface strata, surface water or groundwater, whether sudden or non-sudden and whether accidental or non-accidental, or any release, emission or discharge as those terms are defined in any applicable Environmental Law.
Section 1.180      Remedial Action . “ Remedial Action ” means any action to investigate, clean up, remove or remediate, monitor or assess, or conduct remedial or corrective actions with respect to any Release of Hazardous Materials.
Section 1.181      Representatives . “ Representatives ” means with respect to any Person, such Person’s Affiliates and its and their respective directors, officers, employees, agents and advisors.
Section 1.182      Required Information . “ Required Information ” means all information regarding the business, operations and financial condition of the Business, the Seller and its Subsidiaries that is reasonably requested by the Purchaser and that is customarily included in marketing materials for indebtedness of the type to be provided under the Debt Financing Agreements, including all financial and company information regarding the Business, the Seller and its Subsidiaries that is required by the Debt Financing Agreements (including, if applicable, any debt commitment letters in connection with any Alternative Financing).
Section 1.183      Required Lease Amendment . “ Required Lease Amendment ” means, collectively, (a) that certain Amendment and Assignment with respect to the PDC Lease, the OTA Lease and the Deed and Declaration of Easement, to be effective as of the Closing, by and among Ethyl Corporation, the Seller and the Purchaser, substantially in the form attached hereto as Exhibit F ; and (b) that certain Amendment and Restatement and Assignment with respect to that certain Amended and Restated Services Agreement, dated January 1, 2002, between Ethyl Corporation and the Seller, to be effective as of the Closing, by and among Ethyl Corporation, the Seller and the Purchaser, in a form reasonably acceptable to the Purchaser, pursuant to which (i) the Seller will assign to the Purchaser the agreement described in clause (b) ; (ii) Ethyl Corporation will consent to such assignment and (iii) Ethyl Corporation and the Purchaser shall amend and restate the agreement described in clause (b) to provide for only those services that were being provided by the Seller to Ethyl Corporation as of the date of the Original Agreement.

 
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Section 1.184      Required Operating Agreement Amendment . “ Required Operating Agreement Amendment ” means that certain Amendment to the SI Group Operating Agreement, dated as of December 13, 2017, to be effective as of the Closing, by and among SI Group, Inc., the Seller and the Purchaser.
Section 1.185      Research and Development Assets . “ Research and Development Assets ” means the assets located at the Research and Development Lab (including analytical equipment and items of tangible property) that are listed on Section 1.185 of the Seller Disclosure Schedule (as amended pursuant to Section 5.15 ).
Section 1.186      Research and Development Lab . “ Research and Development Lab ” means the research and development laboratory located at the Baton Rouge Manufacturing Facility, the premises of which are identified in, and for which a non-exclusive license for the non-exclusive right to use such premises is to be granted to the Seller pursuant to, the Baton Rouge Manufacturing Facility Services Agreement.
Section 1.187      Retained Names and Marks . “ Retained Names and Marks ” shall have the meaning set forth in Section 5.5(a) .
Section 1.188      Return Deadline . “ Return Deadline ” shall have the meaning set forth in Section 5.7(a)(i) .
Section 1.189      Second Request . “ Second Request ” shall have the meaning set forth in Section 5.4(b) .
Section 1.190      Seller . “ Seller ” shall have the meaning set forth in the Preamble.
Section 1.191      Seller 401(k) Plan . “ Seller 401(k) Plan ” shall have the meaning set forth in Section 5.7(j) .
Section 1.192      Seller Benefit Plan . “ Seller Benefit Plan ” means any Plan to which the Seller or any Affiliate is a party, or with respect to which the Seller or any Affiliate has any obligations or Liabilities or which are maintained, contributed to or sponsored by the Seller or any Affiliate, in each case for the benefit of any Offered Employees and/or Company Employees and/or their spouses, dependents or beneficiaries, as applicable.
Section 1.193      Seller Disclosure Schedule . “ Seller Disclosure Schedule ” means the Disclosure Schedules delivered by the Seller to the Purchaser in connection with this Agreement.
Section 1.194      Seller Environmental Liabilities . “ Seller Environmental Liabilities ” means all Liabilities and Losses to the extent arising from or related to (1) the presence or any Releases of Hazardous Materials at, in, on or from any Manufacturing Facility, Owned Real Property, the Orangeburg SC Facility, the Supply Agreement Sites or any other real property currently owned, leased or operated by the Seller or the Company in connection with the Business and occurring or existing on or prior to the Closing; (1) any Releases of Hazardous Materials at any third-party site to which such Hazardous Materials were transported or disposed of, or arranged for the transportation

 
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or disposal of, by the Seller or the Company from any Manufacturing Facility or Owned Real Property or otherwise in connection with the Business prior to the Closing or at any real property formerly owned, leased or operated by the Seller or the Company in connection with the Business; (1) any exposure to Hazardous Materials in connection with the Seller’s or the Company’ operation of the Business prior to the Closing Date or to any Hazardous Material included in any product or material manufactured, marketed, sold or distributed by the Seller or the Company from any Manufacturing Facility or Owned Real Property or by the Business prior to the Closing Date; (1) any act or omission by the Seller or the Company in connection with the Business, the Manufacturing Facilities or any Owned Real Property, including the manufacture, marketing, sale or distribution of products by the Business prior to the Closing Date, that has resulted in or results in a violation of, or Liabilities under, any Environmental Laws or Environmental Permit; and (1) any Release or presence of Hazardous Materials at property covered by the Ethyl Indemnity.
Section 1.195      Seller FSA Plan . “ Seller FSA Plan ” shall have the meaning set forth in Section 5.7(k) .
Section 1.196      Seller Fundamental Representations . “ Seller Fundamental Representations ” shall have the meaning set forth in Section 7.2(a) .
Section 1.197      Seller Indemnified Environmental Noncompliance . “ Seller Indemnified Environmental Noncompliance ” shall have the meaning set forth in Section 8.7(e) .
Section 1.198      Seller Indemnified Party . “ Seller Indemnified Party ” shall have the meaning set forth in Section 8.3 .
Section 1.199      Seller Law Firms . “ Seller Law Firms ” shall have the meaning set forth in Section 5.9 .
Section 1.200      Seller Released Parties . “ Seller Released Parties ” shall have the meaning set forth in Section 5.12(b) .
Section 1.201      Seller Releasing Parties . “ Seller Releasing Parties ” shall have the meaning set forth in Section 5.12(a) .
Section 1.202      Seller Restricted Parties . “ Seller Restricted Parties ” shall have the meaning set forth in Section 5.3(c) .
Section 1.203      Seller’s Knowledge; Knowledge of the Seller . “ Seller’s Knowledge”, “Knowledge of the Seller ” or similar terms used in this Agreement mean the actual (but not constructive or imputed) knowledge, after reasonable inquiry of the employees of the Seller or its Subsidiaries responsible for the relevant subject matter (including the head of intellectual property of the Seller) of the Persons identified on Section 1.203 of the Seller Disclosure Schedule.
Section 1.204      Services Agreements . “ Services Agreements ” means (a) the services agreement to be entered into by the Purchaser and the Seller as of the Closing, substantially in the form attached hereto as Exhibit G-1 and (b) the services agreement to be entered into by the Purchaser

 
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and the Seller as of the Closing, which shall reflect the applicable terms set forth in Exhibit G-2 and such other terms as are reasonably acceptable to the Seller and the Purchaser.
Section 1.205      Servitudes . “ Servitudes ” means those servitudes created by the documents set forth on Section 1.205 of the Seller Disclosure Schedule, as amended by the Required Lease Amendment.
Section 1.206      Shared Contracts . “ Shared Contracts ” means any Contract to which the Seller or any of its Subsidiaries (other than the Company) is a party for the provision of goods and/or services that are used in both the Business and any other businesses (other than the Business) of the Seller and its Subsidiaries (other than the Company), including those Contracts set forth on Section 1.206 of the Seller Disclosure Schedule.
Section 1.207      Shared Information . “ Shared Information ” shall have the meaning set forth in Section 5.3(c) .
Section 1.208      SI Group Operating Agreement . “ SI Group Operating Agreement ” means that certain Operating Agreement, dated as of September 1, 2014, by and between the Seller and SI Group, Inc.
Section 1.209      Specified Key Customer . “ Specified Key Customer ” shall have the meaning set forth in Section 3.16(c) .
Section 1.210      Straddle Period . “ Straddle Period ” means any Tax period beginning before or on and ending after the Closing Date.
Section 1.211      Subsidiary . “ Subsidiary ” of any Person means any corporation, partnership, limited liability company or other organization, whether incorporated or unincorporated, which is controlled, directly or indirectly, by such Person; provided , that, for purposes of Section 2.2 and Section 2.3 , references to the Seller’s “Subsidiaries” shall not include the Company.
Section 1.212      Supply Agreement Sites . “ Supply Agreement Sites ” means the real property, together with all improvements and fixtures thereon, located in Tyrone, Pennsylvania and Pasadena, Texas that is further identified on Section 1.212 of the Seller Disclosure Schedule, at which the Seller will perform, after the Closing Date, contract manufacturing for the Purchaser in accordance with the Supply Agreements.
Section 1.213      Supply Agreements . “ Supply Agreements ” means the supply agreements to be entered into by the Purchaser and the Seller as of the Closing, substantially in the forms attached hereto as Exhibits H-1 and H-2 .
Section 1.214      Survey . “ Survey ” means an ALTA survey by Baton Rouge Land Surveying with respect to the Land containing Table A items 1-4, 6, 8, 11, 13, 15, 19 and which locates and identifies: (a) all fences and gates around the Seller’s operations, (b) any and all rail tracks and spurs located within the fenced area/ leased premises as well as the track as it exits the fenced area/leased premises and connects to the main Kansas City Railroad; (c) the area covered by the OTA Lease;

 
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(d) the area covered by the servitude in favor of Ethyl Corporation to use Gulf States Road and the parking area between the road and the leased premises; (e) the existing servitude over outfall 001; (f) the outfall 001 servitude expansion area; (g) the servitude to be granted over the North Road (including the Monte Sano pedestrian bridge) all the way to the edge of Ethyl’s property; (h) the wildlife habitat area; (i) the location of the existing buildings and improvements (which may be shown by aerial mapping), (j) the Kansas City Railroad servitude or right of way; (k) the pipe rack along the western edge of the leased premises; (l) all plottable exceptions on Schedule B to the Title Commitment that effect the fenced area/leased premises; and (m) the Production Facility, the Terminal Facility, the R&D Facility, the Pilot Plant Facility and the Control Room for use as an exhibit to the Baton Rouge Manufacturing Facility Services Agreement.
Section 1.215      Tax; Taxes . “ Tax ” or “ Taxes ” means any income, capital gain, gross receipts, windfall profits, sales, use, transfer, property, ad valorem, value added, professional, severance, production, license, excise, fees, levies, assessments, net worth, franchise, capital, employment, environmental, withholding (including backup withholding), deductions, payroll, social security, estimated or other tax of any kind whatsoever, duty, impost, tariff, assessment or other similar charge imposed by any Governmental Authority, whether disputed or not, together with any interest, additions, charges or penalties in respect thereof.
Section 1.216      Tax Proceeding . “ Tax Proceeding ” shall have the meaning set forth in Section 6.4(a) .
Section 1.217      Tax Return . “ Tax Return ” means any return, report, form, declaration or information return or statement (including amendments thereof and schedules or attachments thereto) filed or required to be filed with a Governmental Authority with respect to Taxes.
Section 1.218      Termination Date . “ Termination Date ” shall have the meaning set forth in Section 9.1(a) .
Section 1.219      Third-Party Claim . “ Third-Party Claim ” shall have the meaning set forth in Section 8.5(b) .
Section 1.220      Third-Party Rights . “ Third-Party Rights ” shall have the meaning set forth in Section 2.5(b) .
Section 1.221      Title Commitment . “ Title Commitment ” means the commitment for title insurance issued by Old Republic National Title Insurance Company naming the Purchaser as the proposed insured delivered by the Seller to the Purchaser prior to the date of the Original Agreement with respect to the leasehold estate created by the PDC Lease and the servitude estates created by the Servitudes in the Land with an effective date of November 29, 2017.
Section 1.222      Title Company . “ Title Company ” shall have the meaning set forth in Section 2.8(k) .
Section 1.223      Title Policy . “ Title Policy ” shall have the meaning set forth in Section 2.8(k) .

 
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Section 1.224      Tolling Agreement . “ Tolling Agreement ” means the tolling agreement to be entered into by the Purchaser and the Seller as of the Closing, substantially in the form attached hereto as Exhibit J .
Section 1.225      Trade Accounts Payable . “ Trade Accounts Payable ” means all trade accounts payable of the Seller and its Subsidiaries (other than the Company) and all accrued payables of the Seller and its Subsidiaries (other than the Company) for goods received from, but not invoiced by, vendors or suppliers, in each case, arising out of the operation of the Business prior to the Closing Date.
Section 1.226      Transaction Documents . “ Transaction Documents ” means this Agreement, the Local Conveyances, the Baton Rouge Manufacturing Facility Services Agreement, the Supply Agreements, the Tolling Agreement, the Services Agreements, the Transition Services Agreement, the License Agreement, and any other Contract entered into, or any other document or certificate delivered, in connection with this Agreement.
Section 1.227      Transfer Date . “ Transfer Date ” shall have the meaning set forth in Section 5.7(a)(ii) .
Section 1.228      Transferred Accounts Receivable . “ Transferred Accounts Receivable ” means all accounts receivable (other than from the Seller, the Company or any of their Affiliates), notes receivable, rebates receivable, employee advances and other miscellaneous receivables of the Seller or any of its Subsidiaries (other than the Company), in each case, arising out of the operation of the Business prior to the Closing Date.
Section 1.229      Transferred Assets . “ Transferred Assets ” shall have the meaning set forth in Section 2.2(a) .
Section 1.230      Transferred Assets Adjustment Amount . “ Transferred Assets Adjustment Amount ” shall have the meaning set forth in Section 2.11(e) .
Section 1.231      Transferred Assets Net Working Capital. “ Transferred Assets Net Working Capital ” means, as of 12:01 a.m. New York time on the Closing Date, the amount that is equal to (a) the current assets of the Business identified on Section 1.231 of the Seller Disclosure Schedule minus (b) the current liabilities of the Business identified on Section 1.231 of the Seller Disclosure Schedule, in each case, calculated in accordance with the policies and procedures set forth on Section 1.231 of the Seller Disclosure Schedule. No amounts or accruals in respect of Tax assets or Tax Liabilities (including deferred Tax assets and deferred Tax Liabilities) shall be considered current assets or liabilities for purposes of calculating Transferred Assets Net Working Capital.
Section 1.232      Transferred Contracts . “ Transferred Contracts ” means each Contract to which the Seller or any of its Subsidiaries (other than the Company) is a party that is primarily related to the Business or any of the Transferred Assets, including those Contracts identified on Section 1.232 of the Seller Disclosure Schedule.

 
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Section 1.233      Transferred Employee . “ Transferred Employee ” shall have the meaning set forth in Section 5.7(a)(ii) .
Section 1.234      Transferred Equipment . “ Transferred Equipment ” means all tangible machinery, equipment, vehicles, tools, supplies, accessories, materials, office equipment, furniture and IT Assets that are owned by, or licensed or leased to, the Seller or any of its Subsidiaries (other than the Company) and used or held for use in, or primarily related to, the Business, including those items set forth on Section 1.234 of the Seller Disclosure Schedule.
Section 1.235      Transferred Information . “ Transferred Information ” means originals of (or if originals are unavailable, copies of) all sales and promotional literature, customer lists, prospective customer lists, correspondence and other sales-related materials, research and development records, production records, service and warranty records, equipment logs, operation guides and manuals, environmental, health and safety records, product stewardship records, OSHA records, studies, reports and personnel records, in each case, whether in hard copy or computer format, in each case to the extent used or held for use in, or primarily related to, the Business and in the possession or control of the Seller or any of its Subsidiaries (other than the Company).
Section 1.236      Transferred Inventory . “ Transferred Inventory ” means all inventories, raw materials, packaging materials, work in process, semi-finished and finished goods, purchased supplies, other supplies and spare parts and materials used for maintaining production machinery and equipment, in each case, to the extent such inventories are owned, used or held for use by the Seller or any of its Subsidiaries (other than the Company) in, or are primarily related to, the Business.
Section 1.237      Transferred IP Agreements . “ Transferred IP Agreements ” means all IP Agreements to which the Seller or any of its Subsidiaries (other than the Company) is a party that are primarily related to the Business, including the licenses of Intellectual Property identified on Section 1.237 of the Seller Disclosure Schedule. For the avoidance of doubt, Transferred IP Agreements shall not include IP Agreements primarily related to the Bromine Assets, the Excluded Metal Alkyls, the Pilot Plant Assets, and the Research and Development Assets.
Section 1.238      Transferred Owned Intellectual Property . “ Transferred Owned Intellectual Property ” means the Registered IP and the unregistered Intellectual Property owned by the Seller or any of its Subsidiaries (other than the Company) that is primarily used or held for use in the Business, including the Registered IP and unregistered Intellectual Property identified on Section 1.238 of the Seller Disclosure Schedule. For the avoidance of doubt, Transferred Owned Intellectual Property shall not include Registered IP and unregistered Intellectual Property related to the Bromine Assets and the Excluded Metal Alkyls.
Section 1.239      Transferred Permits . “ Transferred Permits ” means the Permits of the Seller or any of its Subsidiaries (other than the Company) used or held for use in, or primarily related to, the Business.
Section 1.240      Transferred Rail Cars . “ Transferred Rail Cars ” means the rail cars set forth on Section 1.240 of the Seller Disclosure Schedule.

 
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Section 1.241      Transferred Records . “ Transferred Records ” means all books, records, invoices, customer records, shipping records, supplier lists, Tax records, Employee Records (other than those that are prohibited by applicable Law from being transferred to the Purchaser, copies of which (to the extent permitted by applicable Law), will be made available to the Purchaser upon the Purchaser’s request), correspondence, documents, lists, plans, financial statements, internal audit or compliance reports and other documents, records, papers and files, including all pending, interim and final analytical data, physical or chemical properties data, toxicological and environmental data and exposure-related data, and including all records required under Environmental Laws, including all applications, studies, data, dossiers, calculations, analysis, and other information or material supporting or used in obtaining or submitting Environmental Permits, whether in hard copy or computer format, in each case, to the extent in the possession or control of the Seller or any of its Subsidiaries (other than the Company) and used or held for use in, or related to, the Business, and including those documents set forth on Section 1.241 of the Seller Disclosure Schedule; provided , that the Seller may redact information not related to the Business from the Transferred Records prior to the delivery of the Transferred Records to the Purchaser and may retain a copy of any Transferred Records (which shall be held subject to Section 5.3 ) to the extent required by applicable Law.
Section 1.242      Transferred Tanks . “ Transferred Tanks ” shall have the meaning set forth in Section 2.2(a)(xiv) .
Section 1.243      Transition Services Agreement . “ Transition Services Agreement ” means the transition services agreement to be entered into by the Purchaser and the Seller as of the Closing, substantially in the form attached hereto as Exhibit J .
Section 1.244      U.S. Albemarle Plans . “ U.S. Albemarle Plans ” shall have the meaning set forth in Section 3.11(b) .
Section 1.245      U.S. Employee . “ U.S. Employee ” means all Business Employees employed within the United States immediately prior to the Closing Date.
Section 1.246      U.S. Offered Employee . “ U.S. Offered Employee ” means each Offered Employee who is employed in the United States immediately prior to the Closing Date.
Section 1.247      U.S. Transferred Employee . “ U.S. Transferred Employee ” shall have the meaning set forth in Section 5.7(b)(i) .
Section 1.248      WARN Act . “ WARN Act ” means the Worker Adjustment Retraining and Notification Act of 1988, as amended, and any similar state or local mass layoff or plant closing Law.
Section 1.249      2018 Bonus Stub Period . “ 2018 Bonus Stub Period ” shall have the meaning set forth in Section 5.7(c) .
ARTICLE II     
SALE AND PURCHASE

 
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Section 2.1      Sale and Purchase of Company Interests . Upon the terms and subject to the conditions of this Agreement, at the Closing, the Seller shall cause the Foreign Seller to sell, assign, transfer, convey and deliver to the Purchaser (or an Affiliate of the Purchaser designated by the Purchaser), and the Purchaser (or such designated Affiliate of the Purchaser) shall purchase from the Foreign Seller, all right, title and interest in and to the Company Interests, free and clear of all Encumbrances, other than Permitted Encumbrances, which transfer shall be evidenced by the Company Interests Transfer Agreement.
Section 2.2      Sale and Purchase of Transferred Assets .
(a)      Upon the terms and subject to the conditions of this Agreement, at the Closing, the Seller shall sell, assign, transfer, convey and deliver to the Purchaser (or a Subsidiary of the Purchaser designated by the Purchaser), and the Purchaser (or such designated Subsidiary of the Purchaser) shall purchase from the Seller, subject to Section 2.5 , all right, title and interest in and to all of the assets, properties and rights of any kind of the Seller or any of its Subsidiaries that are primarily related to, or used or held for use in, the Business (the “ Transferred Assets ”), other than the Excluded Assets, free and clear of all Encumbrances, other than Permitted Encumbrances, including the following:
(i)      the Baton Rouge Manufacturing Facility, together with the Improvements and the Transferred Equipment;
(ii)      the Orangeburg Transferred Equipment;
(iii)      the Transferred Owned Intellectual Property and the Transferred IP Agreements;
(iv)      the Transferred Inventory;
(v)      (i) the Transferred Contracts, including the PDC Lease and the OTA Lease, (ii) the Servitudes and (iii) all rights and benefits under the Shared Contracts that are primarily related to the Business;
(vi)      (x) all prepaid expenses primarily related to the Business or any Transferred Asset and (y) the Transferred Accounts Receivable;
(vii)      all claims against third parties, defenses and rights of offset or counterclaim (whether known or unknown) primarily related to the Business, any Transferred Asset or any Assumed Liability;
(viii)      the Transferred Rail Cars;
(ix)      the proceeds from any insurance policies of the Seller or any of its Subsidiaries with respect to any insurance recoveries, in each case, solely to the extent arising out of or relating to any damage or destruction to, or loss of, any Transferred Assets to the extent any such damage or destruction remains unrepaired, in whole or in part, or any

 
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such asset has not been replaced, as of the Closing Date (such rights, the “ Post-Signing Insurance Proceeds ”);
(x)      the Transferred Permits;
(xi)      the Transferred Records;
(xii)      the Transferred Information;
(xiii)      the Goodwill; and
(xiv)      ownership or leasehold interests in the isotanks and portable tanks used or held for use in, or primarily related to, the Business, including those identified on Section 2.2(a)(xiv) of the Seller Disclosure Schedule (the “ Transferred Tanks ”).
(b)      The Seller shall not sell, convey, assign, transfer or deliver, nor cause any of its Subsidiaries to sell, convey, assign, transfer or deliver, to the Purchaser or any of its Subsidiaries, and neither the Purchaser or any of its Subsidiaries shall purchase, any of the following assets of the Seller or any of its Subsidiaries (collectively, the “ Excluded Assets ”):
(i)      any rights to refunds of Excluded Taxes;
(ii)      all rights of the Seller or its Subsidiaries under any contracts, commitments and other agreements, except for the Seller’s or the any of its Subsidiaries’ rights under (A) the Transferred Contracts, (B) the Shared Contracts (to the extent such rights are primarily related to the Business) and (C) any other Contracts that constitute Transferred Assets;
(iii)      the company seal, minute books, charter documents, stock or equity record books and such other books and records pertaining to the organization, existence or capitalization of the Seller or its Subsidiaries, as well as any other records or written materials, in each case, that do not constitute Transferred Records or Transferred Information;
(iv)      the Pilot Plant Assets;
(v)      the Research and Development Assets;
(vi)      the Bromine Assets;
(vii)      those Improvements located on the Production Facility and the Terminal Facility (each as defined in the Baton Rouge Manufacturing Facility Services Agreement);
(viii)      all rights, title and interest of the Seller under this Agreement and the rights of the Seller or its Subsidiaries under the other Transaction Documents, and any documents delivered or received in connection herewith or therewith and all other agreements entered into by the Seller in connection with the transactions contemplated by this Agreement (other than confidentiality or non-disclosure agreements);

 
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(ix)      all Excluded Claims;
(x)      all Tax Returns and other Tax records of the Seller or its Affiliates, other than those relating exclusively to the Transferred Assets or the Business;
(xi)      all current and prior insurance policies of the Seller or its Subsidiaries (other than any policy to which the Company is an insured party) and all rights of any nature with respect thereto, including all insurance recoveries thereunder and rights to assert claims with respect to any such insurance recoveries, other than in respect of any Post-Signing Insurance Proceeds;
(xii)      all rights, title and interest of the Seller or its Subsidiaries in and to the Retained Names and Marks, other than as expressly provided in Section 5.5 ;
(xiii)      all accounts receivable of the Seller or its Subsidiaries that are not Transferred Accounts Receivable;
(xiv)      all Intellectual Property of the Seller or its Subsidiaries that is not Transferred Owned Intellectual Property or In-Licensed Intellectual Property;
(xv)      all rights and interest of the Seller or its Subsidiaries under credit support instruments and any similar instruments (including letters of credit, consignments, setoff rights, indemnities, guarantees, liens, security arrangements, any other documents or rights intended to secure payment), in each case, that are not primarily related to the Business;
(xvi)      all customer credit files of the Seller or its Subsidiaries that are not primarily related to the Business;
(xvii)      all of the Seller’s or its Subsidiaries’ ownership or leasehold interests in rail cars that are not Transferred Rail Cars;
(xviii)      all assets, insurance policies and other funding vehicles of the Plans; and
(xix)      the assets identified on Section 2.2(b)(xix) of the Seller Disclosure Schedule.
Section 2.3      Assumption and Exclusion of Liabilities .
(a)      At the Closing, upon the terms and subject to the conditions set forth in this Agreement, the Purchaser (or a Subsidiary of the Purchaser designated by the Purchaser) shall assume, and agree to pay, perform and discharge when due, only the following Liabilities of the Seller or any of its Subsidiaries (the “ Assumed Liabilities ”):
(i)      except as otherwise set forth herein, all of the Liabilities of the Seller or any of its Subsidiaries to the extent arising out of, or relating to, the Transferred Assets (excluding the Transferred Contracts and the Shared Contracts which are addressed in Section 2.3(a)(ii) and Trade Accounts Payable), in each case, arising from and after the Closing Date,

 
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other than any Liabilities arising from, or relating to, an act or omission by the Seller or any of its Subsidiaries prior to the Closing Date;
(ii)      all Liabilities of the Seller or any of its Subsidiaries arising under, or relating to, the Transferred Contracts and that portion of the Shared Contracts that primarily relates to the Business in connection with performance thereof, in each case, arising from and after the Closing Date, other than any Liabilities arising from, or relating to, an act or omission by the Seller or any of its Subsidiaries prior to the Closing Date;
(iii)      any Liabilities for Taxes, other than Excluded Taxes, that are imposed with respect to the Business or the Transferred Assets (excluding, for the avoidance of doubt, any income taxes of the Seller or any of its Subsidiaries);
(iv)      all Liabilities arising under, or relating to, Korean Plans expressly assumed by the Purchaser and/or its Subsidiaries pursuant to Section 5.7 ; and
(v)      all Purchaser Environmental Liabilities.
(b)      The Seller and its Subsidiaries shall retain, and shall be responsible for paying, performing and discharging when due, and the Purchaser and its Subsidiaries shall not assume or have any responsibility for, any Liabilities of the Seller or any of its Subsidiaries other than the Assumed Liabilities (all such Liabilities not being assumed are collectively, the “ Excluded Liabilities ”). The Excluded Liabilities shall include the following Liabilities of the Seller or any of its Subsidiaries:
(i)      all Liabilities for Excluded Taxes;
(ii)      all Seller Environmental Liabilities;
(iii)      all Trade Accounts Payable;
(iv)      all Liabilities arising under, or relating to, any Seller Benefit Plans which are not the Korean Plans that are expressly assumed by the Purchaser and/or its Subsidiaries pursuant to Section 5.7 ;
(v)      all Liabilities with respect to Indebtedness of the Seller or any of its Subsidiaries or any Closing Date Transaction Expenses;
(vi)      all Liabilities arising under, or relating to, any Excluded Assets; and
(vii)      all Liabilities of the Seller or any of its Subsidiaries that are not Assumed Liabilities.
Section 2.4      Procedures for the Transfer of Transferred Assets . The Seller and the Purchaser shall effect on the Closing Date the transfer or assignment of the Transferred Assets and the assumption and assignment of the Assumed Liabilities from the Seller to the Purchaser (or a Subsidiary designated by the Purchaser) pursuant to the Local Conveyances.

 
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Section 2.5      Shared Contracts; Assignment of Contracts and Rights; Post-Signing Insurance Proceeds .
(a)      Each Shared Contract shall be assigned, transferred and conveyed only with respect to (and preserving the meaning of) those parts that primarily relate to the Business or appropriately amended prior to, on or after the Closing, so that the Purchaser shall be entitled to all of the rights and benefits of those parts of the Shared Contract that primarily relate to the Business and shall assume only the portion of any Liabilities thereunder that constitute Assumed Liabilities.
(b)      Anything in this Agreement to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign any Contract at the Closing that otherwise would be a Transferred Contract or a Transferred IP Agreement or any right thereunder if an attempted assignment, without the consent of a third party, would constitute a breach of such Contract or adversely affect the rights of the Purchaser or its Subsidiaries thereunder or be ineffective with respect to any party thereto. The Seller will use its commercially reasonable efforts to obtain the consent of the other parties to any such Contract in connection with the transfer of such Contract or any claim or right or any benefit arising thereunder for the assignment thereof to the Purchaser. If, on the Closing Date, any such consent is not obtained, or if an attempted transfer or assignment thereof would be ineffective or a violation of applicable Law so that the Purchaser would not in fact receive all such rights (or, in the case of a Shared Contract, all of the rights thereunder primarily related to the Business), the Seller will cooperate in an arrangement reasonably agreed upon by the parties under which the Purchaser or its designated Subsidiary would, in compliance with applicable Law, obtain all of the benefits (or, in the case of a Shared Contract, all of the benefits thereunder primarily related to the Business) and assume the obligations and bear the economic burdens associated with such Contract, claim, right or benefit that constitute Assumed Liabilities, including by the Seller subcontracting, sublicensing or subleasing to the Purchaser, or under which the Seller would enforce, for the benefit of the Purchaser, and at the expense of the Purchaser, any and all of its rights against a third party thereto (including any Governmental Authority) associated with such Contract, claim, right or benefit (collectively, “ Third-Party Rights ”), and the Seller would promptly pay to the Purchaser when received all monies received by it under any such Contract or any claim or right or any benefit arising thereunder. Promptly upon obtaining the requisite third-party consent thereto, such Contract or right, if otherwise includable in the Transferred Assets, shall promptly be transferred and assigned to the Purchaser or its designee hereunder for no additional consideration. The provisions of this Section 2.5(b) shall in no way impose upon the Seller any obligation to incur out-of-pocket expenses in connection with obtaining consents unless the Purchaser agrees to reimburse the Seller for such expenses. Following the Closing Date and prior to the date that a Contract is assigned to the Purchaser in accordance with this Section 2.5(b) , the Purchaser shall not have any Liability under such Contract (including due to the breach thereof by the Seller). For the avoidance of doubt, notwithstanding anything to the contrary in this Section 2.5(b) , the Purchaser shall not be required to consummate the transactions contemplated by the this Agreement and the other Transaction Documents unless all third party consents, waivers, approvals or other actions set forth on Section 7.2(f) of the Seller Disclosure Schedule shall have been obtained or waived by the Purchaser prior to the Closing and shall be in full force and effect at the Closing.

 
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(c)      From and after the Closing, the Seller shall use commercially reasonable efforts to exercise all rights under any insurance policies of the Seller or any of its Subsidiaries (including all rights to assert claims) arising out of or relating to any damage or destruction to, or loss of, any Transferred Asset, to the extent such damage or destruction remained unrepaired, in whole or in part, or any such asset had not been replaced, as of the Closing Date.
Section 2.6      Purchase Price; Allocation of Purchase Price.
(a)      Subject to the adjustments set forth in Section 2.10 and Section 2.11 , the purchase price for the Transferred Assets shall be $291,549,300 (the “ Purchase Price for the Transferred Assets ”) and the purchase price for the Company Interests shall be $124,949,700 (the “ Purchase Price for the Company Interests ”, and together with the Purchase Price for the Transferred Assets, the “ Purchase Price ”). The Purchase Price for the Transferred Assets shall be payable to the Seller and the Purchase Price for the Company Interests shall be payable to the Foreign Seller.
(b)      Within 120 days after the Closing, the Seller shall determine and deliver to the Purchaser a written schedule (including as amended pursuant to this Section 2.6(b) or Section 2.6(c) , the “ Allocation Schedule ”) that allocates the Purchase Price for the Transferred Assets and the Purchase Price for the Company Interests (together with any other amounts treated for U.S. federal income tax purposes as paid for the Transferred Assets or the Company Assets, respectively) among the Transferred Assets and the Company Assets, respectively, in accordance with Section 2.6(a) hereof and Section 1060 of the Code and the Regulations promulgated thereunder (and any similar provision of state, local or foreign Law, as appropriate). The Purchaser may dispute any amounts reflected on the Allocation Schedule by providing written notice to the Seller of the disputed items, and setting forth in reasonable detail the basis of such dispute, within 30 days following receipt of the Allocation Schedule. If the Purchaser disputes any portion of the Allocation Schedule, the Seller and the Purchaser shall attempt to resolve any such dispute through good faith negotiations within 30 days following the Seller’s receipt of the Purchaser’s dispute notice, and shall amend the Allocation Schedule to reflect the resolution (if any) of such dispute. The Seller and the Purchaser shall prepare and file all Tax Returns (including IRS Form 8594) in a manner consistent with Section 2.6(a) and, except to the extent a dispute was unable to be resolved with respect thereto, the Allocation Schedule, and shall not take any position inconsistent therewith in any Tax Return, audit, examination, claim, adjustment, litigation or other proceeding with respect to Taxes, unless required to do so by applicable Law. Nothing contained herein shall prevent the Seller, the Seller’s Affiliates, the Purchaser or the Purchaser’s Affiliates from settling any proposed deficiency or adjustment by any Governmental Authority based upon or arising out of the Allocation Schedule or the allocation of the Purchase Price between the Transferred Assets and the Company Interests. The parties hereto will promptly inform one another of any challenge by any Governmental Authority to any allocation made in accordance with Section 2.6(a) or the Allocation Schedule, and the parties agree to consult and keep one another informed with respect to the status of, and any discussion, proposal or submission with respect to, such challenge.
(c)      To the extent that there is an adjustment to the Purchase Price (or any other amount treated for U.S. federal income tax purposes as paid for the Assets) subsequent to the Closing Date, the parties shall negotiate in good faith to allocate such adjustment to the

 
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Assets to which it relates and shall amend the Allocation Schedule accordingly. To the extent relevant, such allocation shall be consistent with Section 2.11 .
Section 2.7      Closing . Subject to the terms and conditions of this Agreement, the sale and purchase of the Company Interests and the Transferred Assets and the assumption of the Assumed Liabilities contemplated by this Agreement shall take place at a closing (the “ Closing ”) to be held (a) at the offices of Troutman Sanders LLP, 875 Third Avenue, New York, New York 10022 at 10:00 a.m. New York time on the third Business Day following the day on which all of the conditions set forth in Article VII are satisfied or waived (other than those conditions that by their nature can only be satisfied or waived at the Closing, but subject to the satisfaction or waiver of those conditions at that time); provided , that if the Marketing Period has not ended at the time of the satisfaction or waiver of all of the conditions set forth in Article VII (other than those conditions that by their nature can only be satisfied or waived at the Closing), the Closing shall occur on the earlier to occur of (i) a date during the Marketing Period specified by the Purchaser on no less than three Business Days’ notice to the Seller and (ii) the first Business Day immediately following the final day of the Marketing Period (subject, in each case, to the satisfaction or waiver of all of the conditions set forth in Article VII as of the date determined pursuant to this proviso); provided , further , that in no event shall the Closing occur prior to March 26, 2018 unless the Seller and the Purchaser mutually agree in writing; or (b) at such other place or at such other time or on such other date as the Seller and the Purchaser may mutually agree upon in writing (the day on which the Closing takes place, the “ Closing Date ”).
Section 2.8      Closing Deliveries by the Seller . At the Closing, the Seller shall deliver or cause to be delivered to the Purchaser:
(a)      duly executed counterparts of (i) each Local Conveyance; and (ii) each other Transaction Document that is to be executed at the Closing and, in each case, to which the Seller or the Foreign Seller is a party;
(b)      a receipt for each of the Preliminary Company Closing Date Payment and the Preliminary Transferred Assets Closing Date Payment;
(c)      certificates representing all of the Company Interests duly endorsed and in form for transfer to the Purchaser or its designated Subsidiary;
(d)      a certified copy of the members registry of the Company, evidencing the Purchaser’s ownership of the Company Interests, free and clear of any Encumbrances;
(e)      a certified copy of the articles of incorporation of the Company, evidencing the Purchaser’s ownership of the Company Interests;
(f)      evidence in form and substance reasonably satisfactory to the Purchaser of the termination of all Related Party Contracts in accordance with Section 5.13 ;

 
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(g)      executed letters of resignation from each director and officer of the Company listed on Section 5.14(a) of the Seller Disclosure Schedule;
(h)      the certificate referenced in Section 7.2(a)(iii) ;
(i)      a certificate, dated as of the Closing Date, as to the non-foreign status of the Seller pursuant to Section 1.1445-2(b)(2) of the Regulations, in a form reasonably acceptable to the Purchaser;
(j)      a list of all applicable filings, recordings and other acts, and all fees, Taxes and other payments, that, to the Seller’s Knowledge, are required to be made within ninety (90) days after the Closing Date to maintain the validity and enforceability of the Registered IP;
(k)      (i) an Owner’s Policy of Title Insurance (the “ Title Policy ”) in the amount of $20,000,000 issued by Old Republic National Title Insurance Company (the “ Title Company ”) insuring the Purchaser’s leasehold estate created by the PDC Lease and the Purchaser’s servitude estate in the Servitudes and containing only the items listed on Section 1.144 of the Seller Disclosure Schedule as exceptions on Schedule B-II of the Title Policy, together with the following endorsements: Zoning – completed structure (ALTA 3.1-06 COM), Indirect Access and Entry (ALTA 17.1-06), Minerals and other subsurface substances (ALTA 35.1-06), Covenants, Conditions Restrictions (ALTA 9.2), Private rights ALTA 9.9-06,  and Encroachment (ALTA 28-06); (ii) such affidavits, waivers, sworn statements or indemnities that may reasonably be required by the Title Company in order to allow the Title Company to issue the Title Policy without any of the so-called “general” or “standard” exceptions relating to rights of tenants in possession under unrecorded leases or rental agreements, matters affecting title that would be disclosed by an accurate survey of the land, and any defect, lien or other matter that may affect title to the land or interest insured, in each case, that arises or is filed after the effective date of the Title Commitment and prior to the Closing Date; and (iii) such documentation as is reasonably required by the Title Company to satisfy the requirements set forth in Items 4 and 5 on Schedule B-I of the Title Commitment; and
(l)      (i) the Required Lease Amendment, duly executed by the Seller and Ethyl Corporation and (ii) the Required Operating Agreement Amendment, duly executed by the Seller and SI Group, Inc.
Section 2.9      Closing Deliveries by the Purchaser . At the Closing:
(a)      subject to Section 6.5(f) , the Purchaser shall pay (i) the Preliminary Transferred Assets Closing Date Payment to the Seller and (ii) the Preliminary Company Closing Date Payment to the Foreign Seller, without deduction or withholding of any Korean Capital Gains Tax, in each case, by wire transfer in immediately available funds to the bank accounts specified by the Seller in writing at least two Business Days prior to the Closing;
(b)      the Purchaser shall deliver to the Seller duly executed counterparts of (i) each Local Conveyance; and (ii) each other Transaction Document that is to be executed at the Closing and, in each case, to which the Purchaser or any of its Subsidiaries is a party;

 
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(c)      the Purchaser shall deliver to the Seller (i) the Required Lease Amendment and (ii) the Required Operating Agreement Amendment, each duly executed by the Purchaser; and
(d)      the Purchaser shall deliver to the Seller the certificate referenced in Section 7.1(a)(iii) .
Section 2.10      Preliminary Adjustment of Purchase Price . The Seller shall provide to the Purchaser at least five Business Days prior to the Closing Date a written statement (the “ Estimated Purchase Price Statement ”) setting forth in reasonable detail the Seller’s good faith calculation of (a) the Company Net Working Capital (the “ Preliminary Company Net Working Capital ”) (which shall be prepared in accordance with the policies and procedures set forth on Section 1.44 of the Seller Disclosure Schedule), (b) the Transferred Assets Net Working Capital (the “ Preliminary Transferred Assets Net Working Capital ) (which shall be prepared in accordance with the policies and procedures set forth on Section 1.231 of the Seller Disclosure Schedule), (c) the Closing Date Cash (the “ Preliminary Closing Date Cash ”), (d) the Closing Date Indebtedness (the “ Preliminary Closing Date Indebtedness ”) and (e) the Closing Date Transaction Expenses (the “ Preliminary Closing Date Transaction Expenses ”), in each case, together with reasonable supporting calculations. The Estimated Purchase Price Statement shall also set forth the Seller’s good faith calculation of the Preliminary Company Closing Date Payment and the Preliminary Transferred Assets Closing Date Payment, determined in accordance with this Section 2.10 . The Purchase Price for the Company Interests shall be (a) increased by the amount, if any, that the Preliminary Company Net Working Capital exceeds the Baseline Company Net Working Capital or (b) decreased by the amount, if any, that the Baseline Company Net Working Capital exceeds the Preliminary Company Net Working Capital, (c) increased by the lesser of (i) the amount of Preliminary Closing Date Cash or (ii) the amount of the Maximum Closing Date Cash, (d) decreased by the amount of Preliminary Closing Date Indebtedness and (e) decreased by the amount of Preliminary Closing Date Transaction Expenses (the “ Preliminary Company Closing Date Payment ”). The Purchase Price for the Transferred Assets shall be (a) increased by the amount, if any, that the Preliminary Transferred Assets Net Working Capital exceeds the Baseline Transferred Assets Net Working Capital or (b) decreased by the amount, if any, that the Baseline Transferred Assets Net Working Capital exceeds the Preliminary Transferred Assets Net Working Capital (the “ Preliminary Transferred Assets Closing Date Payment ”). The Estimated Purchase Price Statement shall be accompanied by a certificate executed by a senior financial officer of the Seller to the effect that the Preliminary Company Net Working Capital, the Preliminary Transferred Assets Net Working Capital, the Preliminary Closing Date Cash, the Preliminary Closing Date Indebtedness, the Preliminary Closing Date Transaction Expenses, the Preliminary Company Closing Date Payment and the Preliminary Transferred Assets Closing Date Payment have each been calculated in good faith in accordance with this Section 2.10 . To the extent that any foreign currency conversions are necessary in connection with the preparation of the Estimated Purchase Price Statement, such conversions shall be consistent with the method for conversion of foreign currency as used by the Seller in preparation of its audited financial statements using the applicable exchange rate as of the date immediately prior to the date of the Estimated Purchase Price Statement.

 
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Section 2.11      Final Adjustment of Purchase Price .
(a)      Within 45 days after the Closing Date, the Purchaser shall prepare and deliver to the Seller a statement (the “ Post-Closing Adjustment ”) setting forth in reasonable detail its calculation of (a) Company Net Working Capital (the “ Final Company Net Working Capital ”) (which shall be prepared in accordance with the policies and procedures set forth on Section 1.44 of the Seller Disclosure Schedule), (b) the Transferred Assets Net Working Capital (the “ Final Transferred Assets Net Working Capital ”) (which shall be prepared in accordance with the policies and procedures set forth on Section 1.231 of the Seller Disclosure Schedule), (c) the Closing Date Cash (the “ Final Closing Date Cash ”), (d) the Closing Date Indebtedness (the “ Final Closing Date Indebtedness ”) and (e) the Closing Date Transaction Expenses (the “ Final Closing Date Transaction Expenses ”). The Purchase Price for the Company Interests shall be (a) increased by the amount, if any, that the Final Company Net Working Capital exceeds the Baseline Company Net Working Capital or (b) decreased by the amount, if any, that the Baseline Company Net Working Capital exceeds the Final Company Net Working Capital, (c) increased by the lesser of (i) the amount of Final Closing Date Cash or (ii) the amount of the Maximum Closing Date Cash, (d) decreased by the amount of Final Closing Date Indebtedness and (e) decreased by the amount of Final Closing Date Transaction Expenses (the “ Final Company Closing Date Payment ”). The Purchase Price for the Transferred Assets shall be (a) increased by the amount, if any, that the Final Transferred Assets Net Working Capital exceeds the Baseline Transferred Assets Net Working Capital or (b) decreased by the amount, if any, that the Baseline Transferred Assets Net Working Capital exceeds the Final Transferred Assets Net Working Capital (the “ Final Transferred Assets Closing Date Payment ”). The Post-Closing Adjustment shall also set forth the Purchaser’s calculation of the Final Company Closing Date Payment and the Final Transferred Assets Closing Date Payment, determined in accordance with this Section 2.11 . The Post-Closing Adjustment shall be accompanied by a certificate executed by a senior financial officer of the Purchaser to the effect that the Post-Closing Adjustment has been prepared in good faith in accordance with this Section 2.11(a) . To the extent that any foreign currency conversions are necessary in connection with the preparation of the Post-Closing Adjustment, such conversions shall be consistent with the method for conversion of foreign currency as used by the Seller in the preparation of its audited financial statements using the applicable exchange rate as of the Closing Date.
(b)      During the 45-day period following delivery of the Post-Closing Adjustment, during normal business hours and upon reasonable advance notice, the Purchaser shall provide reasonable access to the Seller to all workpapers and other books and records utilized by the Purchaser or its Representatives in the preparation of the Post-Closing Adjustment (in the case of accountant work papers of the outside independent accountant of the Purchaser, subject to the Seller entering into a customary confidentiality agreement with respect thereto), in each case, as reasonably requested by the Seller solely for the purpose of the Seller’s review of the Post-Closing Adjustment.
(c)      If the Seller disagrees with the Purchaser’s calculation of any of the items set forth on the Post-Closing Adjustment, the Seller shall, within 45 days after the Seller’s receipt of the Post-Closing Adjustment, deliver a written notice (the “ Dispute Notice ”) to the Purchaser disagreeing with such calculation and setting forth in reasonable detail the Seller’s grounds for such disagreement. The Dispute Notice shall specify those items deemed to be in dispute (the “ Disputed

 
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Items ”), and all other matters included in the Post-Closing Adjustment delivered by the Purchaser shall be deemed to be final and binding on the parties hereto. The failure by the Seller to deliver to the Purchaser the Dispute Notice within such period shall be deemed to constitute the Seller’s acceptance of all of the items set forth on the Post-Closing Adjustment. After timely delivery of the Dispute Notice by the Seller, the parties will use commercially reasonable efforts to resolve any Disputed Items, and any resolution by the Seller and the Purchaser of such Disputed Items in writing shall be final and binding on the parties hereto.
(d)      If any Disputed Items cannot be resolved by the parties within 30 days after the Seller delivers the Dispute Notice to the Purchaser, such Disputed Items shall be referred to the Independent Accountant. Unless otherwise agreed, not later than 30 days after the referral of any Disputed Items to the Independent Accountant, the Seller and the Purchaser shall concurrently submit written statements to the Independent Accountant (with a copy to the other party) setting forth their respective positions regarding the Disputed Items which remain in dispute. The Seller and the Purchaser shall instruct the Independent Accountant to render its decision resolving the dispute within 30 days after submission of the written statements, and during such period, the parties shall use commercially reasonable efforts to make available to the Independent Accountant during normal business hours such employees, information, books and records as may be reasonably requested by the Independent Accountant to make its final determination (in the case of accountant work papers of the outside independent accountant of the Purchaser, subject to the Independent Accountant entering into a customary confidentiality agreement with respect thereto). In resolving any Disputed Item, the Independent Accountant (i) shall be bound by the provisions of this Section 2.11 , and the definitions set forth in this Agreement; (ii) shall limit its review to the Disputed Items submitted to the Independent Accountant for resolution and not otherwise investigate matters independently; and (iii) shall further limit its review of the Disputed Items solely to whether the Disputed Items have been prepared in accordance with this Section 2.11 and the definitions set forth in this Agreement or contain any mathematical or clerical error. The determination of any Disputed Items cannot, however, be in excess of, or less than, the greatest or lowest value, respectively, claimed for any such item in the Post-Closing Adjustment or the Dispute Notice. The Seller and the Purchaser agree that the resolution by the Independent Accountant of any Disputed Items shall be final and binding on the parties hereto. All fees and expenses of the Independent Account relating to the work, if any, to be performed by the Independent Accountant hereunder shall be borne by the Seller and the Purchaser in inverse proportion as they may prevail on the matters resolved by the Independent Accountant, which proportionate allocation shall be calculated on an aggregate basis based on the relative dollar values of the amounts in dispute and shall be determined by the Independent Accountant. The Seller and the Purchaser agree that the procedure set forth in this Section 2.11 for resolving disputes with respect to any of the items set forth on the Post-Closing Adjustment shall be the sole and exclusive method for resolving such disputes, provided , however , that the parties hereto agree that judgment may be entered upon the determination of the Independent Accountant in any court having jurisdiction over the party against which such determination is to be enforced.
(e)      The “ Transferred Assets Adjustment Amount ” is determined as follows: (i) Final Transferred Assets Closing Date Payment, as finally determined pursuant to this Section 2.11 , minus the Preliminary Transferred Assets Closing Date Payment. The “ Company Adjustment Amount ” is

 
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determined as follows: (i) Final Company Closing Date Payment, as finally determined pursuant to this Section 2.11 , minus the Preliminary Company Closing Date Payment. If the Transferred Assets Adjustment Amount is (A) negative, then the Seller shall pay to the Purchaser, as an adjustment to the Purchase Price, an amount equal to the absolute value of the Transferred Assets Adjustment Amount, or (B) positive, then the Purchaser shall pay to the Seller, as an adjustment to the Purchase Price, an amount equal to the Transferred Assets Adjustment Amount. If the Company Adjustment Amount is (1) negative, then the Seller shall cause the Foreign Seller to pay to the Purchaser, as an adjustment to the Purchase Price, an amount equal to the absolute value of the Company Adjustment Amount, or (2) positive, then the Purchaser shall pay to the Foreign Seller, as an adjustment to the Purchase Price, an amount equal to the Company Adjustment Amount. Any such payment pursuant to this Section 2.11(e) will be made by wire transfer of immediately available funds, to an account (or accounts) designated by the Purchaser or the Seller, as the case may be, on the later of (I) the third Business Day after acceptance or deemed acceptance by the Seller of the Post-Closing Adjustment (as contemplated by Section 2.11(b) above) or (II) the third Business Day following resolution of all Disputed Items (as contemplated by Section 2.11(b) or (d) above). Any payment required pursuant to this Section 2.11(e) shall constitute a payment in respect of the Purchase Price.
(f)      If the delivery deadline date for the Post-Closing Adjustment or the Dispute Notice is a day that is not a Business Day, the applicable delivery deadline date shall be the immediately following Business Day.
(g)      Notwithstanding any provision set forth in this Section 2.11 or elsewhere in this Agreement to the contrary, there is no general agreement among the parties to submit disputes under this Agreement to arbitration (other than disputes with respect to the items set forth on the Post-Closing Adjustment, which shall be resolved solely in accordance with this Section 2.11 ).
ARTICLE III     
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Purchaser, subject to such exceptions as are disclosed in the applicable Section of the Seller Disclosure Schedule, as of the date of the Original Agreement and as of the Closing Date, as set forth below.
Section 3.1      Organization, Authority and Qualification of the Seller, the Foreign Seller and the Company .
(a)      The Seller is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia and has all necessary corporate power and authority to enter into this Agreement and the other Transaction Documents to which it is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The Foreign Seller is a private limited liability company ( besloten vennootschap met beperkte aansprakelijkheid ) duly formed, validly existing and in good standing (or the Dutch equivalent thereof) under the laws of the Netherlands and has all necessary limited liability company power and authority to enter into each Transaction Document to which it is a party, to carry out its obligations thereunder and to consummate the transactions contemplated thereby. The execution

 
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and delivery by the Seller of this Agreement and by the Seller or the Foreign Seller of each other Transaction Documents to which it is a party, the performance by the Seller and the Foreign Seller of its obligations hereunder and thereunder and the consummation by the Seller and the Foreign Seller of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate or limited liability company action, as applicable, on the part of the Seller and the Foreign Seller. This Agreement has been, and upon their execution, the other Transaction Documents to which the Seller or the Foreign Seller is a party, will be, duly executed and delivered by the Seller or the Foreign Seller.
(b)      Assuming due authorization, execution and delivery by the Purchaser, this Agreement constitutes, and upon their execution, each of the other Transaction Documents to which the Seller or the Foreign Seller is a party, will constitute, a legal, valid and binding obligation of the Seller or the Foreign Seller, enforceable against the Seller or the Foreign Seller in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to or affecting creditors’ rights generally and subject to the effect of general principles of equity (regardless of whether considered in a proceeding at law or in equity).
(c)      Each of the Seller and the Company has the corporate or other organizational power and authority to operate the Business as now operated and is duly qualified to do business, and, to the extent legally applicable, is in good standing, in each jurisdiction where the character of its owned, operated or leased properties or the nature of the Business makes such qualification necessary, except for jurisdictions where the failure to be so qualified or in good standing has not had, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(d)      The Company is a limited liability company ( Yuhan Hosea ) duly organized and validly existing under the laws of the Republic of Korea.
Section 3.2      Capitalization; Subsidiaries .
(a)      Section 3.2(a) of the Seller Disclosure Schedule sets forth an accurate and complete list and description of the Company Interests and the legal ownership thereof. The Foreign Seller is the record and beneficial owner of all of the Company Interests, free and clear of all Encumbrances and all of the Company Interests are validly issued, fully paid and non-assessable. Except for the Company Interests, there are no (i) other shares of capital stock or other securities of the Company or (ii) outstanding warrants, options, subscription rights, calls or commitments, whether contingent or absolute, of any nature whatsoever relating to, or securities or rights convertible into, or exchangeable or exercisable for, any Company Interests. There are no Contracts by which the Company is or may become bound to issue additional capital stock or other equity interests of the Company (or any options, warrants, convertible securities or other rights of any kind to acquire or receive, or that are convertible into or exchangeable or exercisable for, any such capital stock or equity interests). There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the Company Interests. Upon delivery by the Foreign Seller at the Closing, good and valid title to the Company Interests will pass to the Purchaser, free and clear of all Encumbrances.

 
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(b)      As of the date of the Original Agreement, the Company did not own any shares of capital stock or other securities of any Person, other than the Company Subsidiary. Following the consummation of the Pre-Closing Restructuring, the Company will not have any Subsidiaries and will not own any shares of capital stock or other securities of any Person. The Company Subsidiary is not engaged in, and has never engaged in, the Business.
Section 3.3      No Conflict . Assuming that all consents, approvals, authorizations and other actions described in Section 3.4 below or set forth on Section 3.3 of the Seller Disclosure Schedule have been obtained, all filings and notifications listed in Section 3.4 below or on Section 3.3 of the Seller Disclosure Schedule have been made, and any applicable waiting period has expired or been terminated, the execution, delivery and performance by the Seller of this Agreement and by the Seller and the Foreign Seller of each of the other Transaction Documents to which it is a party and the consummation by the Seller and the Foreign Seller of the transactions contemplated hereby and thereby, do not and will not (a) violate, conflict with, or result in the breach of any provision of the articles of incorporation or bylaws of the Seller or the organizational documents of the Company, the Company Subsidiary or the Foreign Seller; (b) conflict with or violate any Law or Governmental Order applicable to the Seller, the Company, the Company Subsidiary, the Business or the Foreign Seller; (c) conflict with, result in any breach of, constitute a default (or an event which, with or without the giving of notice or lapse of time, or both, would become such a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration or cancellation of any material Contract to which the Seller or any of its Subsidiaries is a party or (d) result in the creation of any Encumbrance upon any of the Transferred Assets or any of the assets or properties of the Company, except, in the case of clauses (b) , (c) and (d) , as would not have, or reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 3.4      Governmental Consents and Approvals . The execution, delivery and performance by each of the Seller and the Foreign Seller of each Transaction Document to which it is a party does not require any consent, approval, authorization or other order or declaration of, action by, filing with or notification to, any Governmental Authority, other than (1) filings under, and compliance with, the requirements of the HSR Act together with those other filings or notifications that are required under the Laws of the jurisdictions identified on Section 7.1(b) of the Seller Disclosure Schedule; (1) filings with or notifications to any Governmental Authority in connection with the transfer of the Environmental Permits; (1) those set forth on Section 3.4(c) of the Seller Disclosure Schedule; or (1) where the failure to obtain such consents, approvals, authorizations, or to make such filings or notifications would not, and would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect or prevent or materially delay the consummation by the Seller or the Foreign Seller of the transactions contemplated by any Transaction Document.
Section 3.5      Financial Information .
(a)      The Business Financial Statements, subject to the notes thereto, were derived from the audited consolidated financial statements of the Seller and represent, in all material respects, the combined income of the Business as of the dates thereof for the periods covered thereby. The Business Financial Statements were prepared from the books and records of the Business in

 
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accordance with the accounting procedures and methodologies set forth on Section 3.5(a) of the Seller Disclosure Schedule. The Seller makes no representation that the Business Financial Statements were prepared in accordance with, or comply with, GAAP or Korean Accounting Standards.
(b)      The Company Financial Statements (i) represent in all material respects the financial position of the Company as at the respective dates thereof and the results of operations of the Company for the periods covered thereby and (ii) were prepared from the books and records of the Company in accordance with Korean Accounting Standards, except as indicated in the notes thereto. The Pro Forma Company Financial Statements (A) represent in all material respects on a pro forma basis the estimated financial position of the Company as of the date thereof and (B) were prepared from the Company Financial Statements in good faith based on assumptions believed by the Seller and the Company to be reasonable.
(c)      The Business has not incurred since September 30, 2017, any Liabilities, other than (i) as specifically reflected in the Financial Statements, (ii) Liabilities incurred in the ordinary course of business consistent with past practice since September 30, 2017, (iii) Excluded Liabilities, or (iv) Liabilities that would not have, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 3.6      Absence of Changes . Since January 1, 2017, (a) the Business has been conducted in the ordinary course of business consistent with past practice, (b) without limiting the generality of the foregoing, neither the Seller nor any of its Subsidiaries has taken any action or omitted to take any action which, if taken or omitted to be taken after the date of the Original Agreement and prior to the Closing Date, would require the consent of the Purchaser pursuant to Section 5.1(B)(iv) , (v) , (vi) , (vii) , (viii) , (ix) , (x) , (xii) , (xiv) , (xv) , (xvii) , (xviii) , (xix) or (xx) and (c) there has not occurred any fact, circumstance, effect, change, event, condition, state of facts or development that has had, or would reasonably be expected to have, individually or in the aggregate, any Material Adverse Effect.
Section 3.7      Litigation . There is no Action by or against the Seller, the Foreign Seller, the Company or the Company Subsidiary (in the case of the Seller, which is related to the Business) pending or, to the Seller’s Knowledge, threatened before any Governmental Authority (a) pursuant to which money damages in excess of $100,000 are sought, (b) involving any non-monetary relief (including any criminal proceeding, investigation or indictment), (c) that would, or would reasonably be expected to, materially and adversely affect the legality, validity or enforceability of this Agreement or any other Transaction Document or (d) that would, or would reasonably be expected to, prevent or materially delay the consummation by the Seller or the Foreign Seller of the transactions contemplated by any Transaction Document. The foregoing representation shall only be given with respect to the Company Subsidiary as of the date of the Original Agreement and as of immediately prior to the consummation of the Pre-Closing Restructuring.
Section 3.8      Compliance with Laws .
(a)      The Seller conducts and, during the last three years has conducted, the Business, in all material respects, in accordance with all Laws, Permits and Governmental Orders applicable to

 
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the Business. Each of the Company and the Company Subsidiary is, and in the last three years has been, in compliance in all material respects with all applicable Laws, Permits and Governmental Orders. To the Knowledge of the Seller, no event has occurred or circumstance exists that (with or without notice or lapse of time or both) would reasonably be expected to constitute or result in a material violation by the Seller, the Company or the Company Subsidiary of, or a material failure on the part of the Seller, the Company or the Company Subsidiary to comply with, any Law, Permit or Governmental Order (in the case of the Seller, in connection with the Business).
(b)      Each of the Seller, the Company, the Company Subsidiary and, to the Knowledge of the Seller, their respective officers, directors, employees and Representatives acting on their behalf, are, and in the past three years have been, in compliance in all material respects with (i) all applicable Anti-Corruption Laws and (ii) U.S. and any applicable foreign economic sanctions Laws, including economic sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control.
(c)      The representations set forth in this Section 3.8 shall only be given with respect to the Company Subsidiary as of the date of the Original Agreement and as of immediately prior to the consummation of the Pre-Closing Restructuring.
Section 3.9      Intellectual Property .
(a)      Section 3.9(a) of the Seller Disclosure Schedule contains a complete, true and correct list of all of the Owned Intellectual Property consisting of Registered IP (other than any filings or registrations that are expired, or that were abandoned), including for each such item (i) the record owner, and, if, to the Knowledge of the Seller, different, the legal owner and beneficial owner of such item, (ii) the jurisdiction in which such item is issued, registered or pending and (iii) the issuance, registration or application date and number of such item. As of the date of the Original Agreement, each item of Registered IP included on Section 3.9(a) of the Seller Disclosure Schedule was in effect, subsisting and not abandoned, all maintenance and prosecution fees relating thereto that were due on or before such date had been paid and, to the Knowledge of the Seller, was valid and enforceable.
(b)      The Seller or the Company is the sole and exclusive owner of all right, title and interest, free and clear of all Encumbrances (other than Permitted Encumbrances) in and to the Owned Intellectual Property and, to the Knowledge of the Seller, otherwise has all necessary licenses, rights, permissions and authorizations to use all other Intellectual Property used in the Business, including all computer software licenses. The Owned Intellectual Property, the In-Licensed Intellectual Property, and the Intellectual Property licensed to the Purchaser under the License Agreement constitute all of the Intellectual Property used or held for use in connection with the operation of the Business, and there is no other Intellectual Property that is material to or necessary for the operation of the Business or for the continued operation of the Business after the Closing in substantially the same manner as operated prior to the Closing. After the Closing, there will be no Intellectual Property owned or used by the Seller or its Subsidiaries that is necessary for or used by the Business as of the Closing as to which no provision is made in the Transaction Documents for continued use thereof after the Closing by the Purchaser.

 
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(c)      Neither the Owned Intellectual Property nor the Business as conducted by the Seller or the Company interferes with, dilutes, infringes, misappropriates or otherwise violates any Intellectual Property rights of any third party, and has not done so in the last six years (except that the foregoing representation is given to the Knowledge of the Seller with respect to patents). The Seller has, with respect to the operation of the Business, undertaken patent clearance searches and reviews consistent with the Seller’s reasonable business judgment, and such patent clearance searches and reviews have not identified any products or services that, in the Seller’s reasonable judgment, infringe, or are reasonably likely to infringe, a valid third party patent. To the Knowledge of the Seller, no third party currently interferes with, dilutes, infringes upon, misappropriates, or violates and nor has any third party interfered with, diluted, infringed upon, misappropriated, or otherwise violated any Owned Intellectual Property. There is no claim against the Seller, the Company or any of their respective Affiliates pending or, to the Knowledge of the Seller, threatened which (i) alleges any infringement, misappropriation, misuse or violation of any Intellectual Property of a third party, (ii) invites the Seller, the Company or such Affiliate to take a license under any Intellectual Property of a third party or consider the applicability of any Intellectual Property of a third party to the conduct of the Business or (iii) challenges the ownership, use, validity or enforceability of any Owned Intellectual Property. Neither the Seller, the Company nor any of their respective Affiliates has made any written claim against any third party alleging any infringement, misappropriation or other violation of any Owned Intellectual Property. Other than rejections in routine patent and trademark prosecution in pending patent or trademark applications, none of the Owned Intellectual Property is subject to any outstanding order, judgment, injunction, decree, ruling or agreement adversely affecting the Seller’s or its Subsidiaries’ use thereof or rights thereto, or that would impair the validity or enforceability thereof.
(d)      Each current and former employee, consultant and contractor of the Seller and its Subsidiaries that is or was involved in the conception, development or reduction to practice of any Owned Intellectual Property has entered into a valid, written non-disclosure and invention assignment agreement whereby such employees, consultants or contractors have assigned all of their right, title and interest in and to the Owned Intellectual Property that are conceived of or developed by such employees, consultants and contractors. To the Knowledge of the Seller, no current or former employee, consultant or contractor of the Seller or any of its Subsidiaries is in default or breach of any term of any employment agreement, non-disclosure agreement, assignment of invention agreement or similar agreement relating to the protection, ownership, development, use or transfer of Owned Intellectual Property or, to the Seller’s Knowledge, any other Intellectual Property.
(e)      The Seller and its Subsidiaries have taken reasonable measures to maintain the confidentiality and value of all confidential information and trade secrets used or held for use in the operation of the Business. To the Seller’s Knowledge, other than disclosures made in the Seller’s reasonable business judgment, no material confidential information or trade secrets used or held for use in the Business have been disclosed by the Seller or any of its Subsidiaries to any Person except pursuant to non-disclosure and/or license agreements that obligate such Person to keep such confidential information or trade secrets confidential both during and, for a reasonable period, after the term of such agreement.

 
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(f)      Except as set forth on Section 3.9(f) of the Seller Disclosure Schedule, there are no royalties, honoraria, fees or other payments payable by the Seller or any of its Subsidiaries to any Person under any Company IP Agreement or Transferred IP Agreement, including for the acquisition, licensing, sublicensing or use of any Owned Intellectual Property. The consummation of the transactions contemplated by the Transaction Documents will not result in any of the following pursuant to the terms of any Contract to which the Seller or any of its Subsidiaries is a party: (i) the grant, license or assignment to any Person of any interest in or to, the modification or loss of any rights with respect to, or the creation of any Encumbrance on, any Owned Intellectual Property, or any Intellectual Property owned by or licensed to the Purchaser or its Affiliates prior to the Closing; or (ii) the Purchaser or its Affiliates being (x) bound by or subject to any non-compete or licensing obligation, covenant not to sue, or other restriction on or modification of the current or contemplated operation or scope of its business, which that Person was not bound by or subject to prior to the Closing, or (y) obligated to (A) pay any royalties, honoraria, fees or other payments to any Person in excess of those payable prior to the Closing, or (B) provide or offer any discounts or other reduced payment obligations, in each case, to any Person in excess of those provided to that Person prior to the Closing.
(g)      To the Knowledge of the Seller, the IT Assets constituting Company Equipment and Transferred Equipment are free from material bugs and other defects, have not materially malfunctioned or failed within the past three years, and to the Knowledge of the Seller, do not contain any viruses, Trojan horses, malware or similar devices. The Seller and its Subsidiaries have implemented reasonable backup, security and disaster recovery measures, and to the Knowledge of the Seller, no Person has gained unauthorized access to any IT Assets used in the Business.
Section 3.10      Real Property .
(a)      Section 3.10 of the Seller Disclosure Schedule sets forth the address of each parcel of Owned Real Property and the identity of the owner of each such parcel of Owned Real Property. The Company has good and marketable title to the Owned Real Property, free and clear of all Encumbrances other than Permitted Encumbrances. The Owned Real Property constitutes all real estate and rights in real property that are used or necessary in connection with the operation of the portion of the Business conducted at the Yeosu Manufacturing Facility in the manner currently conducted.
(b)      The Seller (i) has good and marketable title to the Improvements at the Baton Rouge Manufacturing Facility, free and clear of all Encumbrances other than Permitted Encumbrances and (ii) leases (or has a servitude estate over) the Land upon which such Improvements are sited pursuant to the PDC Lease, the OTA Lease and the Servitudes. The Seller has servitude estates created by the Servitudes. Each of the PDC Lease and the OTA Lease is valid, in full force and effect and is enforceable against the lessor thereunder in accordance with its terms. The Servitudes are valid, in full force and effect and are enforceable against the respective grantors thereunder in accordance with their respective terms. The Seller has good and marketable title to the leasehold estate created by the PDC Lease and the OTA Lease and to the servitude estates created by the Servitudes, in each case, free and clear of all Encumbrances other than Permitted Encumbrances. The Land, the Improvements and the rights granted to the Seller pursuant to the Servitudes constitute all real estate

 
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and rights in real property that are used or necessary in connection with the operation of the portion of the Business conducted at the Baton Rouge Manufacturing Facility in the manner currently conducted. The Seller is not in default under the PDC Lease, the OTA Lease or any of the Servitudes, and, to the Knowledge of the Seller, no event has occurred that allows, or with or without notice and/or lapse of time would allow, revocation or termination thereof or would result in any impairment of the rights of the Seller thereunder.
(c)      There are no pending or, to the Knowledge of the Seller, threatened condemnation or expropriation proceedings, lawsuits or proceedings relating to the Owned Real Property, the Land, the Improvements or the Baton Rouge Manufacturing Facility or any part thereof or other legal matters affecting adversely the current use or occupancy thereof.
(d)      To the Knowledge of the Seller, the Seller and the Company, in respect of each Manufacturing Facility, hold all approvals of Governmental Authorities (including licenses and Permits) required in connection with the ownership, occupation or operation thereof, and such Manufacturing Facilities are, and have been during the past three years, operated and maintained in all material respects in accordance with applicable Law, including any fire, health, building, use, occupancy or zoning Law.
(e)      Except for Permitted Encumbrances and except as will be entered into pursuant to this Agreement, there are no oral or written leases, subleases, licenses, concessions or other agreements, written or oral, granting to any party or parties (other than the Seller) the right of use or occupancy of, or options granting any right to purchase or lease, any portion of the Manufacturing Facilities, and, other than the Seller and the Company, there is no Person in possession of any portion of the Manufacturing Facilities.
(f)      Neither the Seller nor the Company has received any notice of any violation of any applicable zoning ordinance or other Law relating to, or any notice that any work is required pursuant to applicable Law to be done upon or in connection with, the operation of the Manufacturing Facilities.
(g)      There is no Action before any Governmental Authority pending or, to the Seller’s Knowledge, threatened to change the zoning or building ordinances or any other Laws affecting the Manufacturing Facilities.
Section 3.11      Employees; Employee Benefit Matters .
(a)      Section 3.11(a) of the Seller Disclosure Schedule contains a complete, true and correct list of all the Business Employees and indicates for each such Business Employee, to the extent permissible under applicable Law, such Business Employee’s (to the extent applicable) (i) name, (ii) title (including whether an employee, independent contractor or other service provider), (iii) years of employment/service, (iv) employing or contracting legal entity, country, and location of employment or service, (v) rate of base salary, hourly wage rate, rate of commissions or retainer arrangement for 2017, including any increases scheduled to take effect in 2017 or later, (vi) annual incentive cash bonus for 2017 at target and maximum payouts, (vii) the amount of annual cash bonus paid for 2015 and 2016, and (vii) immigration status. Section 3.11(a) of the Seller Disclosure

 
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Schedule is subject to change between the date of the Original Agreement and the Closing Date and the Seller shall provide updated schedules that are mutually agreed by the Purchaser and the Seller. The Seller shall update Section 3.11(a) of the Seller Disclosure Schedule to reflect changes in the Business Employees no less frequently than every 30 days and again no later than the Offer Date and the Closing Date, with each update to be mutually agreed in advance by the Purchaser and the Seller. The Seller represents and warrants to the Purchaser that each individual who is employed or retained by the Seller or any Affiliate of the Seller primarily in connection with the Business is identified on Section 3.11(a) of the Seller Disclosure Schedule.
(b)      Section 3.11(b) of the Seller Disclosure Schedule lists all Seller Benefit Plans. Section 3.11(b) of the Seller Disclosure Schedule separately identifies which Seller Benefit Plans are for the benefit of U.S. Offered Employees (collectively, the “ U.S. Albemarle Plans ”), which Seller Benefit Plans are for the benefit of Company Employees (collectively, the “ Korean Plans ”), and which Seller Benefit Plans are for the benefit of Non U.S. Offered Employees (collectively, the “ Non U.S. Albemarle Plans ”). Neither the Seller nor any Affiliate provides any material employee benefits to Offered Employees or Company Employees other than those pursuant to the U.S. Albemarle Plans, the Korean Plans and the Non U.S. Albemarle Plans.
(c)      The Seller has provided or made available to the Purchaser, for each Seller Benefit Plan, (i) true and complete copies of all current plan documents (including all amendments and modifications thereof) or, to the extent not in writing, a summary of the material terms thereof, and a summary plan description (if any); (ii) the most recent determination or opinion letter from the Internal Revenue Service received (and any pending requests for such a letter) with respect to each Seller Benefit Plan that is intended to be qualified under Section 401(a) of the Code, if any, and (iii) all material correspondence and documentation, and all non-routine filings made, with any Governmental Authority with respect to each Seller Benefit Plan within three years of the date of the Original Agreement.
(d)      Each U.S. Albemarle Plan that is intended to be qualified under Section 401(a) of the Code has received a currently effective favorable determination letter or, if applicable, can rely upon an opinion letter from the Internal Revenue Service as to the qualification of the prototype plan on which it is based, and, to the Knowledge of the Seller, nothing has occurred that could reasonably be expected to adversely affect such qualification.
(e)      With respect to each Non U.S. Albemarle Plan assumed by the Purchaser and/or its Subsidiaries pursuant to Section 5.7 , and each Korean Plan, to the Knowledge of the Seller (i) each such Non U.S. Albemarle Plan and each Korean Plan has been administered in compliance in all material respects with its terms and applicable Laws, (ii) no Actions are pending or, to the Knowledge of the Seller, threatened with respect to any such Non U.S. Albemarle Plan or Korean Plan, other than ordinary claims for benefits in accordance with the terms of such Non U.S. Albemarle Plan or Korean Plans, and (iii) the Seller and its Affiliates have not received any notice that any such Non U.S. Albemarle Plan or Korean Plan is under audit or investigation by any Governmental Authority, and, to the Knowledge of the Seller, no such audit or investigation is threatened, other than, in case of clauses (i), (ii), and/or (iii), failures or circumstances that would not be reasonably expected to result in any material Liability to the Purchaser or its Affiliates. Each Non U.S. Albemarle Plan

 
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assumed by the Purchaser and/or its Subsidiaries pursuant to Section 5.7 , or Korean Plan, if intended to qualify for special Tax treatment or intended to be registered or qualified under applicable Law, to the Knowledge of the Seller, meets all applicable requirements in all material respects to qualify for such intended favorable tax treatment, and, to the Knowledge of the Seller, is so registered or qualified, as applicable, in all material respects, and if required to be funded, book-reserved or secured by an insurance policy, to the Knowledge of the Seller, is so funded, book-reserved or secured in all material respects, based on reasonable actuarial assumptions in accordance with applicable accounting principles of the applicable jurisdictions.
Section 3.12      Labor Matters .
(a)      Except as set forth on Section 3.12(a) of the Seller Disclosure Schedule, there are no collective bargaining, labor union, works council, or other similar employee representative agreements or arrangements that are applicable to any of the Business Employees.
(b)      During the past six years, there has been no, and there are currently no (i) strikes or lockouts with respect to any Business Employees pending, or to the Knowledge of the Seller, threatened; (ii) union organizing efforts pending or, the Knowledge of the Seller, threatened with respect to the Business or the Business Employees; (iii) unfair labor practice, labor dispute (other than routine individual grievances) or labor arbitration claims or proceedings pending or, to the Knowledge of the Seller, threatened in writing against the Business or with respect to the Business Employees; or (iv) slowdowns or work stoppages in effect or, to the Knowledge of the Seller, threatened with respect to the Business Employees.
(c)      The Seller and the Company have complied in all material respects with all Laws relating to labor and employment, including payment of all wages, salaries and commissions, payment for all hours worked, payment for overtime, payment for vacation and sick pay, employee and independent contractor classifications, classification of Business Employees as exempt or non-exempt, collective bargaining, employment discrimination, unemployment, occupational safety and health, immigration status, workers’ compensation, mandatory social insurances and the payment of payroll and similar Taxes, and are not liable for the payment of Taxes, fines, penalties or other amounts for failure to comply with any of the foregoing. There has been no “mass layoff” or “plant closing” (as defined by the WARN Act) or any other Liability pursuant to the WARN Act with respect to the Business during the past three years or for which any Liabilities remain unsatisfied.
(d)      Neither the Seller nor the Company is engaged in, nor has at any time engaged in, any unfair or discriminatory labor or employment practice, nor is any charge or complaint relating to any unfair or discriminatory labor or employment practice pending or threatened against the Seller or the Company. Neither the Seller nor the Company has any obligation to compensate or make any payment of any kind to any Business Employee, director or officer, other than current obligations for payment of wages and salary, accrued but unused vacation pay and other benefits. All severance and employee pension plans applicable to Business Employees are funded to the full extent required by applicable Laws, and all amounts properly accrued as Liabilities with respect to any Business Employee, director or officer, which have not been paid, have been properly accounted for on its books. There is no accrued and outstanding but unpaid payment (wages, allowances, and otherwise) or other benefit required to be provided to any current or former Business Employee,

 
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director or officer (including any outsourced workers or dispatched workers) under applicable Laws. Upon termination of any employee of the Seller or the Company, neither the Seller nor the Company will be liable for severance of any kind pursuant to any legal obligation, including a severance pay plan.
Section 3.13      Taxes . Notwithstanding anything to the contrary contained in this Agreement (including any other representations and warranties contained in this Agreement), the representations and warranties contained in Section 3.11 and in this Section 3.13 are the sole and exclusive representations and warranties made by the Seller relating to Tax matters, including compliance with and liabilities arising under Tax Laws, and, other than the representations and warranties contained in Section 3.13(f) , Section 3.13(h) , Section 3.13(i) and Section 3.13(k) , cannot be relied upon with respect to Taxes attributable to any Tax periods (or portions thereof) beginning after, or Tax positions taken after, the Closing Date.
(a)      All material Tax Returns required to have been filed (i) by the Company or (ii) with respect to the Business, any of the Transferred Assets or Assumed Liabilities or the Company, have been timely filed (taking into account any extension of time to file granted or obtained), and such Tax Returns are true, correct and complete in all material respects.
(b)      All material amounts of Taxes (whether or not shown on any Tax Return) required to be paid (i) by the Company or (ii) with respect to the Business, any of the Transferred Assets or Assumed Liabilities or the Company, have been timely paid.
(c)      No claim or deficiency for any material amount of Taxes has been proposed, asserted or assessed in writing by any Governmental Authority against the Company or with respect to the Business, any of the Transferred Assets or the Company, which remains unresolved or unpaid, except for any claims or deficiencies that are being contested in good faith by appropriate proceedings and are described on Section 3.13(c) of the Seller Disclosure Schedule. Within the last four years, no claim has been made by an authority in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to taxation by that jurisdiction, which remains unresolved. Within the last four years, no claim has been made by an authority in a jurisdiction where the Seller does not file Tax Returns with respect to the Business or any of the Transferred Assets that the Seller is or may be subject to taxation by that jurisdiction with respect to the Business or such Transferred Asset, which remains unresolved.
(d)      There are no Encumbrances for Taxes (other than Permitted Encumbrances) upon the Company Assets or on any of the Transferred Assets.
(e)      There are no waivers or extensions of any statute of limitations currently in effect with respect to Taxes or Tax Returns (i) of the Company or (ii) relating to the Business or any of the Transferred Assets or Assumed Liabilities (other than extensions that arise as a result of filing Tax Returns by the extended due date therefor in the ordinary course of business).
(f)      Except with respect to any Commercial Tax Agreement, the Company is not a party to any Tax sharing, Tax allocation, Tax indemnity or similar agreement or arrangement.

 
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(g)      The Seller is not a foreign person as defined in Regulations Section 1.1445-2(b)(2)(i).
(h)      With respect to the contracts listed on Section 3.13(h) of the Seller Disclosure Schedule, the Seller has performed, complied with and fulfilled all obligations and requirements (including any requirement relating to employment, wages or maintenance of operations) required to be performed, complied with or fulfilled with respect to the Seller’s LITEP Louisiana property tax abatement.
(i)      With respect to any Taxes imposed by any Korean Governmental Authority or any other Governmental Authority with respect to which the Company is required to pay Taxes or file Tax Returns, the Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any Post-Closing Tax Period as a result of any (A) change in method of accounting for a Pre-Closing Tax Period, (B) use of an improper method of accounting for a Pre-Closing Tax Period; or (C) intercompany transaction, installment sale or open transaction made, or prepaid amount received, prior to the Closing.
(j)      The Company does not have a permanent establishment (within the meaning of an applicable Tax treaty), office or fixed place of business in a country other than the country in which it is organized.
(k)      Except as set forth in Section 3.13(k) of the Seller Disclosure Schedule, the Company has not received any letter ruling from the Internal Revenue Service (or any comparable ruling relating to any Tax from any other Governmental Authority).
(l)      From the time of its formation until the effective date of the IRS Form 8832 filed pursuant to Section 5.8 , the Company was treated as a corporation for U.S. federal income tax purposes. From the effective date of such IRS Form 8832 through the Closing Date, the Company will be disregarded as an entity separate from its owner for U.S. federal income tax purposes.
(m)      Any intercompany loans, management fees, or service agreements to which the Company is or has been a party have been entered into and managed on an arm’s length basis.
Section 3.14      Material Contracts .
(a)      Section 3.14(a) of the Seller Disclosure Schedule sets forth a true and complete list of each of the following Contracts to which (x) the Seller or any of its Subsidiaries (other than the Company) is a party and that relates primarily to the Business and (y) the Company is a party, in each case, that was in effect as of the date of the Original Agreement (such contracts and agreements being “ Material Contracts ”):
(i)      (x) Contracts for the purchase of products, materials, supplies, goods, equipment or other assets or for the receipt of services or (y) any other Contract, in each case, which provides for consideration or payments by the Seller or its Subsidiaries in excess of $350,000 annually in the aggregate;

 
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(ii)      (x) Contracts for the sale or furnishing of products, materials, supplies, goods, equipment or other assets or services by the Seller or its Subsidiaries to customers thereof or (y) any other Contract, in each case, which provides for consideration or payments to the Seller or its Subsidiaries in excess of $350,000 annually;
(iii)      Contracts with any Key Customer or Key Supplier;
(iv)      Contracts that (x) include a covenant not to compete or other covenant restricting the freedom of the Business to compete in any line of business with any Person or in any geographic area, or a covenant not to solicit any individual or class of individuals for employment, (y) require the Business to purchase or sell a minimum amount of products or services on an annual basis or grants “most favored nation” pricing or similar rights to any Person, or (z) relate to capacity reservations or include any obligation to accept orders;
(v)      Contracts that involve (x) the creation, assumption or guarantee of Indebtedness for an amount, individually or in the aggregate, in excess of $350,000 or (y) the creation of any Encumbrance on any Transferred Assets, Company Assets or the Company Interests, other than Permitted Encumbrances;
(vi)      Related Party Contracts;
(vii)      Contracts relating to any partnership, joint venture or limited liability company of the Business, or involving the sharing of revenues, profits or royalties of the Business;
(viii)      Contracts relating to the acquisition or disposition of any Person, business or product line (whether by merger, sale of stock, sale of assets or otherwise) (x) pursuant to which, after the Closing, the Business will have any obligations (contingent or otherwise) or (y) for consideration with an aggregate value of $350,000 or more;
(ix)      exclusive sales representative or exclusive distribution Contracts;
(x)      Contracts under which the Business is lessor of or permits any third party to hold or operate any Owned Real Property;
(xi)      Contracts requiring capital expenditures in excess of $1,000,000 in any one fiscal year;
(xii)      leases, rental or occupancy agreements, licenses, installment and conditional sale agreements, and other Contracts that (A) provide for the ownership of, leasing of, title to, use of, or any leasehold or other interest in any real or personal property and (B) in the case of personal property, involves aggregate payments in excess of $350,000 in any calendar year;
(xiii)      any Shared Contract;

 
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(xiv)      any Contract that restricts or purports to restrict (or that may be terminated, or adversely affected), as a result of a change in share capital, change of ownership or control of the Company;
(xv)      any Contract with any Governmental Authority;
(xvi)      any Company IP Agreement or Transferred IP Agreement, other than any: (x) Contract with a current or former employee or individual independent contractor of the Seller or any of its Subsidiaries entered into in connection with the engagement of that Person by the Seller or any of its Subsidiaries, which Contract includes a license from that Person to the Seller or one of its Subsidiaries to use Intellectual Property owned or sublicensable by that Person, but only where the Intellectual Property licensed thereunder is not specifically identified; or (y) Contracts for any commercially available off-the-shelf software that (A) is not material to the Business, (B) has not been modified or customized for use in the Business, and (C) is licensed to the Seller or any of its Subsidiaries for a one-time or annual fee of $100,000 or less;
(xvii)      any Contract relating to the resolution or settlement of any actual or threatened Action that involves (x) the payment of money damages in excess of $100,000, individually or in the aggregate, or (y) any obligation (other than the payment of money damages) of the Seller (with respect to the Business) or the Company; and
(xviii)      any Contract not otherwise listed in this Section 3.14(a) that is material to the Business, taken as a whole.
(b)      The Seller has made available to the Purchaser true and complete copies of each Material Contract. Each Material Contract is valid and binding on the Seller or the Company, as applicable, and, to the Knowledge of the Seller, the counterparty thereto, is enforceable by the Seller or the Company in accordance with its terms and in full force and effect, subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to or affecting creditors’ rights generally and subject to the effect of general principles of equity (regardless of whether considered in a proceeding at law or in equity). Neither the Seller nor the Company, nor, to the Knowledge of the Seller, any other party thereto, is in breach of or default, in any material respect, under the terms of, or has provided or received any notice of material breach, material default or intention to terminate, any Material Contract. To the Knowledge of the Seller, no event or circumstance has occurred, and there does not exist any event or circumstance that, with or without notice or lapse of time or both, would, or would reasonably be expected to, constitute an event of material default under any Material Contract or result in or permit a termination thereof or would cause or permit the acceleration of or other material changes of or to any right or obligation or the loss of any material benefit thereunder. There are no material disputes pending or, to the Seller’s Knowledge, threatened, under any Material Contract.
Section 3.15      Environmental Matters .
(a)      Except as set forth on Section 3.15 of the Seller Disclosure Schedule, (i) each of the Seller and the Company are conducting and, for the past five years, have conducted, the Business

 
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and the Transferred Assets in compliance in all material respects with Environmental Law; (ii) the Seller (in connection with the Business) and the Company have obtained, and are in compliance in all material respects with, all Environmental Permits that are necessary to conduct the Business and the Transferred Assets in the manner currently conducted and all applications for renewals necessary for continuity of such Environmental Permits have been timely filed and, to the Seller’s Knowledge, all such Environmental Permits are transferrable to the Purchaser; (iii) there are no Hazardous Materials (x) present at, on, about, under or migrating to or from either the Manufacturing Facilities, the Owned Real Property or any other real property (including all buildings, improvements and fixtures located thereon) currently owned, leased or operated in connection with the Business or any real property formerly owned, leased or operated in connection with the Business or (y) that have been disposed of, transported, or arranged for the transportation by the Seller or any of its Subsidiaries, or any of their respective predecessors, in connection with the Business, to any place or location that, in each case, require Remedial Action or otherwise could reasonably be expected to result in material Liabilities on the part of the Business; and (iv) there is no Action pending or, to the Seller’s Knowledge, threatened in writing, in connection with the Business, against the Seller or the Company, or any of their respective predecessors, that relates to any violation or alleged violation of, or any Liability or alleged Liability under, any Environmental Law.
(b)      The Seller made a claim against Ethyl Corporation under the Ethyl Indemnity by February 28, 2004 for all “Environmental Liabilities” of the “Ethyl Businesses” (as such terms are defined in the Ethyl Indemnity), currently known to the Seller at the Baton Rouge Manufacturing Facility. To the Knowledge of the Seller, Ethyl Corporation is responsible for all Liabilities relating to Releases of Hazardous Material requiring Remedial Action at the Baton Rouge Manufacturing Facility and no portion of such Remedial Action is attributable to or the responsibility of the Seller or any of its Affiliates.
(c)      The Seller has made available to the Purchaser true, correct and complete copies of all (i)(A) Phase I or Phase II environmental site assessment reports or (B) environmental compliance reports or audit reports relating to the Business, the Manufacturing Facilities or the Owned Real Property to the extent such assessments and reports in this subsection (i) were prepared during the last ten years and are in the possession or control of the Seller or any of the Company, (ii) Environmental Permits required under Environmental Laws for the ownership and operations of the Business, the Manufacturing Facilities and the Owned Real Property, (iii) all non-privileged material correspondence and documents relating to the Business’s compliance with, or liability under, Environmental Law and (iv) all communications between Ethyl Corporation and the Seller or any of its Affiliates or representatives regarding matters covered by the Ethyl Indemnity.
(d)      Notwithstanding anything in this Agreement to the contrary, the representations and warranties contained in this Section 3.15 and, to the extent they specifically apply, Sections 3.4 , 3.20 , and 3.21 are the only representations and warranties being made by the Seller in this Agreement with respect to matters arising under Environmental Law related to the Business or the Owned Real Property.

 
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Section 3.16      Customers and Suppliers .
(a)      Section 3.16(a) of the Seller Disclosure Schedule sets forth a true and complete list of the ten largest customers (measured by dollar volume of sales) of the Business during the 12-month period ending on December 31, 2016 (the “ Key Customers ”).
(b)      Section 3.16(b) of the Seller Disclosure Schedule sets forth a true and complete list of the five largest suppliers (measured by dollar volume of purchases) of the Business during the 12-month period ending December 31, 2016 (the “ Key Suppliers ”).
(c)      Except as set forth on Section 3.16(c) of the Seller Disclosure Schedule, since January 1, 2017, except in connection with the expiration of Contracts in accordance with their terms in the ordinary course of business, none of the Key Customers or Key Suppliers has notified the Seller or the Company that it intends to (i) cease or materially decrease purchasing from or selling to the Business, (ii) materially modify the terms on which it sells to or purchases from the Business (including any material changes in pricing or terms) as compared to past practices, or (iii) materially alter any purchases from or sales to the Business. Except as set forth on Section 3.16(c) of the Seller Disclosure Schedule, since January 1, 2017, except in connection with the expiration of Contracts in the ordinary course of business, no Key Supplier or Key Customer has (A) ceased or decreased materially its purchasing from or selling to the Business from the levels achieved during the fiscal year ended December 31, 2016 or (B) made any material adverse change in the terms and conditions on which it was doing business with the Seller or the Company from the terms and conditions in effect during the fiscal year ended December 31, 2016 or (C) materially altered any purchases from or sales to the Business. There is no pending or, to the Knowledge of the Seller, threatened material dispute or controversy with any Key Supplier or Key Customer. Any reference in this Section 3.16(c) to the “Key Customers” shall not include any of the Key Customers listed on Section 3.16(d) of the Seller Disclosure Schedule (such listed Key Customers, the “ Specified Key Customers ”).
(d)      Except as set forth on Section 3.16(d) of the Seller Disclosure Schedule, to the Knowledge of the Seller, none of the Specified Key Customers intends to (i) cease or materially decrease purchasing from the Business, (ii) materially modify the terms on which it purchases from the Business (including any material changes in pricing or terms) as compared to past practices, or (iii) materially alter any purchases from the Business. Since January 1, 2017, none of the Specified Key Customers has (A) ceased or decreased materially its purchasing from the Business from the levels achieved during the fiscal year ended December 31, 2016, (B) made any material adverse change in the terms and conditions on which it was doing business with the Seller or the Company from the terms and conditions in effect during the fiscal year ended December 31, 2016 or (C) terminated, cancelled, amended or extended any material purchases from the Business. There is no pending or, to the Knowledge of the Seller, threatened dispute or controversy with any of the Specified Key Customers.
Section 3.17      Inventory . All Inventory was manufactured, purchased, acquired or ordered, and has been maintained, in the ordinary course of business and consistent with the regular past inventory practices of the Seller and the Company and, with the exception of “off spec” inventory held for rework, is of a quality useable and saleable in the ordinary course of business and fit for

 
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the purpose for which it was manufactured, purchased, acquired or ordered. The quantities of each item of Inventory (a) have not materially increased or decreased in the past three years, other than in the ordinary course of business, and (b) are consistent with the regular past inventory practices of the Seller and the Company with respect to the Business. All Inventory is carried on the books and records of the Seller or the Company at the lower of cost or market in accordance with GAAP or Korean Accounting Standards, as applicable, which value is reasonable based upon the current operations of the Business and is not subject to any material write-down or write-off. All labor and overhead costs reflected in the value of Inventory were capitalized in accordance with GAAP or Korean Accounting Standards, as applicable.
Section 3.18      Title to Assets; Sufficiency of Assets . The Seller or the Company, as applicable, has good, valid and marketable title to or, in the case of leased or licensed assets, a valid leasehold interest or license in, all of the Transferred Assets or Company Assets, as applicable, free and clear of all Encumbrances other than Permitted Encumbrances. The Assets that are tangible assets of any kind or description are in good operating condition and repair in all material respects, ordinary wear and tear excepted, and suitable in all material respects for their current use and have been maintained in accordance with normal industry practice. The Assets and the employment of the Business Employees, together with the services and assets to be provided, the licenses to be granted and the other arrangements contemplated by the Transaction Documents, constitute (and immediately following the Closing, will constitute) all of the assets, rights and properties necessary to conduct the Business immediately after the Closing in the same manner as currently conducted by the Seller and the Company.
Section 3.19      Brokers . Except for Bank of America Merrill Lynch, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or the other Transaction Documents based upon arrangements made by or on behalf of the Seller. The Seller shall be solely responsible for the fees and expenses of Bank of America Merrill Lynch.
Section 3.20      Transferred Permits; Company Permits .
(a)      The Seller and the Company hold, and are operating in compliance, and in the past three years have operated in compliance, in all material respects, with all Transferred Permits and Company Permits. All such Permits are in full force and effect. Section 3.20(a) of the Seller Disclosure Schedule contains a true, correct and complete list of the Transferred Permits and Company Permits.
(b)      To the Knowledge of the Seller, (i) the Seller and the Company have fulfilled and performed all of its material obligations with respect to the Transferred Permits and the Company Permits, and (ii) no event has occurred which allows, and, to the Knowledge of the Seller, there does not exist any event or circumstances which, with or without notice or lapse of time or both, would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any Transferred Permit or Company Permit. No Action is pending or, to the Knowledge of the Seller, threatened to revoke, withdraw, suspend, cancel, terminate, materially modify, or limit any Transferred Permit or Company Permit, and there are no facts or circumstances (including the consummation of the transactions contemplated by the Transaction Documents) that

 
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are reasonably likely to give rise to any material adverse change in any Transferred Permit or Company Permit or any term or requirement thereof in any material respect.
Section 3.21      Product Liability; Product Warranties . There are not, and during the past three years there have not been, any claims pending or, to the Knowledge of the Seller, threatened against the Seller, the Company or the Company Subsidiary for any product returns, product liability or warranty obligations relating to any products or services of the Business that are, or were during such period, manufactured, produced, marketed, distributed or sold by or for the Business (such products and services, collectively the “ Business Products ”) with a value of more than $350,000, individually or in the aggregate. The Business Products, and the manufacturing, production, marketing, sale and distribution thereof, comply, and in the last three years have complied, in all material respects with all applicable Laws. There are not, and during the last three years there have not been, any defects or deficiencies in any such Business Products that have resulted, or would reasonably be expected to result, in a claim or claims against the Business with a value of greater than $350,000, individually or in the aggregate. None of the Business Products designed, manufactured, packaged, labeled, shipped or sold by the Seller, the Company or the Company Subsidiary has been in the last three years subject to, or is subject to, any recall mandated by any Governmental Authority or is being, or has been in the last three years, demanded or requested in writing by any customer and, to the Knowledge of the Seller, there exist no facts or circumstances that would be reasonably likely to result in any such recall. The foregoing representations shall only be given with respect to the Company Subsidiary as of the date of the Original Agreement and as of immediately prior to the consummation of the Pre-Closing Restructuring.
Section 3.22      Accounts Receivable . (a) All of the Accounts Receivable arise from bona fide transactions of the Business and (b) as of the date of the Original Agreement, neither the Seller nor the Company had received written notice of any claims or set offs or other defenses or counterclaims with respect to such Accounts Receivable (including any notices pursuant to which an obligor is refusing to pay, or contesting payment of, all or a material portion of any Accounts Receivable). Since December 31, 2016, there has been no write-off in excess of $200,000 in the aggregate of any receivables that would have comprised Accounts Receivable if in existence as of the date of the Original Agreement.
Section 3.23      Insurance . Section 3.23 of the Seller Disclosure Schedule sets forth a true and complete list of all insurance policies maintained by the Company. With respect to the Business, the Seller maintains the general liability, product liability and other types of insurance of the type and in such amounts customarily maintained by Persons conducting businesses similar to the Business. All insurance policies maintained by the Company and the Seller (in the case of the Seller, with respect to the Business and the Transferred Assets) are in full force and effect and are sufficient for compliance in all material respects with applicable Laws. Neither the Seller nor the Company has received notice of, nor to the Knowledge of the Seller is there threatened, any cancellation, termination or reduction of coverage with respect to any such policy. There are no known and incurred but unreported material claims thereunder (in the case of the Seller, in respect of the Business or any Transferred Assets).

 
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Section 3.24      Relationships with Related Parties . Except as set forth on Section 3.24 of the Seller Disclosure Schedule, no Related Party of the Company (a) has any interest in any property (real, personal, or mixed and whether tangible or intangible), used in or pertaining to the Business as currently conducted and (b) except for the ownership of less than 2% of the outstanding common stock of a publicly-held corporation, owns of record or as a beneficial owner, an equity interest or any other financial interest in a Person that has had business dealings or a material financial interest in any transaction with the Company.
Section 3.25      Disclaimer of the Seller .
(a)      EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE III OR IN ANY OTHER TRANSACTION DOCUMENT AND NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, NONE OF THE SELLER, ITS AFFILIATES OR THEIR REPRESENTATIVES MAKES OR HAS MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, IN RESPECT OF THE BUSINESS, THE COMPANY, ANY OF THE ASSETS OR THE ASSUMED LIABILITIES. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE III OR IN ANY OTHER TRANSACTION DOCUMENT, NONE OF THE SELLER, ITS AFFILIATES OR THEIR REPRESENTATIVES MAKES OR HAS MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, WITH RESPECT TO (I) THE EXCLUDED ASSETS OR THE EXCLUDED LIABILITIES; (II) MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR USE OR PURPOSE OR ANY OTHER WARRANTIES ARISING UNDER THE UNIFORM COMMERCIAL CODE (OR SIMILAR LAWS); (III) THE OPERATION OF THE BUSINESS BY THE PURCHASER AFTER THE CLOSING; OR (IV) THE PROBABLE SUCCESS, PROFITABILITY OR PROSPECTS OF THE BUSINESS AFTER THE CLOSING AND ANY SUCH REPRESENTATION OR WARRANTY IS HEREBY EXPRESSLY DISCLAIMED.
(b)      EXCEPT IN CONNECTION WITH THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE III OR IN ANY OTHER TRANSACTION DOCUMENT, THE COVENANTS AND OBLIGATIONS OF THE SELLER SET FORTH HEREIN AND THEREIN AND THE INDEMNIFICATION PROVIDED IN ARTICLE VIII OR IN ANY OTHER TRANSACTION DOCUMENT WITH RESPECT THERETO, NONE OF THE SELLER, ITS AFFILIATES OR THEIR REPRESENTATIVES WILL HAVE OR BE SUBJECT TO ANY LIABILITY OR INDEMNIFICATION OBLIGATION TO THE PURCHASER, ITS REPRESENTATIVES OR TO ANY OTHER PERSON RESULTING FROM THE DISTRIBUTION TO THE PURCHASER OR ITS REPRESENTATIVES, OR THE PURCHASER’S OR ITS REPRESENTATIVES’ USE OF, ANY INFORMATION RELATING TO THE BUSINESS, INCLUDING THE CONFIDENTIAL INFORMATION PRESENTATION AND ANY INFORMATION, DOCUMENTS, PROJECTIONS, FORECASTS, BUSINESS PLANS, OFFERING MATERIALS OR OTHER MATERIAL MADE AVAILABLE TO THE PURCHASER OR ITS REPRESENTATIVES OR POTENTIAL FINANCING SOURCES, WHETHER ORALLY OR IN WRITING, IN CERTAIN “DATA ROOMS,” MANAGEMENT PRESENTATIONS, FUNCTIONAL “BREAK-OUT” DISCUSSIONS, “EXPERT SESSIONS,” SITE TOURS OR VISITS, DILIGENCE CALLS OR MEETINGS, RESPONSES TO QUESTIONS SUBMITTED

 
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ON BEHALF OF THE PURCHASER OR ITS REPRESENTATIVES OR IN ANY OTHER FORM IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, IN EACH CASE, OTHER THAN IN THE CASE OF FRAUD.
ARTICLE IV     
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Seller as of the date of the Original Agreement and as of the Closing Date, subject to such exceptions as are disclosed in the Purchaser Disclosure Schedule, as follows:
Section 4.1      Organization, Authority and Qualification of the Purchaser .
(a)      The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of Connecticut and has all necessary corporate power and authority to enter into this Agreement and the other Transaction Documents to which it is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by the Purchaser of this Agreement and the other Transaction Documents to which it is a party, the performance by the Purchaser of its obligations hereunder and thereunder and the consummation by the Purchaser of the transactions contemplated hereby and thereby have been duly authorized by all requisite action on the part of the Purchaser. This Agreement has been, and upon their execution, the other Transaction Documents to which the Purchaser is a party, will be, duly executed and delivered by the Purchaser.
(b)      Assuming due authorization, execution and delivery by the Seller, this Agreement constitutes, and upon their execution, each of the other Transaction Documents to which the Purchaser is a party, will constitute, a legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to or affecting creditors’ rights generally and subject to the effect of general principles of equity (regardless of whether considered in a proceeding at law or in equity).
Section 4.2      No Conflict . Assuming that all consents, approvals, authorizations and other actions described in Section 4.3 below have been obtained, all filings and notifications listed in Section 4.3 below have been made, any applicable waiting period has expired or been terminated, the execution, delivery and performance by the Purchaser of this Agreement and each of the other Transaction Documents to which the Purchaser is a party and the consummation by the Purchaser of the transactions contemplated hereby and thereby, do not and will not (a) violate, conflict with or result in the breach of any provision of the certificate of incorporation or bylaws (or similar organizational documents) of the Purchaser; (b) conflict with or violate any Law or Governmental Order applicable to the Purchaser; or (c) conflict with, result in any breach of, constitute a default (or an event which, with or without the giving of notice or lapse of time, or both, would become such a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material Contract to which the Purchaser or any of its Subsidiaries is a party, except, in the case of clauses (b) and (c) , as would not materially and

 
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adversely affect the ability of the Purchaser to carry out its obligations under, and to consummate the transactions contemplated by, this Agreement.
Section 4.3      Governmental Consents and Approvals . The execution, delivery and performance by the Purchaser of this Agreement does not require any consent, approval, authorization or other order or declaration of, action by, filing with or notification to, any Governmental Authority, other than (a) compliance with, and filings under, the HSR Act and other filings or notifications that are required under the Laws of the jurisdictions identified on Section 7.1(b) of the Seller Disclosure Schedule, and (b) where the failure to obtain other consents, approvals, authorizations, or to make other filings or notifications, would not reasonably be expected to prevent or materially delay the consummation by the Purchaser of the transactions contemplated by this Agreement.
Section 4.4      Litigation . There is no Action by or against the Purchaser or any of its Subsidiaries pending or, to the knowledge of the Purchaser, threatened before any Governmental Authority, that would materially and adversely affect the legality, validity or enforceability of this Agreement or any Transaction Document to which the Purchaser is a party or would prevent or materially delay the consummation of the transactions contemplated hereby.
Section 4.5      Brokers . Except for Goldman Sachs & Co., no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or the other Transaction Documents based upon arrangements made by or on behalf of the Purchaser.
Section 4.6      Debt Financing .
(a)      The Purchaser has delivered to the Seller a true, correct and complete and fully executed copy of the debt commitment letter, dated on or about the date of the Original Agreement, among the Purchaser and the lenders party thereto (as the same may be amended or replaced pursuant to Section 5.16(c) , the “ Debt Commitment Letter ”), pursuant to which the lenders party thereto have agreed, upon the terms and subject to the conditions of the Debt Commitment Letter, to lend the amounts set forth in the Debt Commitment Letter for the purposes of financing the transactions contemplated by this Agreement (the “ Debt Financing ”). The Debt Commitment Letter and the related fee letter are referred to collectively in this Agreement as the “ Debt Financing Agreements ”.
(b)      As of the date of the Original Agreement, each commitment represented by the Debt Financing Agreements was a legal, valid and binding obligation of the Purchaser (except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, fraudulent conveyance and other similar Laws affecting creditors' rights generally and by general principles of equity), and to the knowledge of the Purchaser, the other parties thereto. None of the Debt Financing Agreements had been amended or modified prior to the date of the Original Agreement and none of the respective commitments contained in the Debt Financing Agreements had been withdrawn, modified or rescinded in any respect as of such date. Except for the fee letter (the “ Fee Letter ”) relating to the Debt Financing (a complete copy of which has been provided to the Seller, with only the fee amounts, other economics and market flex (none of which would adversely affect the full amount or availability of the Debt Financing) redacted), as of the date of the Original

 
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Agreement, there were no side letters or other agreements, contracts or arrangements related to the funding or investment, as applicable, of the Debt Financing other than as expressly set forth in the Debt Financing Agreements.
(c)      The Purchaser has paid (or caused to be paid) any and all commitment fees or other fees payable by it (or its Affiliates) in connection with the Debt Financing Agreements that were payable on or prior to the date of the Original Agreement. The only conditions precedent or other contingencies related to the obligations of the Financing Sources to fund the full amount of Debt Financing are those expressly set forth in or contemplated by the Debt Commitment Letter. As of the date of the Original Agreement, no event had occurred which, with or without notice, lapse of time or both, would constitute a default or breach on the part of the Purchaser, or to the knowledge of the Purchaser, any Financing Source, under any term of the Debt Financing Agreements. Subject to the satisfaction of the conditions set forth in Article VII and the completion of the Marketing Period, as of the date of the Original Agreement, the Purchaser had no reason to believe that it would be unable to satisfy on a timely basis any term or condition of the Debt Financing Agreements required to be satisfied by it on or prior to the Closing Date. Subject to the terms and conditions of this Agreement, and subject to the terms and conditions of the Debt Financing Agreements, the proceeds from the Debt Financing, together with the cash or cash equivalents otherwise available to the Purchaser, will provide the Purchaser with sufficient funds to consummate the transactions contemplated by this Agreement.
Section 4.7      Independent Investigation; Seller’s Representations .
(a)      The Purchaser has conducted to its satisfaction its own independent investigation, review and analysis of the business, operations, assets, Liabilities, results of operations, financial condition, software, technology and prospects of the Business, which investigation, review and analysis was performed by the Purchaser and its Representatives. The Purchaser acknowledges that it and its Representatives have been provided adequate access to the personnel, properties, facilities and records of the Business for such purpose. In entering into this Agreement, the Purchaser acknowledges that it has relied upon its investigation, review and analysis and, except as otherwise provided in this Agreement or any other Transaction Document, not on any statements, representations or opinions of the Seller or any of its Representatives (except the specific representations and warranties of the Seller set forth in Article III or any other Transaction Document).
(b)      The Purchaser hereby acknowledges and agrees that notwithstanding anything herein to the contrary (i) other than the specific representations and warranties made in Article III or any other Transaction Document, none of the Seller, its Affiliates or their Representatives makes or has made, and the Purchaser has not and is not relying on, any representation or warranty, express or implied, at law or in equity, in respect of the Business, any of the Assets or the Assumed Liabilities, including with respect to (A) the Excluded Assets or the Excluded Liabilities, (B) merchantability or fitness for any particular use or purpose or any other warranties arising under the Uniform Commercial Code (or similar Laws); (C) the operation of the Business by the Purchaser after the Closing or (D) the probable success, profitability or prospects of the Business after the Closing; and (ii) none of the Seller, its Affiliates or their Representatives will have or be subject to any

 
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liability or indemnification obligation to the Purchaser, its Representatives or to any other Person resulting from the distribution to the Purchaser or its Representatives of, or the Purchaser’s or its Representatives’ use of, any information relating to the Business, including the Confidential Information Presentation and any information, documents, offering materials or other material made available to the Purchaser or its Representatives or potential financing sources, whether orally or in writing, in certain “data rooms,” management presentations, functional “break-out” discussions, “expert sessions,” site tours or visits, diligence calls or meetings, responses to questions submitted on behalf of the Purchaser or its Representatives or in any other form in connection with the transactions contemplated by this Agreement, in each case, other than in the case of fraud. The Purchaser and its Representatives have received and may continue to receive from the Seller and its Representatives certain estimates, projections, forecasts, plans and budgets for the Business and certain plan and budget information. The Purchaser acknowledges that these estimates, projections, forecasts, plans and budgets and the assumptions on which they are based were prepared for specific purposes and may vary significantly from each other. Further, the Purchaser acknowledges that there are uncertainties inherent in attempting to make such estimates, projections, forecasts, plans and budgets, that the Purchaser is taking full responsibility for making its own evaluation of the adequacy and accuracy of all estimates, projections, forecasts, plans and budgets so furnished to it, and that the Purchaser is not relying on any estimates, projections, forecasts, plans or budgets furnished by the Seller or its Representatives, and the Purchaser shall not, and shall cause its Representatives not to, hold any such Person liable with respect thereto, other than in the case of fraud.
ARTICLE V     
ADDITIONAL AGREEMENTS
Section 5.1      Conduct of Business Prior to the Closing . From the date of the Original Agreement and until the earlier of the Closing Date and the date on which this Agreement is validly terminated pursuant to Section 11.1 (except (a) as set forth on Section 5.1 of the Seller Disclosure Schedule, (b) as expressly required by this Agreement (including, for the avoidance of doubt, any actions required to be taken in accordance with Section 5.8 to consummate the Pre-Closing Restructuring), the Transaction Documents or applicable Law, or (c) as the Purchaser shall otherwise consent to in writing (in the case of clause (B), such consent not to be unreasonably withheld, delayed or conditioned)), (A) the Seller shall, and shall cause the Company to, use commercially reasonable efforts to (I) conduct the Business in the ordinary course consistent with past practices; (II) preserve intact the business organization of the Business and maintain the Assets; and (III) preserve the goodwill of the customers, suppliers and others having business relations with the Business; and (B) without limiting the generality of the foregoing, the Seller shall not (to the extent relating to the Business or the Transferred Assets), and shall cause its Subsidiaries (including the Foreign Seller and the Company) not to:
(i)      (x) issue, sell, grant, pledge or encumber any capital stock or other equity interests of the Company, or any options, warrants, convertible securities or other rights of any kind to acquire or receive, or that are convertible into or exchangeable or exercisable for, any such capital stock or equity interests (including stock appreciation rights, phantom stock or similar instruments); (y) split, combine or reclassify any Company Interests; or (z)

 
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redeem, purchase or otherwise acquire, or transfer or permit the transfer of, any Company Interests;
(ii)      amend the organizational documents, or change the fiscal year, of the Company;
(iii)      declare or pay any non-cash dividend, or make any non-cash distribution, in respect of any Company Interests;
(iv)      subject, or permit or allow any of the Transferred Assets or any of the Company Assets (whether tangible or intangible) to be subjected to, any Encumbrance, other than Permitted Encumbrances;
(v)      change any method of accounting or accounting practice or policy used by the Seller or the Company as of the date of the Original Agreement, other than such changes as are required by GAAP or Korean Accounting Standards, as applicable, or as required by a Governmental Authority;
(vi)      except as required by applicable Law or by the terms of any Seller Benefit Plan (x) grant or announce any increase in the salaries, bonus opportunities or other compensation or benefits payable, or to become payable, to any of the Offered Employees or Company Employees, other than any increases in base salary or wage rate or bonus opportunity in the ordinary course of business consistent with past practice, provided that any such increase shall not be greater than (A) 3% in the aggregate with respect to the aggregate base salaries and wages payable to all Offered Employees and Company Employees and (B) 6% with respect to the base salaries or wages payable to any individual Offered Employee or Company Employee or (y) enter into or adopt any employee benefit plan or employment or severance agreement, or amend any Seller Benefit Plan, in each case, with respect to any Offered Employee or Company Employee, other than changes in welfare benefits in the ordinary course of business consistent with past practice that apply equally to all similarly situated employees of the Seller, the Company or their respective Affiliates, as the case may be;
(vii)      (x) sell, lease, sublease, license, abandon or otherwise transfer any Owned Real Property or Assets, other than sales of Inventory in the ordinary course of business consistent with past practice or (y) acquire any assets that are material to the Business, individually or in the aggregate, except for purchases of Inventory in the ordinary course of business consistent with past practice;
(viii)      sell, license, abandon or otherwise transfer any Owned Intellectual Property, other than non-exclusive licenses granted to customers in connection the sale or provision of goods or services in the ordinary course of business consistent with past practice;
(ix)      (x) other than in the ordinary course of business consistent with past practice, (A) extend, amend, cancel or terminate, or waive any right under, any Material Contract or any Business Permit or (B) enter into any Contract which, if entered into prior to the date

 
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of the Original Agreement, would be a Material Contract or Transferred Asset; or (y) enter into any Contract for the sale or furnishing of products, materials, supplies, goods, equipment or other assets or services which (A) has a term in excess of 12 months or (B) provides for annual payments to the Seller or any of its Subsidiaries in excess of $350,000;
(x)      make, change, revoke or amend any material Tax election, file any material amended Tax Return, adopt or change any Tax accounting method or annual Tax accounting period, enter into any closing agreement with any Governmental Authority with respect to Taxes, settle or compromise any material Tax claim, or surrender any claim to a material refund of or credit for Taxes, in each case, to the extent such action (A) is taken by the Company or (B) relates solely to the Business, the Company or any of the Transferred Assets;
(xi)      acquire, by merger or consolidation with, or by purchase of all or a substantial portion of the assets or equity of, or by any other manner, any business or entity;
(xii)      (x) incur any Indebtedness in excess of $350,000, individually or in the aggregate, or (y) make any loans, advances or capital contributions to, or investments in, any other Person; 
(xiii)      enter into any Contract that restricts the freedom of the Business or any of its existing or future Affiliates to (x) compete in any line of business with any Person or in any geographic area or (y) solicit any individual or class of individuals for employment;
(xiv)      settle or compromise any pending or threatened Action, other than settlements involving solely money damages in an amount not exceeding $100,000, individually or in the aggregate;
(xv)      disclose or allow to be disclosed any confidential information or trade secrets to any Person, other than employees of the Seller or its Subsidiaries that are subject to a confidentiality or non-disclosure covenant protecting against further disclosure thereof;
(xvi)      fail to notify the Purchaser promptly of any material infringement, misappropriation or other violation of, or conflict with, any Owned Intellectual Property of which the Seller or any of its Subsidiaries becomes aware and to consult with the Purchaser regarding the actions (if any) to take to protect such Intellectual Property;
(xvii)      fail to (x) invoice customers and collect Accounts Receivable or (y) pay or discharge any Liabilities when due, in each case, in the ordinary course of business consistent with past practice;
(xviii)      allow levels of Inventory to vary materially from the levels customarily maintained in the ordinary course of business;
(xix)      adopt a plan or agreement of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other material reorganization; or

 
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(xx)      authorize, agree or commit to take any of the actions specified in Sections 5.1(i) – (xix) .
Notwithstanding anything to the contrary in this Agreement, (A) each of the Seller and the Company shall be permitted to declare and pay any cash dividends or make cash distributions or cash transfers (including in connection with any “cash sweep” arrangements) prior to the close of business South Korea time on the Closing Date; (B) the Seller or the Company may settle any Indebtedness owing by the Company to the Seller or any of its Affiliates, including by repayment or capitalization, prior to the Closing Date; (C) the Seller and the Foreign Seller shall be permitted to make capital contributions in cash to the Company prior to the Closing Date; (D) pursuant to Section 5.8 (and as set forth in Section 5.8 of the Seller Disclosure Schedule), the Company shall make an election to be classified as an entity disregarded as separate from its owner for U.S. federal income tax purposes, the effective date of which shall be prior to the Closing Date; (E) nothing contained in this Agreement shall be construed to give to the Purchaser directly or indirectly, rights to control or direct the Business’s operations prior to the Closing; and (F) prior to the Closing, the Seller and the Company shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision of the operations of the Business.
Section 5.2      Access to Information and Manufacturing Facilities .
(a)      From the date of the Original Agreement until the Closing, upon reasonable notice, the Seller shall, and shall cause its Subsidiaries to (i) afford the Purchaser and its authorized Representatives reasonable access to the offices, properties, IT Assets and books and records of the Company and the Business; and (ii) furnish to the authorized Representatives of the Purchaser such additional available information regarding the Company and the Business (or copies thereof), as the Purchaser may from time to time reasonably request; provided , that (A) any such access or furnishing of information shall be conducted at the Purchaser’s expense, during normal business hours, under the supervision of the Seller’s personnel and in such a manner as not to interfere with the normal operations of the Business; (B) all requests for access pursuant to this Section 5.2(a) shall be made in writing and shall be directed to and coordinated with the Seller or a person or persons designated by the Seller in writing; and (C) the Purchaser shall not, and shall cause its Representatives not to, contact any of the employees, customers, distributors or suppliers of the Seller or the Company in connection with the transactions contemplated by this Agreement and the other Transaction Documents, whether in person or by telephone, mail, or other means of communication, without the specific prior written authorization of the Seller; provided , that the Seller shall not unreasonably withhold, condition or delay such authorization in connection with any reasonable request by the Purchaser to contact any Specified Key Customer in order to facilitate the post-Closing transition of the Business to the Purchaser (it being understood that nothing in this Section 5.2(a) shall give the Purchaser or any of its Representatives the right to direct or control the business operations of the Seller or any of its Subsidiaries prior to the Closing, which shall continue to operate in the ordinary course of business). Notwithstanding anything to the contrary in this Agreement, the Seller shall not be required to provide any access or disclose any information to the Purchaser or its Representatives if such disclosure would, in the Seller’s reasonable discretion (in the case of clauses (2) , (3) and (4) , after consultation with outside counsel), (1) put the Business, the Seller or the Company at a competitive disadvantage if the transactions contemplated by this

 
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Agreement and the other Transaction Documents are not consummated; (2) jeopardize, or result in a loss or waiver of, any attorney-client or other legal privilege; (3) contravene any agreement that existed on the date of the Original Agreement or any applicable Law or fiduciary duty; or (4) result in disclosure of any proprietary information or trade secrets of the Seller, the Company, their Affiliates or third parties; provided , that , in the case of clauses (2) , (3) and (4) , the Seller shall notify the Purchaser in reasonable detail of the circumstances giving rise to such privilege, Law, duty, agreement or trade secret and cooperate to permit disclosure of such information in a manner consistent therewith. When accessing any of the Seller’s or the Company’s properties, the Purchaser shall, and shall cause its Representatives to, comply with all of the Seller’s safety and security requirements for the applicable property. Notwithstanding anything to the contrary in this Agreement, (I) in no event shall the Seller be required to provide any information exclusively relating to any Excluded Assets or any Excluded Liabilities, except to the extent such information is material to the Business or responsive to any of the representations of the Seller set forth in this Agreement; and (II) neither the Purchaser nor any of its Representatives shall be allowed to sample or analyze any soil or groundwater or other environmental media, or any building material, without the prior written consent of the Seller, which consent may be withheld in the sole discretion of the Seller.
(b)      In order to facilitate the resolution of any claims made against or incurred by the Seller or the Foreign Seller relating to the Business (other than any Claim between the Purchaser and the Seller or any of their respective Affiliates arising from any Transaction Documents) and for purposes of compliance with securities, employment, accounting and other Laws and regulations, including stock exchange rules and regulations, until the seventh anniversary of the Closing, the Purchaser shall, and shall cause the Company to, (i) retain the books and records and financial and operational data relating to the Business that are transferred to the Purchaser by the Seller or otherwise pursuant to this Agreement for periods prior to the Closing; and (ii) subject to applicable Law (including attorney-client or other privilege), upon reasonable advance written notice, afford the Representatives of the Seller reasonable access (including the right to make, at the Seller’s expense, copies), during normal business hours, to such books and records; provided , that (A) if any such information is or becomes comingled with books and records of the Purchaser and its Affiliates, the Purchaser shall be entitled to withhold, in its reasonable discretion, any information that does not relate to the Business and (B) any such access or furnishing of information shall be conducted at the Seller’s expense, under the supervision of the Purchaser’s personnel and in such a manner as not to interfere with the normal operations of the Business.
(c)      In order to facilitate the resolution of any claims made against, or incurred by, the Purchaser relating to the Business (other than any Claim between the Purchaser and the Seller or any of their respective Affiliates arising from any Transaction Documents) and for purposes of compliance with securities, employment, accounting and other Laws and regulations, including stock exchange rules and regulations, until the seventh anniversary of the Closing, the Seller shall, and shall cause its Subsidiaries (including the Foreign Seller) to, (i) retain the books and records and financial and operational data relating to the Business relating to periods prior to the Closing which did not constitute Transferred Records or Transferred Information; and (ii) subject to applicable Law (including attorney-client or other privilege), upon reasonable notice, afford the

 
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Representatives of the Purchaser reasonable access (including the right to make, at the Purchaser’s expense, copies), during normal business hours, to such books and records.
Section 5.3      Confidentiality .
(a)      The terms of the letter agreement, dated as of April 8, 2017 (the “ Confidentiality Agreement ”), between the Seller and the Purchaser, are hereby incorporated herein by reference and shall continue in full force and effect until the Closing and shall survive the Closing and remain in full force and effect until their expiration in accordance with the terms of the Confidentiality Agreement; provided , however , that, upon the Closing, the confidentiality and non-use obligations contained in the Confidentiality Agreement shall terminate in respect of that portion of the Evaluation Material (as defined in the Confidentiality Agreement) primarily relating to the Business or relating to the Company and the transactions contemplated by any Transaction Document. If this Agreement is, for any reason, terminated prior to the Closing, the Confidentiality Agreement shall nonetheless continue in full force and effect in accordance with its terms.
(b)      Nothing provided to the Purchaser pursuant to Section 5.2(a) shall in any way amend or diminish the Purchaser’s obligations under the Confidentiality Agreement. The Purchaser acknowledges and agrees that, subject to Section 5.3(a) , any Evaluation Material made available to the Purchaser or its Representatives pursuant to Section 5.2(a) or otherwise by the Seller or any of its Representatives prior to the Closing Date shall be subject to the terms and conditions of the Confidentiality Agreement.
(c)      Following the Closing, the Seller shall, and shall cause its Affiliates and its and their respective Representatives (collectively, “ Seller Restricted Parties ”) to (i) maintain the confidentiality of, (ii) not use, and (iii) not divulge to any Person, any confidential, non-public or proprietary information concerning the Business, the Transferred Assets and/or the Company (including, for the avoidance of doubt, any information accessed or obtained by the Seller Restricted Parties pursuant to Section 5.2(b) ) (such information, to the extent not exclusively related to the Business, the Transferred Assets and/or the Company, the “ Shared Information ”), in each case, except (x) with the prior written consent of the Purchaser; (y) if, based on the advice of outside counsel, such Seller Restricted Party is required to report such information in order to comply with (A) applicable securities Laws and regulations, including stock exchange rules and regulations or (B) any other applicable Laws or a Governmental Order in connection with a dispute with or claim by a third party; provided , that with respect to clause (B) such Seller Restricted Party shall provide the Purchaser with prompt written notice of such requirement so that the Purchaser may seek an appropriate protective order or other appropriate remedy, and such Seller Restricted Party shall reasonably cooperate with the Purchaser (at the Purchaser’s request) to obtain such order or remedy; provided , further , that, in the event such order or remedy is not obtained, such Seller Restricted Party shall furnish only that portion of such information which, in the opinion of its outside counsel, it is legally required to disclose and shall exercise its commercially reasonable efforts (at the Purchaser’s request) to obtain reliable assurance that confidential treatment will be accorded any such information so disclosed; or (z) with respect to Shared Information, pursuant to non-disclosure agreements (or license agreements containing non-disclosure obligations) that (A) obligate the recipient of such Shared Information to maintain the confidentiality thereof and not use such Shared

 
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Information and (B) impose perpetual confidentiality obligations on the recipient with respect to trade secrets.
Section 5.4      Regulatory and Other Authorizations; Notices and Consents .
(a)      Each party hereto shall use its reasonable best efforts to (i) promptly obtain all authorizations, consents, orders and approvals of all Governmental Authorities that may be or become necessary for its execution and delivery of, and the performance of its obligations pursuant to, this Agreement and the other Transaction Documents; and (ii) cooperate fully with the other party in promptly seeking to obtain all such authorizations, consents, orders and approvals. Each party hereto agrees (x) to make, as promptly as practicable, but in any event no later than ten Business Days of the date of the Original Agreement, its respective filing, if necessary, pursuant to the HSR Act with respect to the transactions contemplated by this Agreement and the other Transaction Documents and to supply as promptly as practicable to the appropriate Governmental Authorities any additional information and documentary material that may be requested pursuant to the HSR Act, (y) to make as promptly as practicable its respective filings and notifications in the jurisdictions listed in Section 7.1(b) of the Seller Disclosure Schedule, and to supply as promptly as practicable to the appropriate Governmental Authorities any additional information and documentary material that may be reasonably requested pursuant to the applicable antitrust, competition or trade regulation Law, and (z) that the Purchaser shall pay all filing fees incident to any such filings.
(b)      Notwithstanding anything to the contrary contained in Section 5.4 or elsewhere in this Agreement, (i) neither the Purchaser nor any of its Affiliates shall have any obligation under this Agreement to divest or agree to divest (or cause any of its Affiliates, the Seller, or the Foreign Seller to divest or agree to divest) any of the Purchaser’s businesses, product lines, or assets or the Company Interests or Transferred Assets, or to take or agree to take (or cause any of its Affiliates, the Seller, or the Foreign Seller to take or agree to take) any other action or to agree (or cause any of its Affiliates, the Seller, or the Foreign Seller to agree) to any limitation or restriction on any of its businesses, product lines, or assets or the Company Interests or Transferred Assets and (ii) the Purchaser shall, and shall cause its Subsidiaries to, defend through litigation on the merits any Action by any Governmental Authority in order to avoid entry of, or to have vacated or terminated, any decree, order or judgment (whether temporary, preliminary or permanent) that would prevent the Closing prior to the Termination Date or the Extended Termination Date, as applicable. Furthermore, each party hereto agrees that it will use its reasonable best efforts to certify compliance with any request for additional information or documentary material issued by a Governmental Authority under 15 U.S.C. Sect. 18a(e) and in conjunction with the transactions contemplated by this Agreement (a “ Second Request ”) within fifteen weeks after receipt of such Second Request and that it will produce documents in connection with such Second Request on a rolling basis
(c)      Without in any way limiting the foregoing, each of the Purchaser and the Seller shall consult and cooperate with one another and consider in good faith the views of one another in connection with any substantive analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party in connection with proceedings under the HSR Act and any other applicable antitrust, competition or trade regulation Law, and communicate with applicable Governmental Authorities, including the Federal

 
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Trade Commission and the Department of Justice, and other third parties in connection with the HSR Act and any other applicable antitrust, competition or trade regulation Law. In furtherance of the foregoing, each party to this Agreement shall promptly notify the other party of any substantive communication it or any of its Representatives receives from any Governmental Authority relating to the matters that are the subject of this Agreement and permit the other party to review in advance any proposed substantive communication by such party to any Governmental Authority. Each of the parties to this Agreement shall permit outside counsel of the other Party to be present or participate in any materially substantive call, discussion, or meeting with any Governmental Authority in respect of any filings, investigation (including any settlement of an investigation), litigation or other inquiry unless (A) prohibited by such Governmental Authority or (B) it consults with the other party in advance and gives the other party the opportunity to attend and participate at such call, discussion or meeting ( provided that such consultation is not required by the Purchaser’s outside counsel to communicate with the competition authorities in the jurisdictions set forth in Section 7.1(b) of the Seller Disclosure Schedule, except to the extent the Seller has engaged outside competition counsel in such jurisdiction). Each party hereto shall, and shall cause its Representatives to, coordinate and cooperate fully with each other in exchanging such information and providing such assistance as the other party hereto may reasonably request in connection with the foregoing and in seeking early termination of any applicable waiting periods, including under the HSR Act. Each party to this Agreement shall, and shall cause its outside counsel to, provide each other with copies of all correspondence, filings (excluding the Purchaser’s HSR Form) or communications between them or any of their respective Representatives, on the one hand, and any Governmental Authority or members of its staff, on the other hand, with respect to this Agreement and the transactions contemplated by this Agreement and the other Transaction Documents; provided, however, that materials may be redacted (i) to remove references concerning the valuation of the Business and competitively sensitive information; (ii) as necessary to comply with contractual arrangements or applicable Law; and (iii) as necessary to address reasonable attorney-client or other privilege or confidentiality concerns.
(d)      Except as otherwise permitted pursuant to this Section 5.4 , the Purchaser shall not, and shall cause its Affiliates not to, enter into any merger, acquisition, or joint venture, or any agreement to effect any merger, acquisition, or joint venture) that would reasonably be expected to make it more difficult, or to increase the time required, to (i) obtain the expiration or termination of the waiting period under the HSR Act, or any other applicable antitrust, competition or trade regulation Law, applicable to the transactions contemplated by this Agreement and the other Transaction Documents; or (ii) obtain all authorizations, consents, orders and approvals of Governmental Authorities necessary for the consummation of the transactions contemplated by this Agreement.
Section 5.5      Retained Names and Marks .
(a)      The Purchaser hereby acknowledges that all right, title and interest in and to all trademarks, service marks, Internet domain names, trade names, trade dress, company names and other identifiers of source and any associated goodwill owned by the Seller or its Affiliates, in each instance, containing “ALBEMARLE”, “ALBEMARLE CORPORATION”, and the Albemarle logo, or is not a trademark included in the Owned Intellectual Property (collectively, the “ Retained

 
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Names and Marks ”), are owned solely by the Seller or its Affiliates (other than the Company), and that, except as expressly provided in this Section 5.5 , any and all right of the Business and the Company to use the Retained Names and Marks shall terminate as of the Closing and shall immediately revert to the Seller, along with any and all Goodwill associated therewith. Each of the Purchaser and its Affiliates further acknowledge that neither the Purchaser nor any of its Affiliates (including the Company) is acquiring any rights, to use the Retained Names and Marks after the Closing, except for the rights expressly provided herein.
(b)      The Purchaser shall be entitled to use, solely in connection with the operation of the Business as operated immediately prior to the Closing, all of the existing stocks of signs, letterheads, labels, office forms, packaging, invoice stock, advertisements and promotional materials, inventory and other documents and materials that are included in the Transferred Assets or owned by the Company and contain the Retained Names and Marks (“ Existing Stock ”) for: (i) with respect to any Existing Stock that constitutes exterior or interior facility signage, a period of 90 days after the Closing and (ii) with respect to all other Existing Stock, the longer of (x) 90 days after the date of the Closing and (y) 45 days after receipt by the Purchaser of any Existing Stock in transit as of the Closing Date, after which periods the Purchaser shall, and shall cause the Company to, remove or obliterate all Retained Names and Marks from such Existing Stock or cease using such Existing Stock; provided , however , that the Purchaser shall use commercially reasonable efforts to ensure that all such Existing Stock used by it hereunder following the Closing shall, to the extent practicable, display a notice, in a format reasonably acceptable to the Seller, indicating that the Business (A) was formerly owned by the Seller; and (B) is now owned and operated by the Purchaser. The Company may also continue to use any corporate names containing any Retained Names and Marks for up to 30 days following Closing, taking into account (I) any applicable Laws that would restrict the ability of the Purchaser or any of its Affiliates to operate the Business under a corporate name not including the Retained Names and Marks and (II) any formal requirements (under applicable Law or under the constituent documents of the Company) to change the corporate name of the Company; provided , that the Purchaser shall cause the Company to make all filings with or notifications to any Governmental Authority in connection with the change of the corporate name of the Company within five days following the Closing Date and shall cease using the corporate name promptly following receipt of approval of such change from the appropriate Governmental Authorities; provided , that the foregoing 30-day and five-day periods shall be extended as reasonably requested by the Purchaser with the Seller’s consent (such consent not to be unreasonably withheld, conditioned or delayed).
(c)      Except as expressly provided in this Section 5.5 , no other right to use the Retained Names and Marks is granted hereunder by the Seller to the Purchaser or any of its Affiliates whether by implication or otherwise, and nothing hereunder permits the Purchaser or any of its Affiliates to use the Retained Names and Marks in any manner other than in connection with Existing Stock. The Purchaser shall use commercially reasonable efforts to ensure that all uses of the Retained Names and Marks as provided in this Section 5.5 shall be only with respect to goods and services of a level of quality substantially similar to the quality of goods and services with respect to which the Retained Names and Marks were used in the Business prior to the Closing. Any and all goodwill generated by the use of the Retained Names and Marks under this Section 5.5 shall inure solely to the benefit of the Seller. In no event shall the Purchaser or any of its Affiliates use the Retained

 
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Names and Marks hereunder in any manner that may reasonably be expected to damage or tarnish the reputation of the Seller or the goodwill associated with the Retained Name and Marks.
(d)      The Purchaser agrees that the Seller shall have no responsibility for claims by third parties arising out of, or relating to, the use by the Purchaser and its Affiliates of any Retained Names and Marks after the Closing. In addition to any and all other available remedies, the Purchaser shall indemnify and hold harmless the Seller and its Representatives, successors, and assigns, from and against any and all claims that may arise out of the use of the Retained Names and Marks by the Purchaser or any of its Affiliates (i) in accordance with the terms and conditions of this Section 5.5 , other than claims (x) that the use of Retained Names and Marks, consistent with the use of such Retained Names and Marks prior to the Closing, infringe or dilute the Intellectual Property rights of any third party, (y) that constitute Excluded Liabilities, or (z) for which the Seller is obligated to indemnify a Purchaser Indemnified Party under Section 8.2 ; or (ii) in violation of or outside the scope permitted by this Section 5.5 . Notwithstanding anything in this Agreement to the contrary, the Purchaser hereby acknowledges that in the event of any breach or threatened breach of this Section 5.5(d) , the Seller, in addition to any other remedies available to it, shall be entitled to seek a preliminary injunction, temporary restraining order or other equivalent relief restraining the Purchaser or any of its Affiliates from any such breach or threatened breach, but may not seek to terminate the Purchaser’s right to use the Retained Names and Marks in accordance with the terms of this Section 5.5 .
Section 5.6      Insurance . From and after the Closing Date, the Assets and the Business shall cease to be insured by the Seller’s insurance policies or by any of its self-insured programs in respect of any claims or potential claims arising out of or relating to any events or circumstances occurring from and after the Closing Date. For the avoidance of doubt, the Seller shall retain all rights to control its insurance policies and programs, including the right to exhaust, settle, release, commute, buy back or otherwise resolve disputes with respect to any of its insurance policies and programs, other than in respect of disputes relating to any Post-Signing Insurance Proceeds. The Purchaser agrees to arrange for its own insurance policies with respect to the Business and the Purchaser covering all periods from and after the Closing Date and agrees not to seek, through any means, to benefit from the Seller’s insurance policies that may provide coverage for claims relating in any way to the Business or the Assets from and after the Closing; provided , that this Section 5.6 shall not be construed to limit the Purchaser’s rights to the Post-Signing Insurance Proceeds or indemnification by the Seller granted under this Agreement.
Section 5.7      Employees.
(a)      Offered Employees; Transferred Employees .
(i)      Offer Process . As of a date that is at least seven days prior to the Closing Date (the “ Offer Date ”) for Offered Employees as of the Offer Date and prior to the Closing Date for all other Offered Employees, and effective in each case as of the Closing Date, the Purchaser shall, or shall cause one of its Affiliates to, offer employment to each Offered Employee who (x) is actively employed on such date or is absent from employment due to vacation or temporary illness not reasonably expected to exceed five days (the “ Current Offered Employees ”) or (y) (A) is absent from work due to an authorized leave of absence

 
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(including but not limited to a leave of absence due to a short-term or long-term disability) and (B) has the right to return to employment following expiration of such absence under applicable Law, effective as of the expiration of the leave (the “ Leave Offered Employees ” and, together with the Current Offered Employees, the “ Closing Date Offered Employees ”). All such offers of employment to (1) Current Offered Employees shall provide for employment with the Purchaser or an Affiliate of the Purchaser to commence effective as of 12:00 A.M., local time, on the day immediately following the Closing Date and (2) Leave Offered Employees shall provide for employment with the Purchaser or an Affiliate of the Purchaser to commence at the expiration of such Leave Offered Employee’s authorized leave, provided , however that if such Leave Offered Employee does not return to active service prior to the end of a period of six months following the commencement of the applicable leave, or such longer period as may be required by applicable Law (the “ Return Deadline ”), such offer shall become null and void upon the Return Deadline and such Leave Offered Employee shall in no event become a Transferred Employee. All such offers of employment shall be made in accordance with the applicable provisions of this Section 5.7 and to the extent that any Offered Employee receives an offer in accordance with this Section 5.7 and does not accept such offer and commence employment with the Purchaser or any of its Affiliates, the Seller shall not, and shall cause its Affiliates not to, retain such Offered Employee and none of the Purchaser or any of its Affiliates shall have any Liability with respect to such Offered Employee (including, but not limited to, any Liability for severance or any other compensation).
(ii)      Transferred Employees . Each Closing Date Offered Employee who, either prior to or as of the Closing Date for Current Offered Employees, or after expiration of the Leave for Leave Offered Employees, as applicable, (a) accepts an offer of employment from the Purchaser or one of its Affiliates, (b) executes any employment or similar agreement to the extent reasonably required by the Purchaser and presented to the Closing Date Offered Employee prior to the Closing Date, (c) provides all of the necessary documentation (including, without limitation, I-9) required by applicable Law for employment and (d) commences employment with the Purchaser or an Affiliate of the Purchaser, together with each Company Employee who is employed on the Closing Date, whether such Company Employee is actively employed on such date, absent from employment due to vacation or temporary illness not reasonably expected to exceed five days or absent from work due to an authorized leave of absence (including but not limited to a leave of absence due to a short-term or long-term disability) with the right to return to employment following expiration of such absence under applicable Law, effective as of the expiration of the leave (the “ Closing Date Company Employees ”), shall be referred to herein as a “ Transferred Employee ”; provided , that a Leave Offered Employee shall be treated as a Transferred Employee upon the expiration of the Leave Offered Employee’s authorized leave to the extent that such expiration and return to active service occurs prior to the applicable Return Deadline. The date on which an Offered Employee commences, or is deemed to commence, employment with the Purchaser or an Affiliate of the Purchaser shall be referred to herein as the Offered Employee’s “ Transfer Date .”
(b)      Terms of Employment .

 
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(i)      U.S. Transferred Employees . With respect to U.S. Offered Employees who become Transferred Employees (each, a “ U.S. Transferred Employee ”), the Purchaser shall, or shall cause its Affiliates to, provide each such U.S. Transferred Employee, for a period of no less than 12 months after the Transfer Date with respect to clauses (w) and (x) herein, and the Closing Date with respect to clause (y) herein, or if earlier, until the termination of such Transferred Employee’s employment with the Purchaser and its Affiliates, with (w) employment in a position that is comparable (except with respect to number of employees that report to such position) to such U.S. Transferred Employee’s position immediately prior to the Closing Date (or on commencement of the applicable Leave for Leave Offered Employees), (x) an annual base salary (or in case of an hourly employee, a base hourly wage rate) and overtime pay and cash-based bonus and incentive opportunities (excluding any equity-based compensation and any incentive opportunities relating to a long-term incentive plan) as applicable to such U.S. Transferred Employee immediately prior to such date and, (y) employee benefits under plans, programs and arrangements which will provide benefits to such U.S. Transferred Employee that are substantially comparable, in the aggregate (taking into account any other consideration provided to such U.S. Transferred Employee relating to employee benefits immediately prior to the foregoing date), to the benefits provided by the Seller and its Affiliates (disregarding benefits under any defined benefit pension, retiree welfare, non-qualified deferred compensation, retention bonus or equity-based compensation plans, policies or programs), in each case, as of immediately prior to such date.
(ii)      Non U.S. Transferred Employees . With respect to Non U.S. Offered Employees who become Transferred Employees (each, a “ Non U.S. Transferred Employee ”), the Purchaser shall, or shall cause its Affiliates to, provide each such Non U.S. Transferred Employee, for a period of no less than 12 months after the Transfer Date with respect to clauses (w) and (x) herein, and the Closing Date with respect to clause (y) herein, or if earlier, until the termination of such Transferred Employee’s employment with the Purchaser and its Affiliates, with (w) employment in a position that is comparable (except with respect to number of employees that report to such position) to such Non U.S. Transferred Employee’s position immediately prior to the Closing Date (or on commencement of the applicable Leave for Leave Offered Employees), (x) an annual base salary (or in case of an hourly employee, a base hourly wage rate) and overtime pay and cash-based bonus and incentive opportunities (excluding any equity-based compensation and any incentive opportunities relating to a long-term incentive plan) as applicable to such Non U.S. Transferred Employee immediately prior to such date, and (y) employee benefits under plans, programs and arrangements which will provide benefits to such Non U.S. Transferred Employee that are substantially comparable, in the aggregate (taking into account any other consideration provided to such Non U.S. Transferred Employee relating to employee benefits immediately prior to the foregoing date), to the benefits provided by the Seller and its Affiliates (disregarding benefits under any defined benefit pension, retiree welfare, non-qualified deferred compensation, retention bonus or equity-based compensation plans, policies or programs), in each case, as of immediately prior to such date or, if greater, employee benefits required by applicable Law.

 
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(iii)      Closing Date Company Employees . With respect to Closing Date Company Employees, for a period of no less than 12 months after the Closing Date, or if earlier, until the termination of such Transferred Employee’s employment with the Purchaser and its Affiliates, the Purchaser shall, or shall cause its Affiliates to, provide each such Closing Date Company Employee, with (w) employment in a position that is comparable (except with respect to number of employees that report to such position) to such Closing Date Company Employee’s position immediately prior to the Closing Date, (x) an annual base salary (or in case of an hourly employee, a base hourly wage rate), overtime pay and cash-based bonus and incentive opportunities (excluding any equity-based compensation and any incentive opportunities relating to a long-term incentive plan) as provided to such Closing Date Company Employee immediately prior to the Closing Date, (y) employee benefits under plans, programs and arrangements which will provide benefits to such Closing Date Company Employee that are substantially comparable, in the aggregate (taking into account any other consideration provided to such Closing Date Company Employee relating to employee benefits immediately prior to the Closing Date), to the benefits provided by the Seller and its Affiliates (disregarding benefits under any defined benefit pension, retiree welfare, non-qualified deferred compensation, retention bonus or equity-based compensation plans, policies or programs), in each case, as of immediately prior to the Closing Date or, if greater, employee benefits required by applicable Law.
(iv)      No Right to Continued Employment . Nothing contemplated by this Agreement shall be construed as requiring either the Purchaser or any of its Affiliates to continue the employment of any Transferred Employee for any period after the Transfer Date or Closing Date, as applicable, subject to the obligations imposed upon the Purchaser and its Affiliates under this Section 5.7 .
(c)      With respect to each Offered Employee who becomes a Transferred Employee, the Seller shall retain all amounts earned and payable at “target” level performance under the applicable annual cash-based bonus plans or policies in which such Transferred Employee participates for the 2018 performance period, with such payment to be prorated for days of service provided by the Transferred Employee during the portion of the 2018 performance period that occurs from January 1, 2018 through the Transfer Date, and to be satisfied by the Seller by including such amounts (together with the employer portion of any social security contributions and any payroll, employment or similar Taxes, in each case relating to such amounts) in the Transferred Assets Net Working Capital calculation. The Purchaser agrees to pay the forgoing 2018 performance bonuses on behalf of the Seller to each applicable Transferred Employee equal to such amounts included in the Transferred Assets Net Working Capital calculation on or before the date that the Purchaser pays performance bonuses to its employees for 2018. From and after the Transfer Date for each Offered Employee who becomes a Transferred Employee or the Closing Date for each Company Employee, as applicable, each Transferred Employee who participates in an annual cash-based bonus plan sponsored by the Seller or any of its Affiliates as of such date shall be eligible to participate in the Purchaser’s annual bonus plans or policies as may be in effect at such time (with individual bonus opportunities to be determined in a manner consistent with Section 5.7(b) ), and the Purchaser shall be liable for the payment of the amounts, if any, earned thereunder based on actual performance and subject to such Transferred Employee’s continued service with the Purchaser through the

 
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applicable payment date in accordance with the terms of the applicable bonus plan or policy, with such payment, if any, (i) with respect to Offered Employees who become Transferred Employees, to be prorated only for days of service provided by such Transferred Employee to the Purchaser or any of its Affiliates during the portion of the 2018 performance period that occurs after the Transfer Date (such portion, the “ 2018 Bonus Stub Period ”), and (ii) with respect to Company Employees, to be based on the entire 2018 performance period. Notwithstanding the foregoing, in the event that a Transferred Employee whose employment with the Purchaser or any of its Subsidiaries is terminated thereby during the 2018 Bonus Stub Period without “cause,” such Transferred Employee shall be eligible to receive payment of his or her bonus earned based on actual performance under the applicable bonus plan or policy of the Purchaser, if any, prorated to reflect his or her days of service to the Purchaser and/or any of its Affiliates during (A) the 2018 Bonus Stub Period for Offered Employees who become Transferred Employees and (B) the 2018 performance period for Company Employees.
(d)      With respect to each Transferred Employee, for the one-year period immediately following the Transfer Date, the Purchaser or its Affiliates shall provide severance benefits to each Transferred Employee that are no less favorable than those severance benefits applicable to such Transferred Employee as of immediately prior to the Closing Date, as if the Seller’s and its Affiliates’ severance plans as in effect immediately prior to such date were still in effect, based on such Transferred Employee’s compensation as of such employment termination date after taking into account any service that such Transferred Employee has with the Purchaser or its Affiliates as of the date of such termination of employment, including, for the avoidance of doubt, service credited under Section 5.7(e) . Notwithstanding the forgoing, such severance benefits after the Closing Date shall be administered in accordance with the terms and conditions of the Purchaser’s applicable severance plans, except with respect to the entitlement to and calculation of such cash-based severance benefits, which shall be governed by this Section 5.7(d) .
(e)      With respect to each Transferred Employee, effective from and after the Transfer Date, the Purchaser shall, or shall cause its Affiliates to, use commercially reasonable efforts to (i) recognize, for purposes of benefit levels and accruals (except under a defined benefit plan, retiree medical program or any grandfathered or frozen benefit plan) under the Purchaser Benefit Plans to which such Transferred Employee is participating and the eligibility for and calculation of vacation and severance benefits under such Purchaser Benefit Plans, service with the Seller and its Affiliates prior to the Transfer Date for Offered Employees or the Closing Date for Company Employees to the extent such service was recognized under the corresponding Seller Benefit Plan (if any) covering such Transferred Employees, except as would result in the duplication of benefits, (ii) waive any pre-existing condition exclusion, actively-at-work requirement or waiting period under all employee health and other welfare benefit plans established or maintained by the Purchaser or its Affiliates in which such Transferred Employee participates, except to the extent such pre-existing condition, exclusion, requirement or waiting period would have applied to such individual under the corresponding Seller Benefit Plan (if any), and (iii) provide full credit for any co-payments, deductibles or similar payments made or incurred by the Transferred Employees prior to the Transfer Date for Offered Employees or the Closing Date for Company Employees under the corresponding Seller Benefit Plan (if any), covering such Transferred Employees with respect to all employee health and other welfare benefit plans established or operated by the Purchaser or its Affiliates in

 
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which such Transferred Employees participate (other than flexible spending accounts) for the plan year in which the Transfer Date for Offered Employees or the Closing Date for Company Employees occurs.
(f)      If any Transferred Employee requires a visa, work permit or employment pass or other legal or regulatory approval for his or her employment with the Purchaser or its Affiliates, the Purchaser shall, and shall cause its Affiliates to, use commercially reasonable efforts to cause any such visa, permit, pass or other approval to be obtained and in effect prior to the Transfer Date for Offered Employees or the Closing Date for Company Employees, and the Seller shall, and shall cause its Affiliates to, take all reasonably necessary or appropriate action, as reasonably requested by the Purchaser, to assist in obtaining any such visa, permit, pass, or other approval prior to the Transfer Date for Offered Employees or the Closing Date for Company Employees.
(g)      Each of the Purchaser and its Affiliates shall comply in all material respects with applicable Laws regarding confidentiality of Employee Records transferred to it hereunder.
(h)      The Seller, as well as the Purchaser and any applicable Affiliate designated to be the employer of the Transferred Employees, shall use their best efforts to inform and/or consult with the relevant employee representative bodies and authorities, in a timely manner, regarding all subjects, including, without limitation, the intended transaction, to the extent required by applicable Law.
(i)      The Purchaser shall, or shall cause its relevant Affiliate to, grant each Transferred Employee vacation time in an amount equal to such Transferred Employee’s accrued and unused vacation time. If such Transferred Employee terminates employment with the Purchaser or an Affiliate of the Purchaser prior to using such vacation time, the Purchaser or its relevant Affiliate shall pay such Transferred Employee an amount equal to compensation for any such remaining vacation time (with such vacation time granted pursuant to this Section 5.7(i) deemed to be used first before any further vacation time accrued after the Transfer Date) upon such employment termination equal to the amount of such unused remaining vacation time that such Transferred Employee would have received if the Seller’s vacation policy as of the Transfer Date for Offered Employees or the Closing Date for Company Employees were in effect at the time of such employment termination.
(j)      As soon as administratively practicable following the Closing Date, the Purchaser shall permit each U.S. Transferred Employee who was eligible to participate in a defined contribution plan sponsored by the Seller or one of its Affiliates that is intended to be “qualified” within the meaning of Section 401(a) of the Code (the “ Seller 401(k) Plan ”) to elect to rollover to a defined contribution plan sponsored by the Purchaser or one of its Affiliates that is intended to be “qualified” within the meaning of Section 401(a) of the Code (the “ Purchaser 401(k) Plan ”), each such U.S. Transferred Employee’s account balance when distributed from the Seller 401(k) Plan, including any outstanding participant loans from the Seller 401(k) Plan.
(k)      With respect to each U.S. Transferred Employee, immediately prior to such U.S. Transferred Employee’s Transfer Date, the U.S. Transferred Employee shall cease to contribute to the Seller’s flexible spending account plan (the “ Seller FSA Plan ”). U.S. Transferred Employees

 
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who elected to participate in the Seller FSA Plan for the plan year beginning January 1 of the year during which the Closing occurs shall become participants in a flexible spending account plan of the Purchaser or its Affiliate (the “ Purchaser FSA Plan ”) as if their participation in the Purchaser FSA Plan had been continuous from such January 1 and at the same level of coverage elected under the Seller FSA Plan. Following the Transfer Date, each U.S. Transferred Employee will be reimbursed by the Purchaser or its Affiliate under the Purchaser FSA Plan for qualifying medical and dependent care expenses incurred by such U.S. Transferred Employee at any time during the year during which the Closing occurs, up to the amount of the elections made by each U.S. Transferred Employee under the Seller FSA Plan for such year, reduced by amounts previously reimbursed by the Seller or its Affiliate pursuant to the Seller FSA Plan for such year. To effectuate the foregoing, as soon as practicable after each Transfer Date (and in any event within 30 days following the Closing), the Seller shall provide the Purchaser with a summary of account balances and confirm whether the amounts of the account balances (if any) under the Seller FSA Plan for the U.S. Transferred Employees are positive or negative in the aggregate immediately prior to such Transfer Date, and the Seller shall pay to the Purchaser such aggregate balance (if positive) or the Purchaser shall pay to the Seller such aggregate balance (if negative) with respect to all U.S. Transferred Employees who become covered under the Purchaser FSA Plan for the plan year during which the Closing occurs.
(l)      The Purchaser shall, or shall cause its relevant Affiliate to, assume any and all Liability under or relating to (i) each Company Employee and each Korean Plan in which any such Company Employee participates as of the Closing Date, and (ii) any plan, program, arrangement or agreement maintained or contributed to, or entered into with, the Seller or any Affiliate with respect to any Non U.S. Transferred Employee where such assumption is required by any applicable Law of the foreign jurisdiction in which such Non U.S. Transferred Employee is employed and located.
(m)      Nothing in this Section 5.7 , express or implied, shall (i) confer upon any Business Employee, or legal representative or beneficiary thereof, any rights or remedies, including any right to employment or continued employment for any specified period, or compensation or benefits of any nature or kind whatsoever under this Agreement, (ii) be construed to prevent the Purchaser or any of its Affiliates from terminating or modifying to any extent or in any respect any Purchaser Benefit Plan, (iii) amend, or be deemed to amend, any benefit plan, or (iv) constitute the establishment of, or an amendment to, any benefit plan.
(n)      After the Closing Date, the Seller and its Affiliates, on the one hand, and the Purchaser and its Affiliates (including the Company), on the other hand, shall cooperate in good faith with each other to provide such information regarding the Business Employees on an ongoing basis as may be reasonably necessary to facilitate and implement the intent of this Section 5.7 , including determinations of eligibility for, and payments of benefits to, such employees and their spouses, dependents and beneficiaries, as applicable. The Purchaser and its Affiliates shall not disseminate any communications about employment to the Business Employees prior to the Closing Date without the prior approval of the Seller, and the Seller shall not disseminate any such communications about employment offers without the prior approval of the Purchaser, which approval in each case shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, nothing

 
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contained in this Agreement shall prevent either party from making any and all public disclosures legally required to comply with any applicable Laws; provided , that , each party shall provide the other party with advance notice as to the form and content of any such disclosures.
Section 5.8      Pre-Closing Restructuring . The Seller shall cause the transactions set forth on Section 5.8 of the Seller Disclosure Schedule (the “ Pre-Closing Restructuring ”) to be consummated in accordance therewith.
Section 5.9      Privileged Matters . The parties hereto hereby acknowledge that Troutman Sanders LLP has acted as counsel to the Seller and the Company in connection with the transactions contemplated herein. The following provisions apply to the attorney-client relationship between (a) the Seller, the Company and Troutman Sanders LLP, Shearman & Sterling LLP, Carver, Darden, Koretzky, Tessier, Finn, Blossman & Areaux, LLC and Kim & Chang (collectively, “ Seller Law Firms ”) prior to the Closing and (b) the Seller and Seller Law Firms following Closing. The Purchaser agrees that (i) it will not seek to disqualify any Seller Law Firm from acting and continuing to act as counsel to the Seller either in the event of a dispute hereunder or in the course of the defense or prosecution of any claim relating to the transactions contemplated herein because of their representation of the Seller in connection with the transactions contemplated herein; and (ii) the Seller has a reasonable expectation of privacy with respect to the Seller’s communications (including any e-mail communications using the Seller’s e-mail system) with any Seller Law Firm prior to the Closing to the extent such communications concern the transactions contemplated by this Agreement. The parties furthermore agree that for the purposes of the attorney-client privilege, any communications between any Seller Law Firm and the Seller that were made in the course of negotiating the transactions contemplated by this Agreement that relate to the subject matter of this Agreement or that may be relevant to any claims for indemnification under this Agreement or any other dispute arising in connection with the transactions contemplated hereby (“ Protected Communications ”) shall be deemed privileged communications of the Seller for the purposes of such claims or disputes, and to the extent that they may not be considered as such at law, the parties hereto agree to contractually treat such Protected Communications as if they were privileged communications of the Seller; provided , that, in the event of a dispute after the Closing between the Purchaser or the Company, on the one hand, and a Person other than the Seller, on the other hand, the Purchaser and the Company may assert the attorney-client privilege to prevent disclosure of Protected Communications by any Seller Law Firm to such Person.
Section 5.10      Further Action; Third Party Consents .
(a)      Except as otherwise provided in this Agreement, the Seller shall, and shall cause its Affiliates to, and the Purchaser shall, and shall cause its Affiliates to, use commercially reasonable efforts to take, or cause to be taken, all appropriate action, to do, or cause to be done, and to assist and cooperate with the other party hereto in doing, all things necessary, proper or advisable under applicable Law (other than with respect to the matters covered in Section 5.4 ) to negotiate, execute and deliver the Transaction Documents and such other documents and other papers as may be required to carry out the provisions of this Agreement (including the Required Lease Amendment) and to consummate and make effective the transactions contemplated by the Transaction Documents.

 
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(b)      From time to time after the Closing, without additional consideration, the Seller shall, and shall cause its Affiliates to, and the Purchaser shall, and shall cause its Affiliates to, execute and deliver such further instruments and take such other action as may be necessary or is reasonably requested by the other party hereto to make effective the transactions contemplated by this Agreement and the other Transaction Documents. Without limiting the foregoing, upon reasonable request of a party hereto, the other party shall, and shall cause its Affiliates to, execute, acknowledge and deliver all such further assurances, deeds, assignments, consequences, powers of attorney and other instruments and papers as may be required for the transfer to the Purchaser ownership of the Transferred Assets, subject to Permitted Encumbrances, and the assumption by the Purchaser of the Assumed Liabilities, as contemplated by this Agreement.
(c)      Prior to the Closing, the Seller shall, and shall cause its Subsidiaries to, use commercially reasonable efforts to obtain all third party consents, waivers or approvals set forth on Section 7.2(f) of the Seller Disclosure Schedule, including paying any fees and expenses associated with obtaining such third party consents, waivers or approvals.
(d)      Prior to the Closing, the Seller shall, and shall cause its Subsidiaries to, promptly duly execute and deliver to the Purchaser such authorizations to share information as the Purchaser may reasonably request, in each case, in substantially the form set forth on Section 5.10(d) of the Seller Disclosure Schedule.
(e)      The Seller shall, and shall cause its Representatives to, use commercially reasonable efforts to deliver the Survey to the Purchaser promptly following the date of the Original Agreement. The Seller shall deliver the Survey to the Purchaser (i) promptly following receipt of the Survey and (ii) at least thirty (30) days prior to the Closing Date. During such thirty (30) day period, the Seller shall, and shall cause its Representatives to, reasonably cooperate with the Purchaser and its Representatives in the conduct of a review of the Survey (including in connection with any revisions to the Survey as may be reasonably requested by the Purchaser).
Section 5.11      Misdirected Payments; Mail; Misallocated Assets .
(a)      If the Seller or any of its Affiliates, on the one hand, or the Purchaser or any of its Subsidiaries, on the other hand, after the Closing Date receives any funds properly belonging to the other party or its Affiliates or Subsidiaries, as applicable, including under any Shared Contract, the receiving party will promptly so advise such other party and will promptly deliver such funds to an account or accounts designated in writing by such other party.
(b)      The Seller will promptly deliver to the Purchaser any mail (including e-mail) or other communication received by the Seller from and after the Closing Date pertaining to the Business, the Transferred Assets or the Assumed Liabilities. The Purchaser will promptly deliver to the Seller any mail (including e-mail) or other communication received by the Purchaser from and after the Closing Date pertaining to the Excluded Assets or the Excluded Liabilities.
(c)      Following the Closing, (i) in the event that the Seller, the Purchaser or any of their respective Affiliates discovers an asset that would constitute a Transferred Asset if held by the Seller immediately prior to the Closing is owned by the Seller and was not acquired by the Purchaser

 
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hereunder, the Seller shall assign, transfer and convey such asset to the Purchaser for no additional consideration, and shall execute and deliver such further documents and instruments necessary to give effect to and evidence such assignment, transfer and conveyance and (ii) in the event that the Seller, the Purchaser or any of their respective Affiliates discovers an asset that did not constitute a Transferred Asset immediately prior to the Closing was acquired by the Purchaser or its Affiliates hereunder, the Purchaser or its Affiliates shall assign, transfer and convey such asset to the Seller for no additional consideration, and shall execute and deliver such further documents and instruments necessary to give effect to and evidence such assignment, transfer and conveyance. For income Tax purposes, the Purchaser and the Seller shall treat any transfer under this Section 5.11(c) as having occurred at the Closing, except to the extent otherwise required by applicable Law.
(d)      Notwithstanding anything to the contrary contained in this Agreement, in the event that (i) any Material Contract was not set forth on Section 3.14 of the Seller Disclosure Schedule as of the date of the Original Agreement or (ii) the Contract listed on Section 5.11(d) of the Seller Disclosure Schedule is found prior to Closing, the Purchaser shall have ten Business Days from the date the Purchaser receives a complete copy of such Contract to review such Contract and determine, in its sole discretion, whether to reject such Contract. If the Purchaser determines to reject such Contract, the Seller shall retain all rights, benefits and obligations pursuant to such Contract, the Purchaser shall have no liability with respect to such Contract and such Contract shall be deemed to be an Excluded Asset for all purposes hereunder.
Section 5.12      Release .
(a)      Effective as of the Closing, the Seller, on behalf of itself and its Affiliates and each of its and their respective beneficiaries, co-trustees, successor trustees, officers, directors, managers, employees, agents, successors and assigns (the “ Seller Releasing Parties ”), hereby releases, acquits, and forever discharges the Company, its successors and assigns, together with its present and former directors, officers, employees, agents and Representatives (the “ Company Released Parties ”), from any and all Actions that such Seller Releasing Party ever had, has or may have against any of the Company Released Parties for, upon, or by reason of any matter, transaction, act, omission or thing whatsoever arising under or in connection with any of the Company Released Parties, known or unknown, from the beginning of time through and including the Closing Date, other than obligations or Actions arising under or in connection with this Agreement or the other Transaction Documents. The Seller, on behalf of itself and the other Seller Releasing Parties, understands the significance of this release of unknown Actions and waiver of statutory protection against a release, on behalf of itself and the other Seller Releasing Parties, of unknown Actions, and acknowledges and agrees that this waiver is an essential and material term of this Agreement. The Seller, on behalf of itself and the other Seller Releasing Parties, acknowledges that each Company Released Party will be relying on the waiver and release provided in this Section 5.12(a) in connection with entering into this Agreement and that this Section 5.12(a) is intended for the benefit of, and to grant third-party beneficiary rights to each Company Released Party to enforce this Section 5.12(a) .
(b)      Effective as of the Closing, the Company, on behalf of itself and its Affiliates and each of its and their respective beneficiaries, co-trustees, successor trustees, officers, directors, managers, employees, agents, successors and assigns (the “ Company Releasing Parties ”), will

 
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execute a release whereby the Company Releasing Parties will release, acquit, and forever discharge the Seller, its successors and assigns, together with its present and former directors, officers, employees, agents and Representatives (the “ Seller Released Parties ”), from any and all Actions that such Company Releasing Party ever had, has or may have against any of the Seller Released Parties for, upon, or by reason of any matter, transaction, act, omission or thing whatsoever arising under or in connection with any of the Seller Released Parties, known or unknown, from the beginning of time through and including the Closing Date, other than obligations or Actions arising under or in connection with this Agreement or the other Transaction Documents. The Company, on behalf of itself and the other Company Releasing Parties, will acknowledge its understanding of the significance of this release of unknown Actions and waiver of statutory protection against a release, on behalf of itself and the other Company Releasing Parties, of unknown Actions, and will acknowledge and agree that this waiver is an essential and material term of this Agreement. The Company, on behalf of itself and the other Company Releasing Parties, will acknowledge that each Seller Released Party will be relying on the waiver and release provided in this Section 5.12(b) in connection with entering into this Agreement and that this Section 5.12(b) is intended for the benefit of, and to grant third-party beneficiary rights to each Seller Released Party to enforce this Section 5.12(b) .
Section 5.13      Termination of Related Party Contracts . At or prior to the Closing, the Seller shall terminate, or cause to be terminated, effective as of the Closing, all Related Party Contracts (other than any Transaction Document).
Section 5.14      Company Matters .
(a)      Resignation of Directors and Officers . On or prior to the Closing Date, the Seller shall cause the Company to take all necessary actions to cause the resignation of all of the directors and officers of the Company listed in Section 5.14(a) of the Seller Disclosure Schedule, including the submission to the Company by each of such directors and officers of a duly executed resignation and waiver letter in form and substance acceptable to the Purchaser.
(b)      Members’ Meeting . Prior to the Closing Date, the Seller shall undertake all necessary measures for the convocation of a general meeting of the members of the Company to be held on or prior to the Closing Date, at which (a) the transfer of the Company Interests shall be approved, (b) the individuals nominated by the Purchaser and notified to the Seller in advance shall be appointed as directors of the Company and (c) the change of the Company name and other items of the articles of association of the Company, as specified by the Purchaser and notified to the Seller in advance, shall be approved.
Section 5.15      Seller Disclosure Schedule Amendment . Promptly (but in any event within 45 days) following the date of the Original Agreement, the Seller shall conduct, and shall provide the Purchaser and its Representatives a reasonable opportunity to participate in, a walk-through of each of the Baton Rouge Manufacturing Facility (including the Pilot Plant) and the Research and Development Lab, in each case, in order to identify any Bromine Assets, Pilot Plant Assets and Research and Development Assets. Within 10 days following the completion of such walk-through, the Seller may deliver to the Purchaser an amendment to each of Section 1.17 (Bromine Assets), Section 1.147 (Pilot Plant Assets) and Section 1.185 (Research and Development Assets) of the

 
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Seller Disclosure Schedule, and if the Purchaser consents in writing to such amendments (which consent shall not be unreasonably withheld, conditioned or delayed), such amendments shall be deemed to have amended such sections of the Seller Disclosure Schedule for all purposes hereunder. For the avoidance of doubt, except as expressly permitted in accordance with the preceding sentence, no section of the Seller Disclosure Schedule may be amended, supplemented or modified, in whole or in part, after the date of the Original Agreement.
Section 5.16      Financing .
(a)      The Purchaser shall use, and shall cause its Affiliates to use, its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done all things necessary, proper or advisable to arrange and consummate the Debt Financing (or any Alternative Financing) on the terms and conditions described in the Debt Financing Agreements and to cause the conditions precedent described in the Debt Commitment Letter to be satisfied in a timely basis, including using its commercially reasonable efforts to (i) maintain in effect the Debt Financing Agreements (including by complying with so-called “flex” provisions) until the funding of the Debt Financing at or prior to Closing, (ii) satisfy on a timely basis (or obtain a waiver of) all conditions and covenants applicable to the Purchaser to obtaining the Debt Financing at Closing as set forth therein, (iii) negotiate, execute and deliver definitive agreements with respect to such Debt Financing on the terms and conditions (including the “flex” provisions) contemplated by the Debt Financing Agreements (and provide copies thereof to the Seller), (iv) fully pay any and all commitment fees or other fees required by the Debt Financing Agreements and (v) upon satisfaction of the conditions set forth in the Debt Commitment Letter, consummate the Debt Financing at or prior to Closing. In the event that the Purchaser becomes aware of any event or circumstance that makes procurement of all or any portion of the Debt Financing unlikely to occur in the manner or from the sources contemplated in, or pursuant to the terms and conditions of, the Debt Commitment Letter and such Debt Financing or portion thereof is reasonably required for the Purchaser to consummate the transactions contemplated by this Agreement, the Purchaser shall reasonably promptly notify the Seller, and the Purchaser shall use its commercially reasonable efforts to obtain, as promptly as practicable following the occurrence of such event or circumstance, replacement financings in the form of commitments (other than amounts that are replaced by other funds available to the Purchaser) from alternate sources (the “ Alternative Financing ”) on terms and conditions that will enable the Purchaser to consummate the transactions contemplated by this Agreement and that are not materially less favorable in the aggregate to the Purchaser than those contained in the Debt Commitment Letter; provided , however , that such Alternative Financing shall not (i) be subject to any additional or modified conditions or other contingencies to the funding of the Financing than those contained in the Debt Commitment Letter or (ii) otherwise be reasonably likely to impair or materially delay the Closing or the date on which the Debt Financing would be obtained. The Purchaser shall deliver to the Seller complete and correct copies of all material amendments, supplements, other modifications to the Debt Commitment Letter and all agreements pursuant to which any Alternative Financing shall be made available to the Purchaser. For purposes of this Agreement, the term “ Debt Financing ” shall also be deemed to include any alternate Alternative Financing obtained by the Purchaser and the term “ Debt Commitment Letter ” shall also be deemed to include any commitment letter (or similar agreement) with respect to such Alternative Financing.

 
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(b)      Prior to the Closing, the Seller shall use commercially reasonable efforts to provide, and shall cause its Subsidiaries (including the Company) and its and their respective officers, directors and employees, and shall instruct its accountants, consultants, investment bankers, legal counsel, agents and other advisors and representatives to use their respective commercially reasonable efforts to provide, in connection with the arrangement of the Debt Financing, all reasonable cooperation (including with respect to timeliness) requested by the Purchaser that is customary in connection with the arrangement of debt financing for transactions that are substantially similar to the transactions contemplated by this Agreement, including using commercially reasonable efforts to (i) provide financial and other pertinent information, including any Required Information, regarding the Seller and its Subsidiaries and the Business as may be reasonably requested in writing by the Purchaser in order to consummate the Debt Financing or as necessary to satisfy the conditions set forth in the Debt Commitment Letter, (ii) participate in a reasonable number of meetings, due diligence and drafting sessions, presentations (including, without limitation, marketing (or similar) presentations, and lender or other investor presentations) and sessions with rating agencies, (iii) assisting in preparing customary documents and materials, including confidential information memoranda, lender and investor presentations, rating agency presentations and similar documents and materials in connection with the Debt Financing (including the execution and delivery by officers of the Seller of customary authorization letters), (iv) reasonably cooperating in satisfying the conditions precedent set forth in the Debt Commitment Letter or any definitive document relating to the Debt Financing (to the extent that such conditions precedent in such definitive documents are materially consistent with the conditions precedent set forth in the Debt Commitment Letter and the satisfaction of such condition requires the cooperation of, and is within the control of, the Seller and/or any of its Subsidiaries) and (v) furnishing the Purchaser and the Financing Sources promptly with all documentation and other information which any Financing Source providing or arranging Debt Financing has determined is required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act, it being understood and agreed that information and documents provided by the Seller may be delivered to agents and lenders and other Financing Sources under the Debt Commitment Letter and their representatives (subject to customary arrangements for confidentiality, including the Purchaser providing prior written notice of disclosure to the Seller); provided , however , that neither the Seller nor any of its Subsidiaries shall be required to pay any commitment or other fee or incur any other liability or obligation in connection with the Debt Financing or to take any action that would be prohibited by any applicable Law or cause a default of, or breach under, or otherwise violate any Contract. The Purchaser shall promptly, upon request by the Seller, reimburse the Seller for all out-of-pocket costs and expenses (including attorneys’ fees) incurred by the Seller in connection with the cooperation of the Seller contemplated by this Section 5.16(b) and shall indemnify and hold harmless the Seller and its directors, officers, employees, representatives and Affiliates (collectively, the “ Cooperation Indemnitees ”) from and against any and all Losses suffered or incurred by any of them in connection with the arrangement of the Debt Financing and any information used in connection therewith, except to the extent suffered or incurred as a result of the willful misconduct or bad faith of the Cooperation Indemnitees.
(c)      Prior to the Closing without the prior written consent of the Seller, the Purchaser shall not permit any material amendment or modification to be made to, or any waiver of any provision or remedy of, any Debt Financing Agreement, if such amendments, modifications or

 
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waiver would impose new or additional conditions or otherwise expand, amend, modify or waive any of the conditions to receipt of the Debt Financing, if such amendment, modification or waiver would reasonably be expected to cause a material delay to receipt of the Debt Financing under any Debt Financing Agreement or if such amendment, modification or waiver would reduce the amount of the Debt Financing below an amount which, when combined with the cash or cash equivalents otherwise available to the Purchaser, would not provide the Purchaser with sufficient funds to consummate the transactions contemplated by this Agreement; provided that for the avoidance of doubt, the Purchaser may replace, modify, supplement or amend the Debt Commitment Letter to add lead arrangers, bookrunners, syndication agents or similar entities which had not executed the Debt Commitment Letters as of the date of the Original Agreement, and make other amendments, modifications or waivers, as long as such replacement, modification, supplement or amendment does not result in the imposition of new or additional conditions or otherwise expand, amend, modify or waive any of the conditions to the receipt of the Debt Financing in a manner which would reasonably be expected to cause a material delay to the receipt of the Debt Financing or, if applicable, the Alternative Financing.
(d)      Notwithstanding any other provision of this Agreement, for all purposes of this Agreement, unless the Seller shall have engaged in willful misconduct or bad faith in connection with its obligations under this Section 5.16 , the Seller shall not be deemed to be in breach of any of its obligations under, and it shall be deemed to have complied with all of its obligations contained in this Section 5.16 .
(e)      The Purchaser acknowledges and agrees that it shall not be a condition to Closing for the Purchaser to obtain the Debt Financing or the Alternative Financing.
ARTICLE VI     
TAX MATTERS
Section 6.1      Tax Cooperation and Exchange of Information . The Seller and the Purchaser shall provide each other, the Purchaser shall cause each of its Subsidiaries to provide the Seller, and the Seller shall cause each of its Affiliates to provide the Purchaser, with such cooperation and information as either of them reasonably may request of the other in filing any Tax Return, amended Tax Return or claim for refund, determining a liability for Taxes or a right to a refund of Taxes, obtaining the benefit of any Tax holiday, Tax concession or similar Tax benefit, or participating in or conducting any audit or other proceeding in respect of Taxes relating to the Transferred Assets, the Business or the Company. Such cooperation and information shall include providing copies of relevant Tax Returns or portions thereof, together with related work papers and documents relating to rulings or other determinations by Governmental Authorities. The Seller and the Purchaser shall make themselves (and their respective employees) reasonably available on a mutually convenient basis to provide explanations of any documents or information provided under this Section 6.1 . Notwithstanding anything to the contrary in Section 5.2 , each of the Seller and its Affiliates and the Purchaser and its Subsidiaries shall retain all Tax Returns, work papers and all material records or other documents in its possession, including any electronic files, relating to Tax matters relevant to the Transferred Assets, the Business or the Company for any taxable period that includes the Closing Date and for all prior taxable periods until the later of (i) the expiration of the statute of limitations

 
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of the taxable periods to which such Tax Returns and other documents relate (including any extensions or waivers to such statute of limitations agreed to in writing with a Governmental Authority), or (ii) six years following the filing date for such Tax Returns. After such time, before the Seller or any of its Affiliates or the Purchaser or any of its Subsidiaries shall dispose of any such documentation in its possession, including electronic files, the other party shall be given an opportunity, after 90 days’ prior written notice, to remove and retain all or any part of such documents as such other party may select (at such other party’s expense). Any information obtained under this Section 6.1 shall be kept confidential, except as may be otherwise necessary in connection with the filing of Tax Returns or claims for refund or in conducting an audit or other proceeding with respect to Taxes.
Section 6.2      Korean Capital Gains Tax, Conveyance Taxes and Straddle Period Taxes .
(a)      Korean Capital Gains Tax .
(i)      In connection with the sale of Company Interests, the Seller and the Foreign Seller shall, at their sole cost and expense, prepare, or cause to be prepared, a Form 29-2(2) as required under the Enforcement Rule of the Income Tax Law, entitled “Application for Tax Exemption in accordance with Tax Treaty” and related documentation (including a residency certificate) required under the applicable Korean tax law and any relevant tax treaty to establish the exemption from Korean Capital Gains Tax in connection with the sale of Company Interests (the Form 29-2(2) and any related documentation, the “ Exemption Documentation ”).
(ii)      The Seller and Foreign Seller shall file the Exemption Documentation with the relevant tax office of the Korean National Tax Service (“ KNTS ”) no later than the ninth (9th) day of the month immediately following the month during which the Closing takes place. For the avoidance of doubt, the Seller and Foreign Seller shall also have the right to file any amended or supplemental Exemption Documentation as it reasonably determines. The Purchaser shall not, and shall cause its Affiliates not to, file, re-file, or otherwise amend or modify any Exemption Documentation.
(iii)      The Purchaser shall not withhold or deduct any Korean Capital Gains Tax from the payment of the Purchase Price for the Company Interests.
(b)      Conveyance Taxes . Any Conveyance Taxes shall be borne and paid fifty percent (50%) by the Purchaser and fifty percent (50%) by the Seller. The party that is required to do so by applicable Law shall prepare and file any Tax Return required to be filed in connection with any Conveyance Tax, and shall notify the non-filing party of the non-filing party’s share of such Conveyance Tax. Within four Business Days of receiving such notice, the non-filing party shall pay its share of such Conveyance Tax to the filing party; provided , however , that the non-filing party shall have no obligation to make such payment more than three Business Days prior to the due date for the filing of such Tax Return. The Purchaser and the Seller agree to (i) cooperate in the execution and delivery of all instruments and certificates necessary to enable the appropriate party to file any Tax Returns relating to the Conveyance Taxes and (ii) cooperate and use commercially reasonable efforts to mitigate any Conveyance Taxes.

 
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(c)      Tax Returns .
(i)      Any Tax Return of the Company (other than any Company income Tax Returns) or with respect to the Transferred Assets for a Pre-Closing Tax Period or a Straddle Period will be prepared and timely filed by the party required by Law to file such Tax Return.
(ii)      Any Company income Tax Return for a Pre-Closing Tax Period or a Straddle Period for which the filing deadline is after the Closing Date shall be prepared by the Seller consistent with applicable Law and past practice (except to the extent inconsistent with applicable Law), and shall be delivered to the Company at least 15 days prior to the filing deadline. The Company shall promptly notify the Seller in writing of any revisions the Company intends to make to any such Tax Return prior to filing, shall consult with the Seller in good faith regarding such revisions, and shall negotiate in good faith to attempt to resolve any disputes relating thereto in a manner satisfactory to both parties.
(1)      In the event any such dispute regarding a Tax Return for a taxable period ending on or prior to the Closing Date remains unresolved as of the filing deadline, the Company shall timely file such Tax Return in accordance with (x) the Seller’s position if, in the Seller’s legal counsel’s or Tax Return preparer’s reasonable judgment, the Seller’s position is at least “more likely than not” to be sustained on audit, and the Seller provides the Company with a copy of a written opinion to that effect, or (y) the Company’s position if the condition set forth in clause (x) hereof is not satisfied.
(2)      In the event any such dispute regarding a Tax Return for a Straddle Period remains unresolved as of the filing deadline, the Company shall timely file such Tax Return in accordance with (x) the Seller’s position if both (A) in the Seller’s legal counsel’s or Tax Return preparer’s reasonable judgment, the Seller’s position is at least “more likely than not” to be sustained on audit, and the Seller provides the Company with a copy of a written opinion to that effect, and (B) more than fifty percent of the items in dispute (by value) with respect to such Tax Return would, if resolved adversely to the taxpayer, result in either an Excluded Tax or a reduction in the Closing Date NOL, or (y) the Company’s position if either condition set forth in clause (x) hereof is not satisfied.
(iii)      With respect to any Tax Return to be filed by the Company or the Purchaser (or any Affiliate thereof) pursuant to this Section 6.2(c) , the Person that will file such Tax Return shall notify the Seller of the amount of Excluded Taxes required to be paid in connection with the filing of such Tax Return. Within four Business Days of receiving such notice, the Seller shall pay (or cause to be paid) such amount to such Person; provided , however , that the Seller shall have no obligation to make such payment more than three Business Days prior to the due date for the filing of such Tax Return.
(d)      Straddle Period Taxes . For purposes of this Agreement, any Taxes (other than Conveyance Taxes) of the Company or incurred with respect to the Transferred Assets, the Business or the Company for a Straddle Period shall be allocated between the Pre-Closing Tax Period and Post-Closing Tax Period of such Straddle Period as follows: (i) any such Tax that is based upon or related to income or receipts shall be allocated based on an interim closing of the books as of the

 
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close of business on the Closing Date, and (ii) any such Tax not described in clause (i) hereof shall be prorated based on the relative number of days in such Pre-Closing Tax Period and such Post-Closing Tax Period. For the avoidance of doubt, in determining the amount of Tax allocable under clause (i) hereof to the portion of the Company’s Korean income tax Straddle Period ending on the Closing Date, any net operating loss carryforward or other similar attribute of the Company shall be taken into account as it would have been under Korean income tax Law if such Straddle Period were actually two separate taxable periods (one ending on the Closing Date and the other beginning on the day after the Closing Date). The net operating loss carryforward available to the Company (calculated without regard to any restrictions or limitations thereon) at the beginning of the hypothetical taxable period beginning on the day after the Closing Date (as described in the previous sentence) shall be referred to herein as the “ Closing Date NOL ” and shall be calculated by the parties in preparing the Company’s Korean income tax Straddle Period Tax Return in accordance with the procedures set forth in Section 6.2(c)(ii) .
Section 6.3      Tax Covenants . Unless required to do so under applicable Law (in which case the Purchaser shall first notify and consult in good faith with the Seller prior to taking any such action), the Purchaser shall not amend, refile or otherwise modify any Tax election or Tax Return with respect to the Business, the Company or the Transferred Assets for any Pre-Closing Tax Period or that portion of a Straddle Period that ends on the Closing Date without the prior written consent of the Seller which consent will not be unreasonably withheld, conditioned or delayed. Neither the Purchaser nor any of its Affiliates or Subsidiaries shall make any election under Section 336 or Section 338 of the Code with respect to the transactions contemplated by this Agreement.
Section 6.4      Control of Audit or Tax Litigation .
(a)      After the Closing, each of the parties shall notify the other parties in writing of the proposed assessment or the commencement of any litigation, proceeding, claim, cause of action, action, lawsuit, audit, assessment or reassessment, petition, legal complaint, charge, prosecution, hearing, inquiry, investigation, subpoena, summons, inspection, or administrative or other similar proceeding, mediation or arbitration (including any appeal or application for review), in law or in equity, commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Authority, in each case regarding a Tax liability of or relating to the Company, the Business or the Transferred Assets and which, if determined adversely to the taxpayer or after the lapse of time, could adversely affect the other party (a “ Tax Proceeding ”). Such notice shall be provided within ten days of receipt and shall contain factual information (to the extent known) describing the asserted Tax liability in reasonable detail and shall include copies of any notice or other document received from the Governmental Authority in connection with such Tax Proceeding.
(b)      The Seller may, at the Seller’s expense and upon written notice to the Purchaser, assume the defense of any Tax Proceeding that relates primarily to (x) a Pre-Closing Tax Period, (y) the Korean Capital Gains Tax imposed on the sale of Company Interests hereunder, and (z) a breach of the representations provided in Section 3.13(h) . If the Seller assumes such defense, then the Seller shall (i) have the authority, with respect to such Tax Proceeding, to represent the interests of the taxpayer before the relevant Governmental Authority and the Seller shall have the right to control the defense, compromise or other resolution of any such Tax Proceeding, subject to the

 
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limitations contained herein, including responding to inquiries, and contesting, defending against and resolving any assessment for additional Taxes or notice of Tax deficiency or other adjustment of Taxes of, or relating to, such Tax Proceeding, (ii) not enter into any settlement of or otherwise compromise or abandon any such Tax Proceeding without the prior written consent of the Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed, (iii) keep the Purchaser duly informed with respect to the commencement, status and nature of any such Tax Proceeding, (iv) consult in good faith with the Purchaser regarding the defense of such Tax Proceeding, and (v) except to the extent such Tax Proceeding relates to the Korean Capital Gains Tax, permit the Purchaser to participate, at the Purchaser’s expense, in such Tax Proceeding.
(c)      To the extent any Tax Proceeding not defended by the Seller pursuant to Section 6.4(b) would, if determined adversely to the taxpayer, result in an indemnification obligation of the Seller pursuant to this Agreement, the Purchaser shall (i) not enter into any settlement of or otherwise compromise or abandon such Tax Proceeding without the prior written consent of the Seller, which consent shall not be unreasonably withheld, conditioned or delayed, (ii) keep the Seller duly informed with respect to the commencement, status and nature of any such Tax Proceeding, (iii) consult in good faith with the Seller regarding the defense of such Tax Proceeding, (iv) permit the Seller to participate, at the Seller’s expense, in such Tax Proceeding, and (v) if reasonably practicable, permit the Seller to control any aspects of such Tax Proceeding that relate to the Korean Capital Gain Tax imposed on the sale of Company Interests hereunder.
(d)      If the Company’s taxable income or loss for a Pre-Closing Tax Period is redetermined pursuant to a Tax Proceeding involving the KNTS, the parties shall recalculate the Closing Date NOL in a manner consistent with the outcome of such Tax Proceeding.
Section 6.5      Miscellaneous .
(a)      For Tax purposes, the parties hereto agree to treat all payments made after the Closing under Article II or Article VIII as adjustments to the Purchase Price.
(b)      For the avoidance of doubt, the Seller does not represent or covenant that any Tax holidays, Tax concessions or similar Tax benefits related to the Transferred Assets will remain in effect after the Closing Date and subject to Section 6.1 , the Purchaser will be responsible for applying for and/or maintaining after the Closing any Tax holidays, Tax concessions or similar Tax benefits currently related to the Transferred Assets.
(c)      For purposes of this Article VI , all references to the Purchaser, the Purchaser’s Affiliates, the Seller and any of the Seller’s Affiliates include successors.
(d)      Notwithstanding any provision in this Agreement to the contrary, the covenants and agreements of the parties hereto contained in this Article VI shall survive the Closing and shall remain in full force until 30 days after the expiration of the applicable statutes of limitations for the Taxes in question (taking into account any extensions or waivers thereof).
(e)      For purposes of this Article VI , all references to the Seller shall be deemed to include any designee of the Seller designated by the Seller from time to time or for certain purposes.

 
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(f)      If the Purchaser determines that an amount is required by Law to be withheld from a payment due hereunder to the Seller, the Foreign Seller, or an Affiliate of either, the Purchaser shall notify the Seller as soon as reasonably practicable of such determination, with reasonable specificity; provided , however , that the Seller and the Foreign Seller acknowledge and agree that the Purchaser (or an Affiliate thereof) (i) will be obligated to withhold an amount in respect of the Korean securities transaction tax, and (ii) will be obligated to withhold an amount under Section 1445 of the Code if the Seller fails to comply with Section 2.8(i) . The parties shall reasonably cooperate with each other, as and to the extent reasonably requested by the other party, to minimize or eliminate any potential deductions and withholdings that the Purchaser may believe it is required to make under applicable Law. If after such notice and cooperation (taking into account any due date for deducting or withholding such amounts) the Purchaser continues to believe that any amount is required by Law to be withheld, then the Purchaser (or any Affiliate thereof) may deduct and withhold such amount. The Purchaser shall timely pay to the applicable Governmental Authority any amount so withheld. To the extent such amount is remitted to the applicable Governmental Authority, it will be treated for all purposes of this Agreement as having been paid to the Person in respect of whom such withholding was made.
ARTICLE VII     
CONDITIONS TO CLOSING
Section 7.1      Conditions to Obligations of the Seller . The obligations of the Seller to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or written waiver, at or prior to the Closing, of each of the following conditions:
(a)      Representations, Warranties and Covenants . (i) The representations and warranties of the Purchaser set forth in Section 4.1 , Section 4.2 and Section 4.5 (the “ Purchaser Fundamental Representations ”) shall have been true and correct in all respects as of the date of the Original Agreement and as of the Closing Date as though such representations and warranties had been made as of the date of the Original Agreement and as of the Closing Date, except to the extent such representations and warranties are, by their terms, made as of a specific date, in which case such representations and warranties shall be so true and correct as of such date; and (ii) the other representations of the Purchaser set forth in this Agreement shall have been true and correct in all respects as of the date of the Original Agreement and as of the Closing Date as though such representations and warranties had been made as of the date of the Original Agreement and as of the Closing Date (in each case, without giving effect to any “material” or similar qualifiers set forth therein), except to the extent such representations and warranties are, by their terms, made as of a specific date, in which case such representations and warranties shall be so true and correct as of such date, except where the failure of any such representation or warranty to be so true and correct would not, and would not reasonably be expected to, prevent or materially delay the consummation by the Purchaser of the transactions contemplated by this Agreement; (ii) the covenants and agreements contained in this Agreement to be complied with by the Purchaser on or prior to the Closing shall have been complied with in all material respects; and (iii) the Seller shall have received a certificate of the Purchaser duly executed by a duly authorized representative thereof dated as of the Closing Date certifying the matters set forth in clauses (i) and (ii) above;

 
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(b)      Governmental Approvals . Any waiting period (and any extension thereof) under the HSR Act shall have expired or shall have been terminated and any consents, authorizations, orders, approvals, declarations and filings required under the antitrust or competition Laws of the jurisdictions identified on Section 7.1(b) of the Seller Disclosure Schedule shall have been made and obtained.
(c)      No Order . There shall not be in effect any Governmental Order issued by a Governmental Authority of competent jurisdiction that permanently enjoins or prohibits or renders illegal the consummation of the transactions contemplated by this Agreement; and
(d)      Closing Deliveries and Payments . The Purchaser shall have delivered the items and made the payments contemplated by Section 2.9 .
Section 7.2      Conditions to Obligations of the Purchaser . The obligations of the Purchaser to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or written waiver, at or prior to the Closing, of each of the following conditions:
(a)      Representations, Warranties and Covenants . (1) (A) The representations and warranties of the Seller contained in Section 3.1 , Section 3.3 , the first sentence and the last sentence of Section 3.18 and Section 3.19 (the “ Seller Fundamental Representations ”) shall have been true and correct in all respects as of the date of the Original Agreement and as of the Closing Date as though such representations and warranties had been made as of the date of the Original Agreement and as of the Closing Date; (B) the representations and warranties of the Seller contained in Section 3.2 shall have been true and correct in all respects as of the date of the Original Agreement and as of the Closing Date as though such representations and warranties had been made as of the date of the Original Agreement and as of the Closing Date (in each case, except for de minimis inaccuracies); and (C) the other representations and warranties of the Seller contained in this Agreement shall have been true and correct in all respects as of the date of the Original Agreement and as of the Closing Date as though such representations and warranties had been made as of the date of the Original Agreement and as of the Closing Date (in each case, without giving effect to any “material”, “Material Adverse Effect” or similar qualifiers set forth therein), except for such failures to be so true and correct as would not have, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; (1) the covenants and agreements contained in this Agreement to be complied with by the Seller on or prior to the Closing shall have been complied with in all material respects; and (1) the Purchaser shall have received a certificate of the Seller duly executed by a duly authorized representative thereof dated as of the Closing Date certifying the matters set forth in clauses (i) and (ii) above and Section 7.2(d) below;
(b)      Governmental Approvals . Any waiting period (and any extension thereof) under the HSR Act shall have expired or shall have been terminated and any consents, authorizations, orders, approvals, declarations and filings required under the antitrust or competition Laws of the jurisdictions identified on Section 7.1(b) of the Seller Disclosure Schedule shall have been made and obtained;

 
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(c)      No Order . There shall not be in effect any Governmental Order issued by a Governmental Authority of competent jurisdiction that permanently enjoins or prohibits or renders illegal the consummation of the transactions contemplated by this Agreement;
(d)      No Material Adverse Effect . Since the date of the Original Agreement, there shall have been no event, circumstance, condition, state of facts, change or effect that has had, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;
(e)      Closing Deliveries . The Seller shall have delivered the items contemplated by Section 2.8 ;
(f)      Third-Party Consents . All third-party consents, waivers, approvals or other actions set forth on Section 7.2(f) of the Seller Disclosure Schedule, each in a form reasonably satisfactory to the Purchaser, shall have been obtained and shall be in full force and effect; and
(g)      Survey . The Seller shall have delivered the Survey to the Purchaser in accordance with Section 5.10(e) .
ARTICLE VIII     
INDEMNIFICATION
Section 8.1      Survival of Representations, Warranties and Covenants . (a) The representations and warranties of the parties hereto contained in this Agreement or in any certificates delivered pursuant to this Agreement shall survive the Closing for a period of 18 months after the Closing, except that (i) the Seller Fundamental Representations and the Purchaser Fundamental Representations shall survive the Closing indefinitely; (ii) the representations and warranties contained in Section 3.15 shall survive the Closing for a period of 36 months after the Closing; and (iii) the representations and warranties contained in Section 3.11 and Section 3.13 shall survive the Closing for the applicable statute of limitations plus 60 days; and (b) none of the covenants or agreements contained in this Agreement to be performed prior to the Closing shall survive the Closing, and those covenants which by their terms contemplate performance after the Closing shall survive the Closing until the expiration of the term of the undertaking set forth in such covenants and agreements or until performed; provided , however , that any claim made with reasonable specificity by the party seeking to be indemnified within the time periods set forth in this Section 8.1 shall survive until such claim is finally resolved (including any appeals).
Section 8.2      Indemnification by the Seller . The Purchaser and its Affiliates and its and their respective officers, directors, employees, agents, successors and assigns (each a “ Purchaser Indemnified Party ”) shall from and after the Closing be indemnified and held harmless by the Seller for, from and against all losses, damages, Taxes, claims, costs and expenses, Liabilities, interest, awards, judgments, fines and penalties (including, in each case, those arising out of the defense of any Action and any settlement or compromise thereof or judgment relating thereto and reasonable attorneys’ fees and expenses), including costs and expenses incurred in enforcing the provisions of this Article VIII , actually suffered or incurred by them (hereinafter a “ Loss ”), to the extent arising out of, or resulting from, without duplication, (1) the breach of any representation or warranty made by the Seller contained in this Agreement; (1) the breach of any covenant or agreement of the Seller

 
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contained in this Agreement; (1) the Excluded Assets; (1) the Excluded Liabilities; (1) any Excluded Taxes; (1) the Pre-Closing Restructuring; (1) any NOL Reduction Tax Increase or (1) the items set forth on Section 8.2(h) of the Seller Disclosure Schedule; provided , however , that for purposes of determining the amount of Losses and for purposes of determining whether a breach of any representation or warranty has occurred, no effect shall be given to any references to “materiality,” “Material Adverse Effect” or words of similar import.
Section 8.3      Indemnification by the Purchaser . The Seller and its Affiliates and its and their respective officers, directors, employees, agents, successors and assigns (each a “ Seller Indemnified Party ”) shall from and after the Closing be indemnified and held harmless by the Purchaser for and against any and all Losses, to the extent arising out of, or resulting from, without duplication, (1) the breach of any representation or warranty made by the Purchaser contained in this Agreement; (1) the breach of any covenant or agreement of the Purchaser contained in this Agreement; or (1) the Assumed Liabilities; provided , however , that for purposes of determining the amount of Losses and for purposes of determining whether a breach of any representation or warranty has occurred, no effect shall be given to any references to “materiality” or words of similar import.
Section 8.4      Limitations on Indemnification .
(a)      No claim for indemnification under Section 8.2 or Section 8.3 may be asserted nor may any Action be commenced against an Indemnifying Party in respect of such claim unless written notice of such claim or Action is received by such Indemnifying Party describing in reasonable detail the facts and circumstances with respect to the subject matter of such claim or Action (taking into account the information then available to the Indemnified Party) on or prior to the date on which the representation, warranty, covenant or agreement on which such claim or Action is based ceases to survive as set forth in Section 8.1 .
(b)      Notwithstanding anything to the contrary contained in this Agreement, (1) the Seller shall not be liable for any Losses pursuant to Section 8.2(a) and the Purchaser shall not be liable for any Losses pursuant to Section 8.3(a) , in each case unless and until the aggregate amount of indemnifiable Losses which may be recovered from such Indemnifying Party exceeds $6,000,000 (the “ Basket ”), whereupon the Indemnified Party shall be entitled to indemnification for the amount of such Losses in excess of such amount; (1) the Seller shall not be liable for any Losses pursuant to Section 8.2(a) and the Purchaser shall not be liable for any Losses pursuant to Section 8.3(a) relating to an individual claim resulting in Losses in the amount of $15,000 or less (a “ De Minimis Claim ”), regardless of whether or not aggregate Losses have exceeded the Basket; nor shall the amount of any such De Minimis Claims be taken into account in determining whether the Basket has been reached; (1) the maximum amount of indemnifiable Losses which may be recovered from any Indemnifying Party arising out of, or resulting from, the causes set forth in Section 8.2(a) or Section 8.3(a) shall be an amount equal to $45,000,000; provided that the foregoing limitations set forth in clauses (i) , (ii) and (iii) shall not apply to claims in respect of the Seller Fundamental Representations, the Purchaser Fundamental Representations or fraud; and provided , further , that the maximum amount of indemnifiable Losses which may be recovered from the Seller under this Agreement shall be the Purchase Price; and (1) the parties hereto acknowledge and agree that neither the Seller nor the Purchaser shall have any Liability under this Article VIII for any Loss, if a court

 
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of competent jurisdiction determines that such Loss is caused solely by (A) any action or inaction of the Indemnified Party or any of its Representatives; (B) any action or inaction of the Indemnifying Party or any of its Representatives at the written request, at the written direction, or with the written consent, of the Indemnified Party or any of its Representatives; or (C) any action, that the Indemnifying Party or any of its Representatives was expressly required to take or not to take pursuant to the terms of this Agreement or any other Transaction Document or, that the Indemnifying Party or any of its Representatives was required to take under applicable Law.
(c)      Notwithstanding anything to the contrary contained in this Agreement, after the Closing, except to the extent (i) arising out of Third-Party Claims or (ii) reasonably foreseeable as a result of a breach or alleged breach of this Agreement or any certificate delivered pursuant to this Agreement or any other matter giving rise to a claim for indemnification under this Article VIII , none of the parties hereto and none of their respective Affiliates shall have any liability under any provision of this Agreement for any punitive, incidental, consequential, special or indirect damages, loss of future profits, revenue or income, diminution in value or loss of business reputation or opportunity relating to the breach or alleged breach of this Agreement.
(d)      For all purposes of this Article VIII , “Losses” shall be calculated net of any recovery or benefit (including insurance and indemnification, but net of all costs and expenses incurred in obtaining such recovery or benefit, including premium increases) actually paid to the Indemnified Party or any of its Affiliates in connection with the facts giving rise to the right of indemnification and, if the Indemnified Party or any of its Affiliates receive such recovery or benefit after receipt of payment from the Indemnifying Party, then the lesser of (x) the amount of such recovery or benefit (net of all costs and expenses incurred in obtaining such recovery or benefit, including premium increases) and (y) the amount previously recovered from the Indemnifying Party shall be paid to the Indemnifying Party. Any Losses shall be determined without duplication of recovery by reason of the state of facts giving rise to such Losses (i) constituting a breach of more than one representation, warranty, covenant or agreement or otherwise being indemnifiable under multiple provisions of this Article VIII or (ii) being taken into account in determining any adjustment to the Purchase Price under Section 2.10 or Section 2.11 .
(e)      Each party hereto shall, and shall cause its respective Affiliates to, use commercially reasonable efforts to mitigate its Losses upon and after becoming aware of any event that would reasonably be expected to give rise to any Losses and indemnification shall not be available with respect to any Loss to the extent such Loss is determined by a court of competent jurisdiction to be attributable to a failure by a party to use commercially reasonable efforts to take (or cause its Representatives to take) reasonable steps to mitigate such Loss; provided , that an Indemnified Party shall not be required to seek recovery from an insurance carrier or other Person with respect to any matter that is the subject of a claim for indemnification under this Article VIII . No party hereto shall be entitled to any payment, adjustment or indemnification more than once with respect to the same Loss. Notwithstanding anything to the contrary contained in this Agreement, to the extent a Loss was taken into account in determining the Purchase Price, no Indemnified Party shall be entitled to any indemnification for such Loss.

 
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(f)      For the avoidance of doubt, the Seller shall have no indemnification obligation for any Loss arising out of, or resulting from, (i) any Korean deemed acquisition tax incurred in connection with the sale of the Company Interests hereunder or (ii) Taxes attributable to any Post-Closing Tax Period (including any Taxes that are allocable under Section 6.2(d) to a Post-Closing Tax Period), other than pursuant to Section 8.2(e) and Section 8.2(g) .
Section 8.5      Notice of Loss; Third-Party Claims .
(a)      An Indemnified Party shall promptly give the Indemnifying Party written notice in reasonable detail of any matter which an Indemnified Party has determined has given, or would reasonably be expected to give, rise to a right of indemnification under this Agreement, stating the amount of the Loss, if known, and method of computation thereof, and containing a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed or arises.
(b)      If an Indemnified Party shall receive notice of any Action, audit, demand or assessment against it brought by a third party (each, a “ Third-Party Claim ”, but excluding any Tax Proceeding, which shall be governed exclusively by Section 6.4 ), which would reasonably be expected to give rise to a claim for Loss under this Agreement, the Indemnified Party shall promptly give the Indemnifying Party written notice in reasonable detail of such Third-Party Claim, stating the amount of the Loss, if known, and method of computation thereof, and containing a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed or arises, together with copies of all notices and documents served on or received by the Indemnified Party and its Representatives in respect thereof (subject to applicable Law). A failure by the Indemnified Party to give notice in a timely manner pursuant to Section 8.5(a) or this Section 8.5(b) shall not limit the obligation of the Indemnifying Party under this Agreement, except to the extent such Indemnifying Party is materially prejudiced thereby. The Indemnifying Party shall be entitled to assume and control the defense of such Third-Party Claim at its expense and through counsel of its choice (which counsel shall be reasonably acceptable to the Indemnified Party), if it gives notice of its intention to do so to the Indemnified Party within 30 days of the receipt of such notice from the Indemnified Party; provided , that the Indemnifying Party shall not be entitled to assume and control the defense of any Third-Party Claim if (x) the Indemnified Party has been advised by counsel that a conflict exists between the Indemnified Party and the Indemnifying Party in connection with the defense of such Third Party Claim, (y) such Third Party Clam seeks an injunction or other equitable relief, or arises in connection with any criminal proceeding, criminal investigation or indictment, or (z) the Purchaser reasonably believes that the assumption and defense of such Third Party Claim by the Seller could adversely affect the Business or its relationships with customers, clients, suppliers or other third parties with whom the Business, the Company or any of their Affiliates has a material business relationship. If the Indemnifying Party elects to undertake any such defense against a Third-Party Claim, the Indemnifying Party shall conduct the defense of such Third Party Claim diligently and in good faith and shall give the Indemnified Party a reasonable opportunity to participate in such defense at its own expense. The Indemnified Party shall cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party, at the Indemnifying Party’s expense, all witnesses, pertinent records, materials and information in the Indemnified Party’s possession or under the Indemnified Party’s control relating thereto (or in the

 
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possession or control of any of its Representatives) as is reasonably requested by the Indemnifying Party or its counsel, subject to applicable Law. The Indemnified Party shall not admit any liability with respect to, or settle, compromise or discharge any Third-Party Claim without the Indemnifying Party’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed). If the Indemnifying Party elects to undertake the defense of a Third-Party Claim, the Indemnifying Party shall have the right to settle any Third-Party Claim (i)(A) for which it obtains a full release of the Indemnified Party from all Liabilities, Losses and obligations in respect of such Third-Party Claim, and (B) the settlement of which does not involve any relief other than money damages which will be paid in full by the Indemnifying Party and which does not involve a finding or admission of any violation of Law or other wrongdoing by the Indemnified Party, or (ii) the settlement of which the Indemnified Party consents to in writing.
Section 8.6      Remedies . Notwithstanding anything to the contrary in this Agreement, each of the parties hereto acknowledges and agrees that following the Closing, except with respect to claims for fraud, (a) other than as provided in Section 10.4(a) or Section 11.11 , the indemnification provisions of Article VI and this Article VIII shall be the sole and exclusive remedies of the parties hereto for any breach of the representations and warranties contained in this Agreement or in any certificate delivered pursuant to this Agreement and for the breach of or any failure to perform and comply with any covenant or agreement in this Agreement; and (b) any and all claims arising out of, or in connection with, the Transferred Assets, the Assumed Liabilities, the Business or the transactions contemplated in this Agreement must be brought under and in accordance with the terms of this Agreement; and (c) notwithstanding anything herein to the contrary, no breach of any representation, warranty, covenant or agreement contained herein shall give rise to any right on the part of any party hereto or thereto, after the consummation of the transactions contemplated by this Agreement, to rescind this Agreement, or any of the transactions contemplated hereby. Subject to Section 11.11 and the indemnification provisions set forth in this Article VIII , and except for any claims for fraud, from and after the Closing Date, (i) the Purchaser acknowledges and agrees that the Purchaser Indemnified Parties may not avoid the limitations on liability and available remedies provided in this Agreement by seeking damages for breach of contract, tort or pursuant to any other theory of liability, all of which are hereby waived, and (ii) the Seller acknowledges and agrees that the Seller Indemnified Parties may not avoid the limitations on liability and available remedies provided in this Agreement by seeking damages for breach of contract, tort or pursuant to any other theory of liability, all of which are hereby waived.
Section 8.7      Further Environmental Provisions .
(a)      With respect to any Remedial Action that is required to satisfy the Seller’s indemnification obligations under Section 8.2 for any breach of the representations and warranties in Section 3.15 or any Seller Environmental Liabilities:
(i)      the Seller shall have the right, but not the obligation, to conduct and control the Remedial Action and related activities; provided , however , that, if the Seller elects to conduct such Remedial Action, the Seller shall do so in a reasonable manner without unreasonably interfering with the Purchaser’s operations or use of the Manufacturing Facilities and Owned Real Property and the Seller shall (w) consult with the Purchaser in

 
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all material respects in connection with undertaking the Remedial Action, (x) provide the Purchaser with copies of all correspondence submitted to and received from any Governmental Authority relating to the Remedial Action or to the associated Release of Hazardous Materials, shall provide copies of all reports and assessments prepared by the Seller on the Remedial Action, (y) provide the Purchaser with a reasonable opportunity to provide comments to any material submissions to any Governmental Authority with respect thereto, including to any corrective action plans or proposals, and the Seller shall reasonably consider any such comments in connection with such submission in good faith, and (z) provide the Purchaser with reasonable notice of all planned substantive meetings and telephone conferences with the applicable Governmental Authority, and the Purchaser shall have the right to attend and participate in such meetings and telephone conferences; the Seller shall not settle or compromise any such Remedial Action to the extent that it would materially interfere with the Manufacturing Facility or Owned Real Property without the prior written consent of the Purchaser, such specific consent not be the unreasonably withheld or delayed;
(ii)      the Purchaser shall, and shall cause its Subsidiaries to, cooperate with the Seller, including by providing access to the subject site, including access to install, maintain, replace and operate wells and remove impacted soil and/or groundwater or undertake other activities related to such Remedial Action; provided , however , that the Seller shall exercise such rights of access in a reasonable manner without interfering with the Purchaser’s operations or use of the Manufacturing Facilities and Owned Real Property; and
(iii)      the Seller shall only be liable for its share of the costs incurred to the extent such Remedial Action is conducted in the Most Cost-Effective Manner (as defined below). As used in this Agreement, the “ Most Cost-Effective Manner ” shall mean conduct appropriate for the facility determined from the perspective of a reasonable business person acting (without regard to the availability of indemnification hereunder) to (x) achieve compliance with Environmental Laws and Environmental Permits or respond to a request by a Governmental Authority, or (y) minimize liability to third parties and risk to human health, taking into account any interference with the Purchaser’s operations or use of the Manufacturing Facilities and Owned Real Property and incorporating (A) the least stringent clean-up standards that, based upon the use classification as of the Closing Date (industrial, commercial or residential) of the subject site, are allowed under applicable Environmental Law and that are approved or otherwise acceptable to applicable Governmental Authorities; and (B) the least-costly methods that are allowed under applicable Environmental Law and that are approved by or otherwise acceptable to applicable Governmental Authorities to achieve such standards, including the use of engineering and institutional controls to eliminate or minimize actual or potential exposure pathways. With respect to any Remedial Action that is required to satisfy the Seller’s indemnification obligations under Section 8.2 , the Purchaser shall be responsible for performing any operation and maintenance with respect to any such institutional or engineering controls subsequent to completion of their initial installation and the Seller shall be responsible for payment of any reasonable and associated costs directly related to the administration of the operation and maintenance of such institutional or engineering controls. Notwithstanding the foregoing, this shall not

 
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limit or otherwise affect Ethyl Corporation’s obligations to perform operation and maintenance activities under the Ethyl Indemnity.
(b)      With respect to any action (other than any such action that is a Remedial Action) to correct a violation of any Environmental Law or Environmental Permit that is required to satisfy the Seller’s indemnification obligations under Section 8.2 for any breach of the representations and warranties in Section 3.15 or any Seller Environmental Liabilities and, notwithstanding Section 8.5 , including any Third-Party Claim seeking Losses for any pre-Closing violation of, or noncompliance with, any Environmental Law or Environmental Permit:
(i)      the Purchaser shall control and complete the conduct of such corrective action in the Most Cost-Effective Manner; provided , however , that the Purchaser shall consult with the Seller in all material respects in connection with undertaking the corrective action, shall provide the Seller with copies of all material correspondence submitted to and received from any Governmental Authority relating to the corrective action or to the associated violation or noncompliance, shall provide copies of all reports and assessments prepared by the Purchaser on the activity other than a Remedial Action, shall provide the Seller with reasonable opportunity to provide comments to any material submissions to any Governmental Authority with respect thereto, including to any corrective action plans or proposals, and the Purchaser shall reasonably consider any such comments in connection with such submission;
(ii)      the Purchaser shall, and shall cause its Subsidiaries to, provide the Seller with reasonable notice of all planned substantive meetings and telephone conferences with the applicable Governmental Authority, and the Seller and its Representatives shall have the right to attend and participate in such meetings and telephone conferences;
(iii)      the Seller shall not be obligated to indemnify any Purchaser Indemnified Party for capital costs incurred in connection with the implementation of a corrective action that is (x) not required by a Governmental Authority or (y) not reasonably necessary to achieve compliance with Environmental Laws and Environmental Permits which costs are in excess of the Most Cost-Effective Manner; provided , however , that the corrective action shall be sufficient to allow the Purchaser to operate in a manner and at a level of production that is consistent with the subject facility’s operations conducted during the 12-month period prior to the assertion of the particular claim;
(iv)      the Seller shall under no circumstances be responsible for any costs related to compliance with any Environmental Law or Environmental Permit subsequent to the Closing, including any operating costs related to any capital upgrade or improvements made as, or in connection with any, such corrective action or legal or regulatory changes; provided , that, for the avoidance of doubt, the Seller shall be responsible for all costs related to compliance with any Environmental Law or Environmental Permit arising out of acts or omissions of the Seller or the Business prior to the Closing; and
(v)      the Seller shall under no circumstances be responsible for any removal, abatement, encapsulation or maintenance of any Hazardous Materials included in any

 
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building material or equipment discovered, encountered or disturbed pursuant to any demolition, renovation or construction subsequent to the Closing.
(c)      With respect to the Seller’s indemnification obligations under Section 8.2 for any breach of the representations and warranties in Section 3.15 or any Seller Environmental Liabilities, the Seller shall not be responsible for Losses to the extent they are caused, triggered, increased or have their timing accelerated by (i) any negligent act by the Purchaser or any of its Representatives subsequent to the Closing; (ii) any changes in Environmental Law coming into effect subsequent to the Closing, except to the extent relating to Remedial Actions resulting from or associated with (A) the Bromine Assets or operation thereof or (B) matters covered pursuant to the Ethyl Indemnity; (iii) any change in use classification of a subject Owned Real Property, subsequent to the Closing from industrial to commercial or residential or from commercial to residential due to any action by the Purchaser; (iv) any decommissioning, closure or shutdown of a facility or a unit, including a waste management unit; or (v) any intrusive sampling and analysis of soil or groundwater at any Owned Real Property conducted subsequent to the Closing by or on behalf of the Purchaser or one of its Subsidiaries unless written notice has been provided to the Seller and such sampling and analysis is (A) required to comply with an Environmental Law or required by a Governmental Authority; or (B) required to be conducted in response to a Third-Party Claim alleging that Hazardous Materials have migrated offsite from a subject Owned Real Property.
(d)      The Purchaser acknowledges that its sole and exclusive remedy against the Seller or any Affiliate of the Seller for any Losses or Liabilities of the Business relating to any Environmental Laws, Environmental Permits or Hazardous Materials, or any environmental, health or safety matter, including natural resources, is under Section 8.2 . In furtherance of the foregoing, from and after the Closing Date, except for any Losses for which the Seller is obligated to indemnify the Purchaser pursuant to Section 8.2 , the Purchaser hereby waives, on its behalf and on behalf of its Affiliates, predecessors, successors and assigns, officers, directors, employees, agents and partners, to the fullest extent permitted under applicable Law, any claim or remedy against the Seller Indemnified Parties now or hereafter available under any applicable Environmental Law, including the Comprehensive Environmental Response, Compensation and Liability Act or any other Law, whether or not in existence on the date of the Original Agreement.
(e)      Notwithstanding anything to the contrary contained in this Agreement, but subject to the other provisions of this Section 8.7 , none of the Seller or any of its Affiliates shall be liable for any claim for indemnification for any Seller Environmental Liabilities under Section 1.194(d) with respect to violations of Environmental Law in the operation of the Business (each a “ Seller Indemnified Environmental Noncompliance ”) made after the fifth anniversary of the Closing Date; provided , however , that any written claim made with reasonable technical and legal specificity by the Purchaser prior to the fifth anniversary of the Closing Date shall survive until such claim is finally and fully resolved. No Losses may be claimed under Section 8.2 for any Excluded Liability that is a Seller Indemnified Environmental Noncompliance relating to an individual claim resulting in Losses in the amount of $15,000 or less. The maximum amount of indemnifiable Losses which may be recovered from the Seller arising out of or resulting from Seller Indemnified Environmental Noncompliances shall be an amount equal to $35,000,000. For the avoidance of doubt, none of the limitations set forth in this Section 8.7(e) shall apply to any other Seller Environmental Liabilities,

 
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including any Remedial Action that is required to satisfy the Seller’s indemnification obligations under Section 8.2 for any Seller Environmental Liabilities.
(f)      With respect to any Liabilities arising from noncompliance with Environmental Laws in the operation of the Business, any such noncompliance that is identified within six months following the Closing Date shall be presumed to have occurred prior to the Closing Date such that such noncompliance constitutes a Seller Environmental Liability, which presumption shall be rebuttable by the Seller based on a preponderance of the evidence.
Section 8.8      Subrogation . Upon making any payment for Losses of an Indemnified Party under this Article VIII , the Seller, in the case of the Purchaser Indemnified Parties, and the Purchaser, in the case of the Seller Indemnified Parties, will, to the extent of such payment, be subrogated to all rights (if any) of the Indemnified Party against any insurance policy with respect to the Loss for which the payment relates; provided , that, for the avoidance of doubt, in no event shall the Seller be subrogated to any rights that a Purchaser Indemnified Party may have against any customer, client, supplier or other third party with whom the Business, the Company or any of its Affiliates has a material business relationship. In addition to any other obligation under this Agreement, the Indemnified Party agrees to duly execute and deliver, on behalf of the Seller or the Purchaser, as the case may be, all instruments reasonably necessary to evidence and perfect the subrogation rights granted pursuant to this Section 8.8 .
Section 8.9      Right to Set Off . The Purchaser and the Seller shall have the right to set off any Losses under this Article VIII against any payments to be made by such party pursuant to this Agreement or any other agreement between the parties hereto, including any Transaction Document.
ARTICLE IX     
TERMINATION
Section 9.1      Termination . This Agreement may be terminated at any time prior to the Closing:
(a)      by either the Seller or the Purchaser if the Closing shall not have occurred by July 30, 2018 (the “ Termination Date ”); provided , that the right to terminate this Agreement under this Section 9.1(a) shall not be available to any party hereto whose breach of any representation or warranty hereunder or action or failure to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date; provided , further , that (i) if the Survey is delivered to the Purchaser less than thirty (30) days prior to the Termination Date, the Purchaser may, in its sole and exclusive discretion, extend the Termination Date to the date that is 30 days after the date of delivery of the Survey and (ii) if (A) the conditions set forth in Section 7.1(b) and Section 7.2(b) shall not have been satisfied or waived as of the Termination Date but all other conditions set forth in Article VII shall have been satisfied or waived (other than those conditions that by their terms are to be satisfied at the Closing, but provided that such conditions shall then be capable of being satisfied if the Closing were to take place on such date), and (B) the Purchaser reasonably believes that the conditions set forth in Section 7.1(b) and Section 7.2(b) are capable of being satisfied on or prior to the Extended Termination Date (as defined below), then the Purchaser may, in its sole and exclusive discretion, extend the

 
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Termination Date to the date that is three months after the Termination Date (the “ Extended Termination Date ”);
(b)      by either the Seller or the Purchaser in the event that any Governmental Authority of competent jurisdiction shall have issued a Governmental Order that permanently enjoins or prohibits or renders illegal the consummation of the transactions contemplated by this Agreement and such Governmental Order shall have become final and non-appealable; provided , however , that the right to terminate this Agreement under this Section 9.1(b) shall not be available to any party whose breach of any representation or warranty in this Agreement or failure to fulfill any obligation under this Agreement has been the cause of, or has resulted in, the issuance of such Governmental Order or other action;
(c)      by the Seller if a breach of any representation, warranty, covenant or agreement on the part of the Purchaser set forth in this Agreement (including an obligation to consummate the Closing) shall have occurred that would, if occurring or continuing on the Closing Date, cause the condition set forth in Section 7.1(a) not to be satisfied, and such breach is not cured, or is incapable of being cured, within 30 days (but no later than the Termination Date or, if the Purchaser shall have extended the Termination Date in accordance with Section 9.1(a) , the Extended Termination Date) of receipt of written notice by the Purchaser from the Seller of such breach; provided , that the Seller is not then in breach of this Agreement so as to cause any of the conditions set forth in Section 7.2(a) not to be satisfied;
(d)      by the Purchaser if a breach of any representation, warranty, covenant or agreement on the part of the Seller set forth in this Agreement (including an obligation to consummate the Closing) shall have occurred that would, if occurring or continuing on the Closing Date, cause the condition set forth in Section 7.2(a) not to be satisfied, and such breach is not cured, or is incapable of being cured, within 30 days (but no later than the Termination Date or, if the Purchaser shall have extended the Termination Date in accordance with Section 9.1(a) , the Extended Termination Date) of receipt of written notice by the Seller from the Purchaser of such breach; provided , that the Purchaser is not then in breach of this Agreement so as to cause any of the conditions set forth in Section 7.1(a) not to be satisfied;
(e)      by the Seller, if (i) the Marketing Period has ended and all of the conditions set forth in Article VII have been and continue to be satisfied or waived (other than those conditions that by their terms are to be satisfied at the Closing), (ii) the Seller has irrevocably confirmed by written notice to the Purchaser that it is ready, willing and able to effect the Closing and (iii) the Purchaser fails to consummate the Closing within three (3) Business Days following the later of (A) receipt of such written confirmation from the Seller and (B) the date on which the Closing should have occurred pursuant to Section 2.7 ; or
(f)      by the written consent of the Seller and the Purchaser.
Any termination pursuant to this Section 9.1 (other than a termination pursuant to clause (f) hereof) shall be effected by written notice from the party so terminating to the other party, which notice shall specify the Section hereof pursuant to which this Agreement is being terminated.


 
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Section 9.2      Effect of Termination . In the event of termination of this Agreement as provided in Section 9.1 , this Agreement shall forthwith become void and have no effect and there shall be no liability on the part of any party hereto or any of their respective Representatives; provided , that (a) this Section 9.2 , Article XI , and Section 5.3 shall survive any termination; and (b) nothing herein shall relieve the Seller or the Purchaser from liability for any fraud occurring prior to such termination.
Section 9.3      Termination Fee .If (i) this Agreement is terminated by the Purchaser following failure to satisfy the conditions set forth in Section 7.1(b) and Section 7.2(b) , and provided that the Seller shall have complied in all material respects with all covenants and obligations set forth in this Agreement to be complied with by the Seller prior to such termination; and (ii) at the time of such termination of this Agreement, each of the conditions in Article VII , other than Section 7.1(b) and Section 7.2(b) , was satisfied or would be satisfied if the Closing were to occur on the Termination Date (or, if the Purchaser shall have extended the Termination Date in accordance with Section 9.1(a) , the Extended Termination Date), then the Purchaser shall pay to the Seller a non-refundable fee in the amount of $7,250,000 (the “ Antitrust Termination Fee ”). If this Agreement is validly terminated by the Seller in accordance with Section 9.1(e) , then the Purchaser shall pay to the Seller a non-refundable fee in the amount of $21,000,000 (the “ Financing Termination Fee ”).
(a)      Notwithstanding anything to the contrary in this Agreement, in the event that the Antitrust Termination Fee or Financing Termination Fee, as applicable, is payable in accordance with the terms of this Agreement, the Seller agrees that (i) the Seller’s right to receive the Antitrust Termination Fee or the Financing Termination Fee, as applicable, pursuant to Section 9.3(a) shall be the sole and exclusive remedy of the Seller against the Purchaser or any of its Representatives relating to or arising out of this Agreement and the transactions contemplated hereby, including any failure of the Closing to be consummated, (ii) upon payment of the Antitrust Termination Fee or Financing Termination Fee, as applicable, neither the Purchaser nor any of its Representatives shall have any further liability or obligation relating to or arising out of this Agreement or the transactions contemplated hereby and (iii) neither the Seller nor any other Person shall be entitled to bring or maintain any Action against the Purchaser or any of its Representatives arising out of or in connection with this Agreement or the transactions contemplated hereby (or the abandonment or termination hereof). Each of the parties acknowledges and agrees that the agreements contained in this Section 9.3 are an integral part of the transactions contemplated hereby, and that, without these agreements, the parties would not have entered into this Agreement and the parties expressly acknowledge and agree that in the event that the Seller is paid the Antitrust Termination Fee or Financing Termination Fee, as applicable, the receipt of such fee by the Seller shall not be deemed a penalty, but shall be deemed to be liquidated damages for any and all Losses suffered or expenses incurred by the Seller in a reasonable amount that will compensate the Seller in the circumstances in which such fee is payable for the efforts and resources expended by the Seller, its Affiliates, and its and their respective Representatives, and the opportunities foregone by the Seller, while negotiating this Agreement and in reliance on this Agreement and on the expectation of the consummation of the Closing, which amount would otherwise be impossible to calculate with precision. For the avoidance of doubt, under no circumstances shall the Seller be permitted or entitled to receive both the Antitrust Termination Fee and the Financing Termination Fee.

 
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ARTICLE X     
RESTRICTIVE COVENANTS
Section 10.1      Non-Competition . Other than conducting the business of the Seller as it is conducted as of the date of the Original Agreement and the Closing Date (other than the Business), the Seller shall not, and shall cause its Affiliates not to, (a) for a period of three years after the Closing Date anywhere in the European Union and (b) for a period of five years after the Closing Date anywhere in the world (other than the European Union), directly, or indirectly as an advisor, manager, consultant, broker, owner or equity holder (other than as an equity holder of less than two percent of the issued and outstanding shares of a publicly traded company) or otherwise, engage in, operate, be employed by, perform services for, endorse, solicit business for, have any financial interest in or otherwise be affiliated with, any business, activity or enterprise that competes in any way with the Business as conducted as of the Closing Date, other than as a consultant of the Purchaser or its Affiliates; provided , that , notwithstanding the foregoing, this Section 10.1 will not restrict the Seller or any Affiliate thereof from engaging in the activity of researching, developing, manufacturing, producing, having made or produced, marketing, selling (or providing services related thereto), any Excluded Products.
Section 10.2      Non-Retention and Non-Solicitation of Employees .
(a)      The Seller shall not, and shall cause its Affiliates not to, retain as an employee, consultant or contractor as of the Closing Date or for a period of two years following the Closing Date, any Business Employee who receives an offer from the Purchaser or any of its Affiliates that complies with Section 5.7 , who rejects such offer and does not become an employee of the Purchaser or any of its Affiliates.
(b)      The Seller shall not, and shall cause its Affiliates not to, for a period of two years after the Closing Date, for itself or on behalf of any other individual or entity, directly or indirectly, solicit for employment or employ or retain, including as a consultant or contractor, any Person who (i) is a then-current employee of the Purchaser or any of its Affiliates or (ii) was an employee at the Baton Rouge Manufacturing Facility as of the day prior to the Closing Date; or induce or attempt to induce any such Person to leave his or her employment or retention with the Purchaser or such Affiliate; provided , however , that the foregoing will not prevent the Seller or its Affiliates from employing or retaining any such Person whose employment was terminated by the Purchaser prior to such solicitation or who responds to a general solicitation or advertisement by the Seller or its Affiliates.
(c)      The Purchaser shall not, and shall cause its Affiliates not to, for a period of two years after the Closing Date, for itself or on behalf of any other individual or entity, directly or indirectly, solicit for employment or employ or retain, including as a consultant or contractor, any Person who (i) is a then-current employee of the Seller or any of its Affiliates and (ii) was an employee at the Baton Rouge Manufacturing Facility (other than an Offered Employee) as of the day prior to the Closing Date; or induce or attempt to induce any such Person to leave his or her employment or retention with the Seller; provided , however , that the foregoing will not prevent the Purchaser or its Affiliates from employing or retaining any such Person whose employment was terminated by

 
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the Seller prior to such solicitation or who responds to a general solicitation or advertisement by the Purchaser or its Affiliates.
Section 10.3      Non-Solicitation or Interference with Customers and Suppliers . The Seller shall not, and shall cause its Affiliates not to, for a period of two years after the Closing Date, directly or indirectly, for itself or on behalf of any other individual or entity, solicit, divert, take away or attempt to take away from the Business on and after the Closing Date any customers or suppliers of the Business as of the date of the Original Agreement or as of the Closing Date or the business or patronage of any such customers or suppliers of the Business as of the date of the Original Agreement or as of the Closing Date or in any way interfere with, disrupt or attempt to disrupt any relationships existing as of the date of the Original Agreement or as of the Closing Date between the Business and any of its customers or suppliers or other individuals or entities.
Section 10.4      Acknowledgments; Enforcement .
(a)      The Seller acknowledges that, in view of the nature of the businesses of the Purchaser and the business objectives of the Purchaser in acquiring the Business, and the consideration paid to the Seller hereunder, the restrictions and covenants contained or referenced in this Article X are reasonable and necessary to protect the legitimate business interests of the Purchaser and that any violation of such restrictions will result in irreparable injury to the Purchaser, its Subsidiaries and the Business for which damages would not be an adequate remedy. The Purchaser acknowledges that, in view of the nature of the businesses of the Seller and the business objectives of the Seller in selling the Business, the restrictions and covenants contained or referenced in this Article X are reasonable and necessary to protect the legitimate business interests of the Seller and that any violation of such restrictions will result in irreparable injury to the Seller, its Subsidiaries and their respective businesses for which damages would not be an adequate remedy. The Seller and the Purchaser therefore acknowledge that, if any such restrictions or covenants are violated, the other party shall be entitled to preliminary and injunctive relief against the violating party as well to an equitable accounting of earnings, profits and other benefits arising from such violation without the posting of any bond or deposit with any Governmental Authority.
(b)      If, at the time of enforcement of any covenant contained in this Article X , a court or other Governmental Authority shall hold that the duration, scope or geographic restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum duration, scope or geographic area reasonable under such circumstances shall be substituted for the stated duration, scope or geographic area and that the court or other Governmental Authority shall be allowed and directed to revise the restrictions contained herein to cover the maximum period, scope and geographic area permitted by Law.
ARTICLE XI     
GENERAL PROVISIONS
Section 11.1      Expenses . Except as otherwise specified in this Agreement, all costs and expenses, including fees and disbursements of counsel, financial and other advisors and accountants, incurred in connection with this Agreement and the transactions contemplated by this Agreement

 
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shall be borne by the party incurring such costs and expenses, whether or not the Closing shall have occurred.
Section 11.2      Seller Disclosure Schedule . Notwithstanding anything to the contrary contained in the Seller Disclosure Schedule, in this Agreement or in the other Transaction Documents, the information and disclosures contained in any Section of the Seller Disclosure Schedule shall be deemed to be disclosed and incorporated by reference in each other Section of the Seller Disclosure Schedule as though fully set forth in such other Section to the extent the relevance of such information to such other Section is reasonably apparent on the face of such disclosure notwithstanding the omission of a reference or a cross-reference with respect thereto and notwithstanding any reference to a Section of the Seller Disclosure Schedule in this Agreement. Certain items and matters (other than matters required by a particular representation or warranty to be included in the Seller Disclosure Schedule) are listed in the Seller Disclosure Schedule for informational purposes only and may not be required to be listed therein by the terms of this Agreement. In no event shall the listing of items or matters in the Seller Disclosure Schedule be deemed or interpreted to broaden, or otherwise expand the scope of, the representations and warranties or covenants and agreements contained in this Agreement. No reference to, or disclosure of, any item or matter in any Section of this Agreement or any Section of the Seller Disclosure Schedule shall be construed as an admission or indication that such item or matter is material or that such item or matter is required to be referred to or disclosed in this Agreement or in the Seller Disclosure Schedule (other than any matters required by a particular representation or warranty to be included in the Seller Disclosure Schedule). Without limiting the foregoing, no reference to, or disclosure of, a possible breach or violation of any contract or agreement, Law or Governmental Order shall be construed as an admission or indication that a breach or violation exists or has actually occurred.
Section 11.3      Notices . All notices, requests, claims, demands, disclosures and other communications required or permitted by this Agreement shall be in writing and shall be deemed to have been given at the earlier of the date (a) when delivered personally, by messenger or by overnight delivery service by a recognized commercial carrier to an officer of the other party, (b) when received if mailed by registered or certified United States mail, postage prepaid, return receipt requested, or (c) when received via facsimile or electronic mail, in all cases addressed to the person for whom it is intended at his address set forth below or to such other address as a party shall have designated by notice in writing to the other party in the manner provided by this Section 11.3 ):
(a)      if to the Seller:
Albemarle Corporation
4350 Congress Street, Suite 700
Charlotte, North Carolina 28209
Attention:    Terrence G. Hammons
E-mail:        terry.hammons@albemarle.com


 
103
 



with a copy (which shall not constitute notice) to:

Troutman Sanders LLP
1001 Haxall Point
Richmond, Virginia 23219
Facsimile:    (804) 698-5174
Attention:    John Owen Gwathmey
E-mail:        johnowen.gwathmey@troutman.com

(b)      if to the Purchaser:
W. R. Grace & Co.–Conn.
7500 Grace Drive
Columbia, Maryland 21044
Facsimile:    (410) 531-4545
Attention:    Corporate Secretary
E-mail:        GraceLaw@grace.com

with a copy (which shall not constitute notice) to:

Fried, Frank, Harris, Shriver & Jacobson LLP
One New York Plaza
New York, New York 10004
Facsimile:    (212) 859-4000
Attention:    Steven Epstein
E-mail:        Steven.Epstein@friedfrank.com

Section 11.4      Public Announcements . The initial press release in respect of the transactions contemplated by this Agreement and the other Transaction Documents shall be prepared by the Purchaser (and the Purchaser shall give the Seller a reasonable opportunity to review and comment thereon). None of the parties to this Agreement shall make, or cause to be made, and shall cause its Affiliates and Representatives not to make, any press release or public announcement in respect of this Agreement, the other Transaction Documents or the transactions contemplated hereby and thereby or otherwise communicate with any news media regarding this Agreement, the other Transaction Documents or the transactions contemplated hereby and thereby (each, a “ Public Announcement ”) without the prior written consent of the other party (and shall consult with and give such other party a reasonable opportunity to review and comment thereon), unless such Public Announcement is required by Law or applicable stock exchange regulation, in which case the parties to this Agreement shall, to the extent practicable, consult with each other as to the timing and contents of any such Public Announcement; provided , that, notwithstanding the foregoing, the Purchaser, its Affiliates and its Representatives and the Seller, its Affiliates and its Representatives shall be entitled to make any Public Announcement without such consent to the extent such Public Announcement is consistent in all material respects with the initial press release.

 
104
 



Section 11.5      Severability . If any term or other provision of this Agreement is declared invalid, illegal or incapable of being enforced by any Governmental Authority, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect for so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any party hereto. 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 hereto as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement are consummated as originally contemplated to the greatest extent possible.
Section 11.6      Entire Agreement . This Agreement, the Disclosure Schedules, the other Transaction Documents and the Confidentiality Agreement constitute the entire agreement of the parties hereto with respect to the subject matter hereof and thereof and supersede the Original Agreement and all other prior agreements and undertakings, both written and oral, among the parties hereto with respect to the subject matter hereof and thereof.
Section 11.7      Assignment . This Agreement and the rights and obligations hereunder may not be assigned by operation of Law or otherwise without the express written consent of the Seller or the Purchaser (which consent may be granted or withheld in the sole discretion of the Seller or the Purchaser), as the case may be, and any attempted assignment that is not in accordance with this Section 11.7 shall be null and void; provided , that the Purchaser may assign its rights and obligations hereunder without such consent to (i) any Affiliate of the Purchaser, (ii) any Subsidiary of the Purchaser or (iii) any lender, including any Financing Sources (or agent or representative thereof) for collateral purposes, which assignment shall not relieve the Purchaser of its obligations hereunder.
Section 11.8      Amendment . This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, the Seller and the Purchaser that expressly references the Section of this Agreement to be amended; or (b) by a waiver in accordance with Section 11.9 . Notwithstanding anything in this Agreement to the contrary, Section 1.92 , Section 11.7 , this Section 11.8 , Section 11.10 , Section 11.11(b) , Section 11.12 and Section 11.13 (and any provision of this Agreement to the extent an amendment or modification of such provision would modify the substance of any such Section) may not be amended or modified in a manner that materially and adversely affects any Financing Source without the prior written consent of such Financing Source materially and adversely affected thereby.
Section 11.9      Waiver . Any party to this Agreement may (a) extend the time for the performance of any of the obligations or other acts of the other party; (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered by the other party pursuant to this Agreement; or (c) waive compliance with any of the agreements of the other party or conditions to such obligations contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the parties to be bound thereby. Notwithstanding the foregoing, no failure or delay by any party hereto in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or future exercise of any other right hereunder. Any waiver of any term or condition

 
105
 



hereof shall not be construed as a waiver of any subsequent breach or as a subsequent waiver of the same term or condition, or a waiver of any other term or condition of this Agreement.
Section 11.10      No Third-Party Beneficiaries . Except as set forth in Section 5.12 , this Agreement shall be binding upon and inure solely to the benefit of, and be enforceable by, only the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to, or shall confer upon, any other Person any right, benefit or remedy of any nature whatsoever, including any rights of employment for any specified period, under or by reason of this Agreement. Notwithstanding the foregoing, each Financing Source is an express third-party beneficiary of Section 11.7 , Section 11.8 , this Section 11.10 , Section 11.11(b) , Section 11.12 and Section 11.13 .
Section 11.11      Specific Performance .
(a)      The parties hereto acknowledge and agree that the parties hereto would be irreparably damaged if any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached and that any non-performance or breach of this Agreement by either party hereto could not be adequately compensated by monetary damages alone and that the parties hereto would not have any adequate remedy at Law. Accordingly, in addition to any other right or remedy to which any party hereto may be entitled, at Law or in equity (including monetary damages) such party shall be entitled to enforce any provision of this Agreement by a decree of specific performance and to temporary, preliminary and permanent injunctive relief to prevent breaches or threatened breaches of any of the provisions of this Agreement, without posting any bond or other undertaking.
(b)      Notwithstanding anything herein to the contrary, the Seller (on behalf of itself, each of its Subsidiaries and any of their respective Representatives) hereby waives any rights or claims against the Financing Sources in connection with this Agreement or the Debt Financing, whether at law or equity, in contract, in tort or otherwise and the Seller (on behalf of itself, each of its Subsidiaries and any of their respective Representatives) agrees not to commence (and if commenced, agrees to dismiss or otherwise terminate) any Action against any Financing Source in connection with this Agreement or the transactions contemplated hereby (including any Action relating to the Debt Financing). In furtherance and not in limitation of the foregoing, it is agreed that no Financing Source shall have any liability for any losses to the Seller or any of its Subsidiaries (or any of their respective Representatives or equityholders) in connection with this Agreement or the transactions contemplated hereby. Nothing in this Section 11.11(b) shall in any way expand the circumstances in which the Purchaser may be liable under this Agreement or as a result of the transactions contemplated hereby (including as a result of the Debt Financing).
Section 11.12      Governing Law . This Agreement and any claim, controversy or dispute arising under or related to this Agreement or the Debt Financing shall be governed by, and construed in accordance with, the laws of the State of New York, including Sections 5-1401 and 5-1402 of the New York General Obligations Law without giving effect to any other principles or rules of conflict of laws to the extent such principles or rules would require or permit the application of Laws of another jurisdiction. Except as provided in Section 2.11 , each party hereto agrees that it shall bring any and all Actions or proceedings in respect of any claim arising out of, related to, or

 
106
 



in connection with, this Agreement, the Debt Financing or the transactions contemplated hereby, or the relationship between the parties hereto, whether in tort or contract or at law or in equity, exclusively in any New York State court sitting in New York City (or in the case of claims where the federal courts have and accept jurisdiction, the United States District Court for the Southern District of New York), and in each case, appellate courts therefrom, and consistent with the foregoing, each of the parties hereto hereby (a) submits to the exclusive jurisdiction of such court for the purpose of any Action, directly or indirectly, arising out of, relating to, or in connection with this Agreement or the Debt Financing brought by any party hereto; (b) agrees that service of process will be validly effected by sending notice in accordance with Section 11.3 ; (c) irrevocably waives and releases, and agrees not to assert by way of motion, defense, or otherwise, in or with respect to any such Action, any claim, whether actual or potential, known or unknown, suspected or unsuspected, based upon past or future events, now existing or coming into existence in the future, that (A) such Action is not subject to the subject matter jurisdiction of such above-named courts; (B) its property is exempt or immune from attachment or execution in the State of New York; (C) such Action is brought in an inconvenient forum; (D) that the venue of such Action is improper; or (E) this Agreement or the transactions contemplated by this Agreement (including the Debt Financing) may not be enforced in or by any of such above-named courts; and (d) agrees not to move to transfer any such Action to a court other than any of the above-named courts.
Section 11.13      Waiver of Jury Trial . EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY ACTION OR LIABILITY, DIRECTLY OR INDIRECTLY, ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (INCLUDING THE DEBT FINANCING). EACH OF THE PARTIES HERETO HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY SUCH ACTION OR LIABILITY, SEEK TO ENFORCE THE FOREGOING WAIVER; AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.13 .
Section 11.14      Counterparts . This Agreement may be executed and delivered (including by facsimile or other means of electronic transmission, such as by electronic mail in “pdf” form) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.
Section 11.15      Interpretation and Rules of Construction .
(a)      In this Agreement, except to the extent otherwise provided or that the context otherwise requires:

 
107
 



(i)      when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or an Exhibit or Schedule to, this Agreement;
(ii)      the table of contents and headings for this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement;
(iii)      whenever the words “include,” “includes” or “including” are used in this Agreement, they are deemed to be followed by the words “without limitation”;
(iv)      the words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement;
(v)      all terms defined in this Agreement have the defined meanings when used in any certificate or other document delivered or made available pursuant hereto, unless otherwise defined therein;
(vi)      where used with respect to information, the phrases “delivered” or “made available” shall mean that the information referred to has been physically or electronically delivered to the relevant parties or their respective Representatives, including, in the case of “made available” to the Purchaser, material that has been posted in a “data room” (virtual or otherwise) established by the Seller;
(vii)      references to “day” or “days” are to calendar days;
(viii)      the definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms;
(ix)      references to a Person are also to its successors and permitted assigns;
(x)      the word “or” shall be disjunctive but not exclusive;
(xi)      when calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is not a Business Day, the period in question shall end on the next succeeding Business Day; and
(xii)      references to sums of money are expressed in lawful currency of the United States of America, and “$” refers to U.S. dollars.
[SIGNATURE PAGE FOLLOWS]


 
108
 



IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as of the date first written above by its respective officers thereunto duly authorized.
ALBEMARLE CORPORATION



By:     /s/ Matthew K. Juneau        
Name: Matthew K. Juneau
Title: Executive Vice President


W. R. GRACE & CO.–CONN.



By:     /s/ Jeremy F. Rohen        
Name: Jeremy F. Rohen
Title: VP, Corporate Development


[Signature Page to Amended and Restated Sale and Purchase Agreement]


EXHIBIT 12

W. R. GRACE & CO. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS(1)(2)
(In millions, except ratios)
(Unaudited)

 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
 
2014
 
2013
Net income attributable to W. R. Grace & Co. shareholders
 
$
11.2

 
$
94.1

 
$
144.2

 
$
276.3

 
$
256.1

Provision for (benefit from) income taxes
 
(200.5
)
 
59.0

 
69.8

 
(12.4
)
 
29.2

Equity in earnings of unconsolidated affiliate
 
(25.9
)
 
(29.8
)
 
(20.4
)
 
(19.7
)
 
(22.9
)
Distributed income of earnings of unconsolidated affiliates
 
19.0

 
31.0

 
11.8

 
11.2

 
2.8

Interest expense and related financing costs, including amortization of capitalized interest, less interest capitalized
 
79.6

 
92.1

 
99.8

 
123.5

 
40.7

Estimated amount of rental expense deemed to represent the interest factor
 
7.5

 
8.0

 
7.9

 
8.2

 
7.6

Income as adjusted
 
$
291.9

 
$
254.4

 
$
313.1

 
$
387.1

 
$
313.5

Combined fixed charges and preferred stock dividends:
 
 
 
 
 
 
 
 
 
 
Interest expense and related financing costs, including capitalized interest
 
$
81.0

 
$
93.2

 
$
100.5

 
$
124.8

 
$
41.8

Estimated amount of rental expense deemed to represent the interest factor
 
7.5

 
8.0

 
7.9

 
8.2

 
7.6

Fixed charges
 
88.5

 
101.2

 
108.4

 
133.0

 
49.4

Combined fixed charges and preferred stock dividends
 
$
88.5

 
$
101.2

 
$
108.4

 
$
133.0

 
$
49.4

Ratio of earnings to fixed charges
 
3.30

 
2.51

 
2.89

 
2.91

 
6.35

Ratio of earnings to fixed charges and preferred stock dividends
 
3.30

 
2.51

 
2.89

 
2.91

 
6.35

___________________________________________________________________________________________________________________
(1)
Grace did not have preferred stock from 2013 through 2017 .

1
EXHIBIT 21




W. R. GRACE & CO., a Delaware corporation

U.S. SUBSIDIARIES



SUBSIDIARY NAME

STATE OF INCORPORATION
Alltech Associates, Inc.
IL
Gloucester New Communities Company, Inc.
NJ
Grace Chemical Company of Cuba
IL
Grace Collections, Inc.
DE
Grace Energy Corporation
DE
Grace Management Services, Inc.
DE
Grace PAR Corporation
DE
Grace Technologies, Inc. (fka Grace Asia Pacific, Inc.)
DE
Guanica-Caribe Land Development Corporation
DE
Kootenai Development Company
MT
W. R. Grace Capital Corporation
NY
W. R. Grace & Co.-Conn.
CT
W. R. Grace Land Corporation
NY
  

1

EXHIBIT 21


NON-U.S. SUBSIDIARIES

COUNTRY/
SUBSIDIARY NAME

ABU DHABI AND UNITED ARAB EMIRATES
Grace FCC Catalysts Middle East LLC
ABU DHABI FREE ZONE
Grace Refining Technologies Middle East Trading Ltd.
AUSTRALIA
Alltech Associates (Australia) Pty. Ltd.
BRAZIL
W. R. Grace Brasil Indústria e Comércio de Produtos Quimicos Ltda.
CANADA
GEC Divestment Corporation Ltd.
W. R. Grace Canada Corp.
CHINA – PEOPLE’S REPUBLIC OF
Grace Trading (Shanghai) Co. Ltd.
Grace Catalysts (Qingdao) Company Limited
CUBA
Envases Industriales y Comerciales, S.A.
Papelera Camagueyana, S.A.
FRANCE
Alltech France S.A.R.L.
GERMANY
Alltech Grom GmbH
Grace Germany GmbH (fka Grace Energy GmbH)
Grace Europe Holding GmbH
Grace GmbH (fka Grace GmbH & Co. KG)
Grace GP GmbH
Grace Management GP GmbH
Grace Silica GmbH
Mertus 366.GmbH
HONG KONG
W. R. Grace Trading (Hong Kong) Limited
HUNGARY
Grace Értékesito Kft.
INDIA
Grace Davison Chemicals India Pvt. Ltd.
IRELAND
Amicon Ireland Limited
Grace European Finance (Dublin) Limited
ITALY
Alltech Italia S.R.L.
Grace Italy S.r.l.
JAPAN
W. R. Grace Japan K.K.

2

EXHIBIT 21


COUNTRY/
SUBSIDIARY NAME

KOREA
W. R. Grace Korea Inc.
LUXEMBOURG
Grace Luxembourg S.a.r.l.
MALAYSIA
W. R. Grace Specialty Chemicals (Malaysia) Sdn. Bhd.
MEXICO
Grace Holdings, S.A. de C.V.
NETHERLANDS
Alltech Applied Science B.V.
Denac Nederland B.V.
Grace Netherlands B.V.
OMAN
Grace Catalysts LLC
PHILIPPINES
Grace Global Operations Center (Philippines) Inc.
RUSSIA
Grace CIS LLC
SINGAPORE
Grace Products (Singapore) Private Limited
SOUTH AFRICA
Grace Products South Africa (Private) Limited
SPAIN
Grace Catalysts & Materials S.L.U.
SWEDEN
Grace Catalyst AB
THAILAND
W. R. Grace Trading (Thailand) Limited
TURKEY
Grace Turkey Kimyevi Madde Hizmetleri Anonim Şirketi (Grace Turkey Chemicals Services Inc.)
UNITED KINGDOM
Alltech Associates Applied Science Limited


3



EXHIBIT 23

Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S‑8 (Nos. 333-194171, 333-173785) of W. R. Grace & Co. of our report dated February 22, 2018 relating to the financial statements, financial statement schedule, and the effectiveness of internal control over financial reporting, which appears in this Form 10‑K.  

/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
February 22, 2018


1


EXHIBIT 24

POWER OF ATTORNEY


The undersigned hereby appoints THOMAS E. BLASER, MARK A. SHELNITZ, and MICHAEL W. CONRON as his/her true and lawful attorneys-in-fact for the purpose of signing the Annual Report on Form 10-K of W. R. GRACE & CO. for the year ended December 31, 2017, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the others.



H. Furlong Baldwin
/s/ H. Furlong Baldwin
Robert F. Cummings, Jr.
/s/ Robert F. Cummings, Jr.
Julie Fasone Holder
/s/ Julie Fasone Holder
Diane H. Gulyas
/s/ Diane H. Gulyas
Hudson La Force
/s/ Hudson La Force
Jeffry N. Quinn
/s/ Jeffry N. Quinn
Christopher J. Steffen
/s/ Christopher J. Steffen
Mark E. Tomkins
/s/ Mark E. Tomkins


Dated: February 22, 2018





EXHIBIT 31.(i).2
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Thomas E. Blaser, certify that:
1.
I have reviewed this annual report on Form 10-K of W. R. Grace & Co.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 22, 2018
 
 
/s/ THOMAS E. BLASER
 
 
Thomas E. Blaser
Senior Vice President and Chief Financial Officer





EXHIBIT 31.(i).1
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, A. E. Festa, certify that:
1.
I have reviewed this annual report on Form 10-K of W. R. Grace & Co.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 22, 2018
 
 
/s/ A. E. FESTA
 
 
A. E. Festa
Chief Executive Officer






EXHIBIT 32
CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
        Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), the undersigned certifies that (1) this Annual Report of W. R. Grace & Co. (the "Company") on Form 10-K for the period ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (this "Report"), fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ A. E. FESTA
 
 
A. E. Festa
Chief Executive Officer
 
 
 
 
 
/s/ THOMAS E. BLASER
 
 
Thomas E. Blaser
Senior Vice President and Chief Financial Officer
 
 
Date: 2/22/2018
 
 
        A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.


EXHIBIT 95

MINE SAFETY DISCLOSURES

The following table provides information about citations, orders and notices issued from the Mine Safety and Health Administration (the “MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) during fiscal year 2017.
Mine
 
§104 S&S*
Citations
(#)
 
§104(b) Orders
(#)
 
§104(d) Citations and Orders
(#)
 
§110(b)(2) Violations
(#)
 
§107(a) Orders
(#)
 
Total Dollar Value of MSHA Assessments Proposed
($)
 
Total Number of Mining-Related Fatalities
(#)
 
Received Written Notice of Pattern of S&S* Violations under §104(e)
(yes/no)
 
Received Notice of Potential to have Pattern of S&S* Violations under §104(e)
(yes/no)
Clay Mine
Aiken, SC
 
—
 
—
 
—
 
—
 
—
 
696
 
—
 
No
 
No
____________________________________________________________________________________________________
*
S&S refers to violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a coal or other mine safety or health hazard under §104 of the Mine Act.
The following tables provide information about legal actions before the Federal Mine Safety and Health Review Commission (the “FMSHRC”) during fiscal year 2016.
Mine
 
Pending as of
December 31, 2017
(#)
 
Instituted during fiscal year 2017
(#)
 
Resolved during fiscal year 2017
(#)
Clay Mine
Aiken, SC
 
—
 
—
 
—
With Respect to Legal Actions Pending as of December 31, 2017
Mine
 
Contests of Citations and Orders per Subpart B*
(#)
 
Contests of Proposed Penalties per Subpart C*
(#)
 
Complaints for Compensation per Subpart D*
(#)
 
Complaints of Discharge, Discrimination or Interference per Subpart E*
(#)
 
Applications for Temporary Relief per Subpart F*
(#)
 
Appeals of Judge’s Decisions or Orders to the FMSHRC per Subpart H*
(#)
Clay Mine
Aiken, SC
 
—
 
—
 
—
 
—
 
—
 
—
____________________________________________________________________________________________________
*
29 CFR part 2700.