As filed with the Securities and Exchange Commission on July 22, 2015
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Halyard Health, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 3842 | 46-4987888 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(IRS Employer Identification Number) |
SEE TABLE OF ADDITIONAL REGISTRANTS ON THE FOLLOWING PAGE
(Exact name of registrant as specified in its charter)
5405 Windward Parkway
Suite 100 South
Alpharetta, Georgia 30004
Telephone: (678) 425-9273
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
John W. Wesley
Senior Vice President, General Counsel and
Chief Ethics and Compliance Officer
Halyard Health, Inc.
5405 Windward Parkway
Suite 100 South
Alpharetta, Georgia 30004
Telephone: (678) 425-9273
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
Sarah E. Ernst
Alston & Bird LLP
1201 West Peachtree Street
Atlanta, GA 30309
Telephone: (404) 881-7000
Facsimile: (404) 881-7777
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ¨
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ¨
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ¨
CALCULATION OF REGISTRATION FEE
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Title of each class of securities to be registered |
Amount
to be registered |
Proposed
maximum offering price per unit(1) |
Proposed
maximum aggregate offering price |
Amount of
registration fee(2) |
||||
6.25% Senior Notes due 2022 |
$250,000,000 | 100% | $250,000,000 | $29,050 | ||||
Guarantees of 6.25% Senior Notes due 2022(3) |
$250,000,000 | | | | ||||
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(1) | Exclusive of accrued interest, if any, and estimated solely for purposes of calculating the registration fee in accordance with Rule 457(f) under the Securities Act of 1933, as amended. |
(2) | Calculated in accordance with Rule 457(f) under the Securities Act of 1933, as amended. |
(3) | See Table of Additional Registrants on the following page for a list of the guarantors. No separate consideration will be received for the guarantees, and pursuant to Rule 457(n), no separate fee is payable with regard to the guarantees. |
The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
TABLE OF ADDITIONAL REGISTRANTS
The following subsidiaries of Halyard Health, Inc. will guarantee the 6.25% Senior Notes due 2022 and are co-registrants:
Exact name of registrant as specified in its charter |
State or other jurisdiction
of incorporation or organization |
IRS Employer
Identification Number |
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Avent, Inc. |
Delaware | 11-2162477 | ||
Halyard Healthcare, Inc. |
Delaware | 58-2032163 | ||
Halyard North Carolina, Inc. |
North Carolina | 47-1246132 | ||
Halyard Sales, LLC |
North Carolina | 36-4787311 |
Subject to Completion, Dated July 22, 2015
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PROSPECTUS
Halyard Health, Inc.
Offer to exchange
$250,000,000 aggregate principal amount of
outstanding unregistered 6.25% Senior Notes due 2022
for $250,000,000 aggregate principal amount of
newly issued, registered 6.25% Senior Notes due 2022
The exchange offer will expire at 5:00 p.m.,
New York City time, on , 2015, unless extended.
We are offering to exchange $250,000,000 aggregate principal amount of 6.25% Senior Notes due 2022, which have been registered under the Securities Act of 1933, as amended (the Securities Act) and which we refer to in this prospectus as the new notes, for all $250,000,000 aggregate principal amount of outstanding unregistered 6.25% Senior Notes due 2022, which we refer to in this prospectus as the old notes. We refer to the new notes and the old notes collectively in this prospectus as the notes.
Terms of the new notes:
| The terms of the new notes are substantially identical to the terms of the old notes, except that the new notes will be registered under the Securities Act and will not be subject to the transfer restrictions and registration rights relating to the old notes. |
| We will pay fixed interest on the new notes on April 15 and October 15 of each year, beginning on October 15, 2015. |
| The new notes will be fully and unconditionally guaranteed, jointly and severally, on a general unsecured basis by each of our subsidiaries that guarantee our Senior Secured Credit Facilities (as defined herein). |
| There is no established trading market for the new notes or the old notes. |
Terms of the exchange offer:
| Subject to the terms of the exchange offer, we will exchange new notes for all old notes that are validly tendered and not withdrawn prior to the expiration of the exchange offer. |
| You may withdraw tendered old notes at any time prior to the expiration of the exchange offer. |
| The exchange of old notes for new notes generally will not be a taxable transaction for U.S. federal income tax purposes. See Material United States Federal Income Tax Consequences for more information. |
| We will not receive any proceeds from the exchange offer. |
| We are offering the new notes pursuant to a registration rights agreement we entered into in connection with the issuance of the old notes. |
Investing in the new notes involves risk. See Risk Factors beginning on page 12 for a discussion of risks that you should consider prior to tendering your old notes in the exchange offer.
Neither the Securities and Exchange Commission (the Commission) nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of 180 days after the expiration date of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See Plan of Distribution.
The date of this prospectus is , 2015.
You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to exchange and issue the new notes in any jurisdiction where the offer or exchange is not permitted. The information contained in this prospectus is accurate only as of the date on the cover of this prospectus, regardless of the time of delivery of this prospectus or any issuance of the new notes.
References in this prospectus to the Company, Halyard, we, our and us refer to Halyard Health, Inc., a Delaware corporation, and its subsidiaries, unless otherwise indicated or the context requires otherwise. References in this prospectus to Kimberly-Clark refer to Kimberly-Clark Corporation, a Delaware corporation, and its subsidiaries.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES ANNOTATED, 1955, AS AMENDED (RSA 421-B), WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A
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PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT, ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
We have obtained certain industry and market share data from third-party sources, including industry publications, government publications, reports by market research firms, or other published independent sources, as well as our managements knowledge of, experience in and estimates about the industry and markets in which we operate. All industry and market data that are not cited as being from a specified source are from our internal analyses based upon data available from known sources or other proprietary research and analysis. Although we believe the third-party sources to be reliable, we have not independently verified the information obtained from these sources nor have we examined the underlying economic and other assumptions relied upon therein. Similarly, our internal research and forecasts are based on upon managements understanding of industry conditions and such information has not been verified by any independent sources. You should be aware that market and other similar industry data included in this prospectus, and estimates and beliefs based on that data, may not be reliable and we cannot guarantee the accuracy or completeness of any such information included in this prospectus.
TRADEMARKS AND OTHER INTELLECTUAL PROPERTY RIGHTS
Halyard owns or has the rights to use the trademarks, trade names and service marks that it uses in connection with the operation of its business. Some of the more important marks that Halyard owns or has the rights to use in the United States and in other jurisdictions that appear in this prospectus include: KIMGUARD ONE-STEP sterilization wrap, MICROCOOL surgical gowns, FLUIDSHIELD face masks and ON-Q PAINBUSTER pain pumps. Halyards rights to some of these trademarks may be limited in select markets. Each trademark, trade name or service mark of any other company appearing in this prospectus is, to Halyards knowledge, owned by such other company. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ®, TM or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks.
This prospectus contains non-GAAP financial measures, which are financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. Specifically, we make use of certain non-GAAP financial measures, including EBITDA, which is defined as earnings before interest, tax, depreciation and amortization, and Adjusted EBITDA, which is defined as EBITDA adjusted to account for:
| Transaction costs relating to the spin-off from Kimberly-Clark, including legal, accounting, tax and other professional fees; |
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| Transition costs relating to the separation from Kimberly-Clark, which includes costs to establish our capabilities as a stand-alone entity; these costs are related primarily to the transition services the Company expects to receive from Kimberly-Clark, as well as the rebranding and other supply chain transition costs, and will continue through 2016; |
| Charges and gains from manufacturing strategic changes relating to exiting one of the disposable glove facilities in Thailand and outsourcing the related production; and |
| Expenses associated with the amortization of intangible assets associated with prior business acquisitions. |
We also make use of ratios based on these non-GAAP financial measures. See SummarySummary of Historical Financial Data for a description of the calculation of EBITDA and Adjusted EBITDA. Our computation of these non-GAAP financial measures may not be comparable to that of other companies.
Management believes that EBITDA and Adjusted EBITDA are useful tools for investors and other users of our financial statements in assessing our ability to service or incur indebtedness, maintain current operating levels of capital assets and acquire additional operations and businesses. Management believes that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about certain material non-cash items and about certain other adjustments that we do not expect to continue at the same level in the future. Furthermore, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance and understanding certain significant items. Management believes that the most directly comparable GAAP measure is net income (loss). A reconciliation of EBITDA and Adjusted EBITDA to our net income (loss) under GAAP for each of the periods presented in our financial statements is included in this prospectus. EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider these measures in isolation from, or as a substitute for analysis of, our financial information reported under GAAP. Some of these limitations are:
| they do not reflect cash outlays for capital expenditures or future contractual commitments; |
| they do not reflect changes in, or cash requirements for, working capital; |
| they do not reflect interest expense, or the cash requirements necessary to service interest, or principal payments, on indebtedness; |
| they do not reflect income tax expense or the cash necessary to pay income taxes; |
| although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements; and |
| other companies, including other companies in our industry, may not use such measures or may calculate the measures differently than as presented in this prospectus, limiting their usefulness as a comparative measure. |
Because of these limitations, each of EBITDA and Adjusted EBITDA and any related ratio using such measure should be considered as a supplemental measure in addition to, and not in lieu of, our GAAP income and cash flow statements and not as a measure of discretionary cash available to invest in business growth or reduce indebtedness.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, regarding business strategies, market potential, future financial performance and other matters. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as may, believe, will, expect, project, estimate, anticipate, plan or continue and similar expressions, among others. The matters discussed in these forward-looking statements are based on the current plans and expectations of our management and are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. These factors include, but are not limited to:
| general economic conditions particularly in the United States, |
| fluctuations in global equity and fixed-income markets, |
| the competitive environment, |
| the loss of current customers or the inability to obtain new customers, |
| price fluctuations in key commodities, |
| fluctuations in currency exchange rates, |
| changes in governmental regulations that are applicable to our business, |
| changes in asset valuations including write-downs of assets such as inventory, accounts receivable or other assets for impairment or other reasons, |
| a change in interpretation by the SEC staff affecting the transferability of the new notes, and |
| the other matters described under Risk Factors, Unaudited Pro Forma Condensed Combined Financial Statements and Managements Discussion and Analysis of Financial Condition and Results of Operations. |
You are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented in this information statement. Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of our management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished.
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This summary highlights selected information contained in this prospectus and does not contain all of the information that you should consider in making your decision to tender your old notes in the exchange offer. You should read this summary together with the more detailed information appearing elsewhere in this prospectus, particularly the discussion of Risk Factors, Unaudited Pro Forma Condensed Combined Financial Statements, Managements Discussion and Analysis of Financial Condition and Results of Operations, and our audited consolidated and combined financial statements and unaudited condensed consolidated financial statements and the notes to those statements appearing elsewhere in this prospectus.
Overview
Halyard Health, Inc. is a global company which seeks to advance health and healthcare by preventing infection, eliminating pain and speeding recovery. We have two business segments: Surgical and Infection Prevention (S&IP) and Medical Devices.
Our products and solutions are designed to address some of todays most important healthcare needs, namely, preventing infection and reducing the use of narcotics while helping patients move from surgery to recovery. We sell our products in more than 100 countries. We market and support the efficacy, safety and economic benefit of our products with a significant body of clinical evidence.
On October 31, 2014, Kimberly-Clark distributed all of our capital stock to its shareholders and completed the previously announced spin-off of its healthcare division (the Spin-off). Halyard was incorporated as a Delaware corporation in February 2014 in anticipation of that Spin-off, and Kimberly-Clark transferred its Health Care business to us prior to the Spin-off.
Business Segments
We are organized into two operating segments based on product groupings: S&IP and Medical Devices. These operating segments, which are also our reportable global business segments, were determined in accordance with how our executive managers develop and execute global strategies to drive growth and profitability. These strategies include global plans for branding and product positioning, technology, research and development programs, cost reductions including supply chain management, and capacity and capital investments for each of these businesses. Segment management is evaluated on several factors, including operating profit. Segment operating profit excludes other income and expense and expenses not associated with the business units, including charges or gains related to the Spin-off and manufacturing footprint changes in Thailand.
The principal sources of revenue in each global business segment are described below:
| S&IP provides healthcare supplies and solutions that target the prevention of healthcare-associated infections. This segment has recognized brands across its portfolio of product offerings, including sterilization wrap, surgical drapes and gowns, facial protection, protective apparel and medical exam gloves. This business is also a global leader in education to prevent healthcare-associated infections. Products in this segment are sold under the KIMGUARD ONE-STEP, QUICK CHECK, SMART-FOLD, POWERGUARD, MICROCOOL, FLUIDSHIELD, PURPLE NITRILE, LAVENDER, STERLING and other brand names. |
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Medical Devices provides a portfolio of innovative product offerings focused on pain management and respiratory and digestive health to improve patient outcomes and reduce the cost of care. These products include post-operative pain management solutions, minimally invasive |
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interventional (or chronic) pain therapies, closed airway suction systems and enteral feeding tubes. Products in this segment are sold under the ON-Q, COOLIEF, MICROCUFF, MIC-KEY and other brand names. |
Company Information
Our principal executive offices are located at 5405 Windward Parkway, Suite 100 South, Alpharetta, Georgia 30004, and our telephone number is (678) 425-9273. Our website address is http://www.halyardhealth.com. Information contained on, or connected to, our website is not part of this prospectus, and you should not rely on that information in making an investment decision.
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On October 17, 2014, Halyard Health, Inc. issued $250.0 million aggregate principal amount of the old notes in a private offering. In connection with the issuance of the old notes, we entered into a registration rights agreement in which we agreed, among other things, to deliver this prospectus to the holders of the old notes and to complete an exchange offer for the old notes. The summary below describes the principal terms of the exchange offer. Please see The Exchange Offer for a more detailed description of the terms and conditions of the exchange offer.
Old Notes |
$250.0 million aggregate principal amount of 6.25% Senior Notes due 2022. | |
New Notes |
6.25% Senior Notes due 2022. The terms of the new notes are identical in all material respects to the terms of the old notes, except that the new notes are registered under the Securities Act and generally are not subject to transfer restrictions or registration rights. | |
Exchange Offer |
We are offering to issue up to $250.0 million aggregate principal amount of new notes in exchange for a like principal amount of old notes. Old notes may be exchanged only in minimum denominations of $2,000 and integral multiples of $1,000 in excess of $2,000. | |
Subject to the conditions of the exchange offer, we will exchange new notes for all old notes that are validly tendered and not withdrawn prior to the expiration of the exchange offer. The new notes issued in exchange for old notes in the exchange offer will be delivered promptly following the expiration of the exchange offer. | ||
Expiration Date |
The exchange offer will expire at 5:00 p.m., New York City time, on , 2015, unless we extend it in our sole and absolute discretion. We do not currently intend to extend the expiration date. | |
Withdrawal |
You may withdraw any old notes tendered in the exchange offer at any time prior to the expiration of the exchange offer by delivering a notice of withdrawal to the exchange agent in accordance with the procedures discussed under The Exchange OfferWithdrawal Rights. | |
Procedures for Tendering |
You must do one of the following at or prior to the expiration of the exchange offer to participate in the exchange offer: | |
tender your old notes by sending the certificates for your old notes, in proper form for transfer, a properly completed and duly executed letter of transmittal (or a facsimile of the letter of transmittal), and all other documents required by the letter of transmittal, to Deutsche Bank Trust Company Americas, as exchange agent, at the address set forth on the cover page of the letter of transmittal; or |
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tender your old notes by using the book-entry transfer procedures and transmitting a properly completed and duly executed letter of transmittal, or an agents message instead of the letter of transmittal, to the exchange agent. For a book-entry transfer to constitute a valid tender of your old notes in the exchange offer, Deutsche Bank Trust Company Americas, as exchange agent, must receive a confirmation of book-entry transfer of your old notes into the exchange agents account at The Depository Trust Company (DTC) at or prior to the expiration of the exchange offer. For more information regarding the use of book-entry transfer procedures, including a description of the required agents message, see the discussion below under the caption The Exchange OfferExchange Offer Procedures. |
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If your old notes are registered in the name of a custodial entity such as a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your old notes in the exchange offer, you must instruct the custodial entity to tender the old notes on your behalf pursuant to the procedures of the custodial entity. Custodial entities that are participants in DTC must tender old notes through the book-entry transfer procedures of DTCs Automated Tender Offer Program, known as ATOP, together with an agents message in which the custodial entity electronically agrees to be bound by the letter of transmittal. | ||
By tendering your old notes, you represent to us that: | ||
you are acquiring the new notes in the exchange offer in the ordinary course of your business; |
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you have no arrangements or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the new notes; |
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you are not our affiliate, as defined in Rule 405 under the Securities Act; |
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if you are not a broker-dealer, you will not engage in, and you do not intend to engage in, the distribution of the new notes; and |
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if you are a broker-dealer, you will receive the new notes for your own account in exchange for old notes that were acquired by you as a result of your market-making or other trading activities and you will deliver a prospectus in connection with any resale of the new notes you receive. For further information regarding resales of the new notes by participating broker-dealers, see Plan of Distribution. |
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Conditions to the Exchange Offer |
The exchange offer is subject to customary conditions, which we may waive in our reasonable discretion. See The Exchange OfferConditions to the Exchange Offer for more information regarding the conditions to the exchange offer. |
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Interest on Old Notes Exchanged in the Exchange Offer |
If your old notes are exchanged for new notes, you will not receive a payment in respect of accrued interest on such old notes. Instead, interest on the new notes you receive in exchange for such old notes will accrue from the date of original issuance of such old notes at the same rate as and will be payable on the same dates as interest was payable on such old notes. |
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Material Federal Income Tax Considerations |
The exchange of old notes for new notes in the exchange offer generally will not be a taxable transaction for United States federal income tax purposes. See Material United States Federal Income Tax Considerations for more information regarding the tax consequences to you of the exchange offer. |
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Use of Proceeds |
We will not receive any proceeds from the exchange offer. | |
Exchange Agent |
Deutsche Bank Trust Company Americas is the exchange agent for the exchange offer. You can find the address and telephone number of the exchange agent below under the caption The Exchange OfferExchange Agent and in the accompanying letter of transmittal. | |
Resales |
We believe that the new notes you receive in the exchange offer may be offered for resale, resold or otherwise transferred without compliance with the registration and prospectus delivery provisions of the Securities Act. However, you will not be able to freely transfer the new notes if: | |
you are our affiliate, as defined in Rule 405 under the Securities Act; |
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you are not acquiring the new notes in the exchange offer in the ordinary course of your business; |
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you have an arrangement or understanding with any person to participate in the distribution of the new notes; |
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if you are not a broker-dealer, you are engaged in or intend to engage in the distribution of the new notes; |
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if you are a broker-dealer, you will not receive the new notes for your own account in exchange for old notes that were acquired by you as a result of your market-making or other trading activities or you will not deliver a prospectus in connection with any resale of the new notes you receive; |
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you are holding old notes that have, or are reasonably likely to have, the status of an unsold allotment in the initial offering; or |
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you are acting on behalf of a person who, to your knowledge, falls into one of the above exceptions. |
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If you do not meet these requirements, you must comply with the registration requirements of the Securities Act in connection with any resale transaction. |
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The terms of the new notes are substantially identical to the old notes, except that the transfer restrictions and registration rights relating to the old notes do not apply to the new notes. The summary below describes the principal terms of the new notes. Please see Description of New Notes for a more detailed description of the new notes.
Issuer |
Halyard Health, Inc. | |
Notes Offered |
$250.0 million aggregate principal amount of 6.25% Senior Notes due 2022. | |
Maturity Date |
October 15, 2022. | |
Interest Rate |
6.25% per annum, payable semi-annually on April 15 and October 15 of each year, commencing on October 15, 2015. Interest on the new notes you receive in exchange for your old notes will accrue from the date of original issuance of such old notes. | |
Subsidiary Guarantees |
The new notes will be guaranteed on a senior unsecured basis by each of our existing and future subsidiaries that guarantees indebtedness under our senior secured term loan credit facility (the Term Loan Facility) and our senior secured revolving credit facility (the Revolving Credit Facility and, together with the Term Loan Facility, the Senior Secured Credit Facilities) or that guarantees certain of our other indebtedness or certain indebtedness of our subsidiary guarantors. Under certain circumstances, subsidiary guarantors may be released from their note guarantees without the consent of the holders of notes. See Description of New NotesGuarantees. | |
For the twelve months ended December 31, 2014, on a historical stand-alone basis, our subsidiaries that will not guarantee the notes accounted for approximately 37% of our consolidated net sales and approximately 30% of our consolidated Adjusted EBITDA (see reconciliation to the most comparable GAAP measure on page 11). In addition, as of December 31, 2014, on a historical basis, such non-guarantor subsidiaries held approximately 18% of our total assets and had approximately 12% of total liabilities (excluding intercompany indebtedness). | ||
Ranking |
The new notes will be:
senior unsecured obligations of the Company;
equal in right of payment to all of our existing and future senior indebtedness, including any obligations under our Senior Secured Credit Facilities;
effectively subordinate in right of payment to any of our existing and future secured indebtedness, including any obligations under our Senior Secured Credit Facilities, to the extent of the value of the assets securing such indebtedness; |
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senior in right of payment to any of our future subordinated indebtedness; and
structurally subordinated to all existing and future obligations, including trade payables, of our subsidiaries that do not guarantee the notes.
Each of the guarantees will:
rank equal in right of payment with each guarantors existing and future senior indebtedness (including such guarantors guarantee of the Senior Secured Credit Facilities);
be effectively subordinate in right of payment to each guarantors existing and future secured indebtedness (including such guarantors guarantee of the Senior Secured Credit Facilities) to the extent of the value of the assets securing such indebtedness;
rank senior in right of payment to each guarantors future subordinated indebtedness; and
be structurally subordinated to all existing and future indebtedness, claims of holders of preferred stock, if any, and other liabilities of our subsidiaries that do not guarantee the notes.
As of March 31, 2015, we had approximately $635 million of indebtedness outstanding, $385 million of which was secured. We also have $247 million of additional availability under our Revolving Credit Facility (all of which would be effectively senior to the notes if drawn). |
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Optional Redemption |
At any time prior to October 15, 2017, we may redeem some or all of the new notes at a redemption price equal to 100% of the principal amount of each note to be redeemed plus an applicable premium as described in Description of New NotesOptional Redemption, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.
Until October 15, 2017, we may redeem up to 35% of the new notes with the net cash proceeds from specified equity offerings at a redemption price equal to 106.250% of the aggregate principal amount of the notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.
On and after October 15, 2017, we may redeem some or all of the new notes at any time at the redemption prices specified under Description of New NotesOptional Redemption, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. |
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Change of Control Offer |
If we experience a Change of Control Triggering Event (as defined in the indenture governing the notes), we will be required to make an offer to repurchase the new notes at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, if any, to, but |
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excluding, the date of repurchase. See Description of New NotesRepurchase of Notes upon a Change of Control Triggering Event. | ||
Asset Disposition Offer | If we sell assets under certain circumstances, we may be required to make an offer to purchase a portion of the new notes with the net proceeds of such sale at a purchase price of 100% of the principal amount of the new notes, plus any accrued and unpaid interest to, but excluding, the repurchase date. See Description of New NotesRepurchase at the Option of HoldersAsset Sales. | |
Certain Covenants |
The indenture contains covenants that, among other things, limit our ability and the ability of our subsidiaries to:
incur additional indebtedness, guarantee indebtedness or issue disqualified stock or, in the case of our subsidiaries, preferred stock;
pay dividends on, repurchase, or make distributions in respect of, our capital stock or make other restricted payments;
make certain investments or acquisitions;
sell, transfer or otherwise convey certain assets;
create liens;
enter into agreements restricting certain subsidiaries ability to pay dividends or make other intercompany transfers;
consolidate, merge, sell or otherwise dispose of all or substantially all of our and our subsidiaries assets;
enter into transactions with affiliates;
prepay certain kinds of indebtedness; and
issue or sell stock of our subsidiaries.
These covenants are subject to a number of important limitations and exceptions as described under Description of New Notes. |
|
Absence of Established Market for Notes |
The new notes will be new issues of securities for which there is no established market. Accordingly, there can be no assurance that a market for the new notes will develop or as to the liquidity of any market that may develop. |
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Risk Factors |
You should refer to the section of this prospectus entitled Risk Factors for a discussion of the factors you should carefully consider before deciding to invest in the notes, including factors affecting forward-looking statements. |
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SUMMARY OF HISTORICAL CONSOLIDATED AND COMBINED FINANCIAL DATA
The following selected historical consolidated and combined financial data should be read in conjunction with our audited historical consolidated and combined financial statements and the related notes thereto and the unaudited historical condensed consolidated financial statements and the related notes thereto included elsewhere in this prospectus, and Managements Discussion and Analysis of Financial Condition and Results of Operations.
Three Months Ended
March 31, |
Year Ended December 31, | |||||||||||||||||||||||||||
2015 | 2014 | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Income Statement Data: |
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Net Sales |
$ | 394.2 | $ | 410.7 | $ | 1,672.1 | $ | 1,677.5 | $ | 1,684.0 | $ | 1,659.9 | $ | 1,495.8 | ||||||||||||||
Gross Profit |
132.1 | 155.0 | 548.6 | 612.2 | 602.5 | 590.8 | 543.6 | |||||||||||||||||||||
Operating Profit |
40.9 | 61.7 | 94.3 | 225.3 | 228.0 | 210.7 | 157.6 | |||||||||||||||||||||
Income Before Income Taxes |
32.7 | 62.7 | 91.2 | 227.8 | 229.8 | 214.6 | 159.9 | |||||||||||||||||||||
Net Income (a) (b) (c) |
21.7 | 41.4 | 27.1 | 154.6 | 152.6 | 142.4 | 88.0 | |||||||||||||||||||||
Earnings Per Share: |
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Basic |
$ | 0.47 | $ | 0.89 | $ | 0.58 | $ | 3.32 | $ | 3.28 | $ | 3.06 | $ | 1.89 | ||||||||||||||
Diluted |
$ | 0.46 | $ | 0.89 | $ | 0.58 | $ | 3.32 | $ | 3.28 | $ | 3.06 | $ | 1.89 |
(a) | Net income for the three months ended March 31, 2015 includes a gain on the sale of the disposable glove facility in Thailand of $8 million, net of tax, and $7 million, net of tax, for Spin-off related transition charges. See Note 2 in the Notes to the Unaudited Condensed Consolidated Financial Statements. |
(b) | Net income for the three months ended March 31, 2014 includes $4 million, net of tax, for Spin-off related transaction charges. |
(c) | Net income for the year ended December 31, 2014 includes charges of $88 million, net of tax, related to the Spin-off (see Note 2 in the Notes to the Consolidated and Combined Financial Statements, Separation from Kimberly-Clark) and $47 million, net of tax, related to our strategic changes to our manufacturing footprint (see Note 3 in the Notes to the Consolidated and Combined Financial Statements, Manufacturing Footprint Strategic Changes) and $8 million, net of tax, related to post Spin-off transition charges (see Note 2 in the Notes to the Consolidated and Combined Financial Statements, Separation from Kimberly-Clark). |
As of March 31, |
As of December 31, | |||||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Balance Sheet Data: |
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Cash |
$ | 166.2 | $ | 149.0 | $ | 44.1 | $ | 47.9 | $ | 20.1 | $ | 34.3 | ||||||||||||
Property, Plant and Equipment, Net |
281.8 | 277.8 | 324.9 | 325.7 | 320.0 | 326.4 | ||||||||||||||||||
Total Assets |
2,536.4 | 2,527.6 | 2,484.0 | 2,534.2 | 2,509.5 | 2,518.3 | ||||||||||||||||||
Debt |
635.3 | 636.2 | 11.9 | 75.9 | 100.0 | 88.2 | ||||||||||||||||||
Stockholders Equity |
1,511.8 | 1,491.2 | | | | | ||||||||||||||||||
Kimberly-Clarks Net Investment |
| | 2,098.7 | 2,045.6 | 2,000.9 | 1,981.6 |
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The following tables present reconciliations of the non-GAAP financial measure of EBITDA and Adjusted EBITDA to the GAAP financial measure of net income:
Three Months Ended
March 31, |
Year Ended December 31, | |||||||||||||||||||||||||||
2015 | 2014 | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Net Income |
$ | 21.7 | $ | 41.4 | $ | 27.1 | $ | 154.6 | $ | 152.6 | $ | 142.4 | $ | 88.0 | ||||||||||||||
Interest (income)/expense, net |
8.2 | (1.0 | ) | 3.1 | (2.5 | ) | (1.8 | ) | (3.9 | ) | (2.3 | ) | ||||||||||||||||
Income tax provision |
11.0 | 21.3 | 64.1 | 73.2 | 77.2 | 72.2 | 71.9 | |||||||||||||||||||||
Depreciation and amortization |
16.4 | 17.3 | 85.4 | 69.2 | 57.6 | 51.1 | 49.8 | |||||||||||||||||||||
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EBITDA |
57.3 | 79.0 | 179.7 | 294.5 | 285.6 | 261.8 | 207.4 | |||||||||||||||||||||
Manufacturing Strategic Changes |
(12.0 | ) | | 46.9 | | | | | ||||||||||||||||||||
Spin-off Related Charges |
| 7.1 | 87.9 | | | | | |||||||||||||||||||||
Transition Related Charges |
9.7 | | 11.7 | | | | | |||||||||||||||||||||
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Adjusted EBITDA |
$ | 55.0 | $ | 86.1 | $ | 326.2 | $ | 294.5 | $ | 285.6 | $ | 261.8 | $ | 207.4 | ||||||||||||||
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Year Ended December 31, 2014 | ||||||||
Non-
Guarantor Subsidiaries |
Consolidated
and Combined |
|||||||
Net Income |
$ | 17.5 | $ | 27.1 | ||||
Interest (income)/expense, net |
(0.2 | ) | 3.1 | |||||
Income tax provision |
1.3 | 64.1 | ||||||
Depreciation and amortization |
30.6 | 85.4 | ||||||
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|
|
|
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EBITDA |
49.2 | 179.7 | ||||||
Manufacturing Strategic Changes |
46.9 | 46.9 | ||||||
Spin-off Related Charges |
| 87.9 | ||||||
Transition Related Charges |
| 11.7 | ||||||
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Adjusted EBITDA |
$ | 96.1 | $ | 326.2 | ||||
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Percent of consolidated |
29.5 | % | 100.0 | % | ||||
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You should carefully consider the risks described below in addition to the other information contained in this prospectus. Any of these risks could materially and adversely affect our business, financial condition or results of operations. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially and adversely affect our business, financial condition or results of operations. If any of the following risks develop into actual events, you may lose all or part of your investment.
Risks Related to the Notes and the Exchange Offer
If you fail to exchange your old notes for new notes, you will continue to hold notes subject to transfer restrictions.
If you do not exchange your old notes for new notes in the exchange offer, the old notes you hold will continue to be subject to restrictions on their transfer, as described in the indenture governing the old notes and in the legend on the certificates for the old notes. In general, you may only offer or sell the old notes if they are registered under the Securities Act and applicable state securities laws, or offered and sold under an exemption from these requirements. We do not plan to register the old notes under the Securities Act or any state securities laws. Because we anticipate that most holders of old notes will elect to participate in the exchange offer, we expect that the liquidity of the market for the old notes after the completion of this exchange offer may also be substantially limited. For further information regarding the consequences of not tendering your old notes in the exchange offer, see The Exchange OfferConsequences of Exchanging or Failing to Exchange Old Notes and Material United States Federal Income Tax Considerations.
You must comply with the exchange offer procedures in order to receive new, freely tradable new notes.
We will only issue new notes in exchange for old notes after timely receipt by the exchange agent of the following:
| certificates for old notes or a book-entry confirmation of a book-entry transfer of old notes into the exchange agents account at DTC, New York, New York as depository; |
| a properly completed and signed letter of transmittal (or facsimile thereof), or an agents message in lieu of the letter of transmittal; and |
| any other documents required by the letter of transmittal. |
Therefore, if you wish to tender old notes in exchange for new notes, you should be sure to allow sufficient time for timely delivery of the old notes and you should carefully follow the instructions on how to tender your old notes set forth under The Exchange Offer Exchange Offer Procedures and in the letter of transmittal. Neither we nor the exchange agent are required to notify you of defects or irregularities related to your tender of old notes. See The Exchange OfferExchange Offer Procedures and The Exchange OfferConsequences of Exchanging or Failing to Exchange Old Notes.
There is no active trading market for the new notes.
The new notes are new securities for which there is no established trading market, and we cannot assure you that an active trading market will develop for the new notes. If a large number of holders of old notes do not tender their old notes for exchange or tender their old notes improperly, the limited amount of new notes issued and outstanding after we complete the exchange offer could adversely affect the development or viability of a market for the new notes. If no active trading market develops, you may not be able to resell your new notes at their fair market value or at all. Future trading prices of the new notes will depend on many factors, including, among other things, prevailing interest rates, the number of holders of new notes, the interest of securities dealers
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in making a market for the new notes, our operating results and the market for similar securities. We do not intend to apply for listing the new notes on any securities exchange.
Our substantial indebtedness could adversely affect our operations and financial condition and prevent us from fulfilling our obligations under the notes.
We have a significant amount of indebtedness. As of March 31, 2015, our total debt was approximately $635 million, and we had unused commitments of $247 under our Revolving Credit Facility.
Subject to the limits contained in the credit agreement governing the Senior Secured Credit Facilities (the Credit Agreement), the indenture and our other debt instruments, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt could intensify. Specifically, our high level of debt could have important consequences to the holders of the notes, including the following:
| our ability to satisfy our obligations with respect to the notes and our other debt may be limited; |
| our ability to obtain additional financing, if necessary, for working capital, letters of credit or other forms of guarantees, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms; |
| our funds available for operations and future business opportunities will be reduced by that portion of our cash flow required to make interest payments on our debt; |
| we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally; |
| our flexibility in responding to changing business and economic conditions may be limited; |
| we may be subjected to increased sensitivity to interest rate increases; and |
| we may be placed at a disadvantage to competitors that have less debt than we have. |
In addition, the indenture and the Credit Agreement contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all our debt.
Despite our substantial indebtedness, we and our subsidiaries may be able to incur substantially more indebtedness, including secured indebtedness. This could further exacerbate the risks to our financial condition described above.
We and our subsidiaries may incur significant additional indebtedness in the future, including secured indebtedness. Although the indenture and the Credit Agreement contain restrictions on the incurrence of additional indebtedness and additional liens, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness, including secured indebtedness, incurred in compliance with these restrictions could be substantial. If we incur any additional indebtedness that ranks equally with the notes, subject to collateral arrangements, the holders of that debt will be entitled to share ratably with you in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of our business. This could reduce the amount of proceeds paid to holders of the notes. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. If new debt is added to our current debt levels, the related risks that we now face would increase.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
As discussed under Description of Other Indebtedness, a portion of our indebtedness is term loans or revolving credit facility borrowings with variable rates of interest that expose us to interest rate risks (subject to,
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in the case of the Term Loan Facility, a LIBOR floor). If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed remains the same, and our net income and cash flows will correspondingly decrease. We will be exposed to the risk of rising interest rates to the extent that we fund our operations with short-term or variable-rate borrowings. As of March 31, 2015, each 1% change in interest rates on our variable rate indebtedness would have resulted in a $4 million change in annual estimated interest expense ($6 million assuming the Revolving Credit Facility was fully drawn). Even though we have entered into interest rate swaps to reduce interest rate volatility, we may not elect to maintain such interest rate swaps in the future, and any swaps may not fully mitigate our interest rate risk.
To service our indebtedness, we will require a significant amount of cash and our ability to generate cash depends on many factors beyond our control.
Our ability to make cash payments on our indebtedness, including the notes, and to fund planned capital expenditures will depend on our ability to generate significant operating cash flow in the future. Our ability to generate such cash flow is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. See Risks Related to Our Business and Industry.
Our business may not generate cash flow from operations in an amount sufficient to enable us to pay the principal, premium, if any, and interest on our indebtedness, including the notes, or to fund our other liquidity needs. If we cannot service our indebtedness, we may have to take actions such as refinancing or restructuring our indebtedness, selling assets, issuing equity or reducing or delaying capital expenditures, strategic acquisitions and investments. These actions, if necessary, may not be effected on commercially reasonable terms or at all. Our ability to refinance or restructure our debt will depend on the condition of the capital markets and our financial condition at the applicable time. Any refinancing of our debt, if we are able to refinance our debt at all, could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. Further, the Credit Agreement and the indenture restrict our ability to undertake or use the proceeds from such measures.
Our ability to repay our indebtedness, including the notes, is largely dependent on the generation of cash flow by our operating subsidiaries and our operating subsidiaries ability to make cash available to us by dividend, intercompany loans, advances and other transactions or otherwise. Our subsidiaries may not be able to, or may not be permitted to, transfer cash to us to enable us to make payments in respect of our indebtedness. Each of our subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions, as well as the financial condition and operating requirements of our subsidiaries, may limit our ability to obtain cash from our subsidiaries.
If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the notes.
Any default under the agreements governing our indebtedness, including the Credit Agreement, that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness, could prevent us from paying principal, premium, if any, and interest on the notes. In addition, if we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants in the instruments governing our indebtedness (including covenants in the Credit Agreement and the indenture), we could be in default under the terms of the agreements governing this indebtedness. In that event, the holders of our indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest; the lenders under the Credit Agreement could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against our assets; and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may need to obtain waivers from the required lenders under the Credit Agreement to avoid being in default. If we breach these covenants and seek a waiver from the required lenders, we may not be able to obtain it. If this occurs, we would be in default under the Credit Agreement, the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.
14
The notes will be unsecured and effectively subordinated to our and the guarantors indebtedness under the Credit Agreement, and any other of our secured indebtedness or of the guarantors secured indebtedness, to the extent of the value of the assets securing that indebtedness.
The notes will not be secured by any of our or the guarantors assets. As a result, the notes and the guarantees will be effectively subordinated to our and the guarantors indebtedness under the Credit Agreement with respect to the assets that secure that indebtedness. As of March 31, 2015, we had total indebtedness of approximately $635 million (consisting of $385 million outstanding under our Term Loan Facility and $250.0 million of old notes), and we had $247 million of availability under the Revolving Credit Facility. Additionally, we expect that we will be able, if we obtain commitments from lenders to do so, to incur significant additional secured indebtedness. The effect of the effective subordination of the notes to our secured indebtedness, to the extent of the collateral securing our secured indebtedness, is that upon a default in payment on, or the acceleration of, any of our secured indebtedness, or in the event of bankruptcy, insolvency, liquidation, dissolution or reorganization of us or the guarantors, the proceeds from the sale of assets securing our secured indebtedness will be available to repay obligations on the notes only after all obligations under the Credit Agreement and any other secured debt has been paid in full. As a result, the holders of the notes will receive less, ratably, than the holders of secured debt in the event of our or the guarantors bankruptcy, insolvency, liquidation, dissolution or reorganization or may not receive anything at all.
Not all of our subsidiaries will guarantee the notes, and the notes will be structurally subordinated to all obligations of our existing and future subsidiaries that are not and do not become guarantors of the notes.
The notes will be guaranteed by each of our existing and future subsidiaries that guarantees the Senior Secured Credit Facilities. However, the guarantee of the notes by a subsidiary will be automatically released under certain circumstances, including such subsidiarys guarantee of the Senior Secured Credit Facilities is released or discharged. See Description of New NotesGuarantees for more information. In the future, other subsidiaries will be required to guarantee the notes only under certain limited circumstances.
The indenture does not limit the transfer of assets to, or the making of investments in, any of our restricted subsidiaries, including our non-guarantor subsidiaries. Our subsidiaries that do not guarantee the notes, including the non-domestic, non-wholly owned and immaterial subsidiaries, will have no obligation, contingent or otherwise, to pay amounts due under the notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payment. In the event that any non-guarantor subsidiary becomes insolvent or is liquidated, reorganized or dissolved, the assets of such non-guarantor subsidiary will be used first to satisfy the claims of its creditors, including trade creditors, banks and other lenders, followed by claims of any holders of preferred stock of such non-guarantor subsidiary. Only the residual equity value will be available to us and our guarantors, and only to the extent we or any guarantor is a parent company of such non-guarantor subsidiary. Consequently, each guarantee of the notes will be structurally subordinated to claims of creditors of non-guarantor subsidiaries. The indenture permits our subsidiaries, including our non-guarantor subsidiaries, to incur additional indebtedness, and does not limit their ability to incur trade payables and similar liabilities.
For the twelve months ended December 31, 2014, on a historical basis, our non-guarantor subsidiaries accounted for approximately 37% of our consolidated net sales and approximately 30% of our consolidated Adjusted EBITDA. In addition, as of December 31, 2014, on a historical basis, such non-guarantor subsidiaries held approximately 18% of our total assets and approximately 12% of our total liabilities.
In addition, our subsidiaries that provide, or will provide, guarantees of the notes will be automatically released from those guarantees upon (1) receipt by the trustee of a notification from us that such guarantee be released and (2) the occurrence of any of the following:
| the release or discharge of the guarantee by such guarantor of the Senior Secured Credit Facilities or the guarantee which resulted in the creation of such guarantee, except a discharge or release by or as a result of payment under such guarantee; |
15
| the sale or other disposition, including the sale of substantially all the assets, of that guarantor, as permitted by the indenture; or |
| designation of such guarantor as an unrestricted subsidiary in accordance with the terms of the indenture. |
The lenders under the Senior Secured Credit Facilities have the discretion to release the guarantees under the Senior Secured Credit Facilities in all cases, and are obligated to release the guarantees in a variety of circumstances. If any guarantee provided by a subsidiary is released, no holder of the notes will have a claim as a creditor against that subsidiary, and the indebtedness and other liabilities, including trade payables and preferred stock, if any, whether secured or unsecured, of that subsidiary will be effectively senior to the claim of any noteholders. See Description of New NotesGuarantees.
We may not be able to repurchase the notes upon a change of control repurchase event.
Upon the occurrence of specific kinds of change of control events, we will be required to offer to repurchase all outstanding notes at 101% of their principal amount, plus accrued and unpaid interest, if any, to (but not including) the applicable repurchase date. Additionally, under the Credit Agreement, a change of control (as defined therein) will constitute an event of default that permits the lenders to accelerate the maturity of borrowings under the Senior Secured Credit Facilities and terminate their commitments to lend. The source of funds for any purchase of the notes and repayment of borrowings under the Senior Secured Credit Facilities would be our available cash or cash generated from our subsidiaries operations or other sources, including borrowings, sales of assets or sales of equity. We may not be able to repurchase the notes upon a change of control repurchase event because we may not have sufficient financial resources to purchase all of the debt securities that are tendered upon a change of control repurchase event and repay the other indebtedness that will become due. We may require additional financing from third parties to fund any such purchases, and we may be unable to obtain such financing on satisfactory terms or at all. Further, our ability to repurchase the notes may be limited by law. In order to avoid the obligations to repurchase the notes and events of default and potential breaches of the Credit Agreement, we may have to avoid certain change of control transactions that would otherwise be beneficial to us.
Certain corporate events may not trigger a change of control, in which case we will not be required to redeem the notes.
The indenture permits us to engage in certain corporate events that would increase indebtedness or alter our business but would not constitute a change of control as defined in the indenture. As a result of the definition of change of control, certain extraordinary corporate events could take place without having the change of control provision of the notes apply.
In addition, if we effected a leveraged recapitalization or other transactions excluded from the definition of change of control that resulted in an increase in indebtedness, adversely affected our credit rating or fundamentally changed our business, our ability to make payments on the notes would be adversely affected. However, we would not be required to offer to repurchase the notes, despite our decreased ability to meet our obligations under the notes. See Description of New NotesChange of Control.
Holders of the notes may not be able to determine when a change of control giving rise to their right to have the notes repurchased has occurred following a sale of substantially all of our assets.
The definition of change of control in the indenture includes a phrase relating to the sale of all or substantially all of our assets. Although there is a limited body of case law interpreting the phrase substantially all, there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve a
16
disposition of substantially all of our assets. As a result, it may be unclear as to whether a change of control has occurred and whether we are required to make an offer to repurchase the notes.
Federal and state fraudulent transfer laws may permit a court to void the notes and/or the guarantees and, if that occurs, you may not receive any payments on the notes.
Federal and state fraudulent transfer and conveyance statutes may apply to the issuance of the notes and the incurrence of the guarantees of the notes. Under federal bankruptcy law and comparable provisions of state fraudulent transfer or conveyance laws, which may vary from state to state, the notes or the guarantees thereof could be voided as a fraudulent transfer or conveyance if we or any of the guarantors, as applicable, (1) issued the notes or incurred the guarantees with the intent of hindering, delaying or defrauding creditors or (2) received less than reasonably equivalent value or fair consideration in return for either issuing the notes or incurring the guarantees and, in the case of (2) only, one of the following were also true at the time thereof:
| we or any of the guarantors, as applicable, were insolvent or rendered insolvent by reason of the issuance of the notes or the incurrence of the guarantees; |
| the issuance of the notes or the incurrence of the guarantees left us or any of the guarantors, as applicable, with an unreasonably small amount of capital or assets to carry on the business in which we or the guarantors, as applicable, are engaged; or |
| we or any of the guarantors intended to, or believed that we or such guarantor would, incur debts beyond our or such guarantors ability to pay as they mature. |
As a general matter, value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or a valid antecedent debt is secured or satisfied. A court would likely find that we or a guarantor, as applicable, did not receive reasonably equivalent value or fair consideration for our issuance of the notes or its guarantee to the extent that we or such guarantor did not obtain a reasonably equivalent benefit directly or indirectly from the issuance of the notes or the applicable guarantee. A debtor will generally not be considered to have received value in connection with a debt offering if the debtor uses the proceeds to make a dividend payment or otherwise retire or redeem equity interests of the debtor.
We cannot be certain as to the standards a court would use to determine whether or not we or the guarantors were insolvent at the relevant time. In general, however, a court would deem an entity insolvent if:
| the sum of its debts, including contingent liabilities, was greater than the present fair saleable value of all of its assets; or |
| the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature. |
If a court were to find that the issuance of the notes or the incurrence of a guarantee was a fraudulent transfer or conveyance, the court could void the payment obligations under the notes or that guarantee, could subordinate the notes or that guarantee to presently existing and future indebtedness of ours or of the related guarantor, or could require the noteholders to repay any amounts received with respect to the notes or that guarantee. If the notes or a guarantee is voided as a fraudulent conveyance or found to be unenforceable for any other reason, holders of notes will not have a claim against that obligor and will only be a creditor of the issuer or any guarantor whose obligation was not set aside or found to be unenforceable. In addition, the guarantors assets would be applied first to satisfy its other liabilities, before any portion of its assets might be available, directly or indirectly, to pay the notes. Sufficient funds to repay the notes may not be available from other sources, including the remaining guarantors, if any. Furthermore, the loss of a guarantee will constitute a default under the indenture and could result in the acceleration of the notes, if not otherwise accelerated due to our or our guarantors insolvency or bankruptcy filing. In the event that a court finds that a fraudulent transfer or conveyance occurred, holders of notes may not receive any repayment on the notes.
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The indenture contains a savings clause intended to limit each subsidiary guarantors liability under its guarantee to the maximum amount that it could incur without causing the guarantee to be a fraudulent transfer under applicable law. We cannot assure you that this provision will be upheld as intended.
Under the United States Bankruptcy Code, a bankruptcy court may subordinate claims in respect of the notes to other claims against us under the principle of equitable subordination if the court determines that (1) the holder of notes engaged in some type of inequitable conduct, (2) the inequitable conduct resulted in injury to our other creditors or conferred an unfair advantage upon the holders of notes and (3) equitable subordination is not inconsistent with the provisions of the United States Bankruptcy Code.
A lowering or withdrawal of our credit ratings may increase our future borrowing costs and reduce our access to capital and may adversely affect the price of the notes.
Our credit rating and any rating assigned to the notes, if any, could be lowered or withdrawn entirely by a rating agency if, in that rating agencys judgment, future circumstances relating to the basis of the rating, such as adverse changes, warrant. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of the notes. Credit ratings are not recommendations to purchase, hold or sell securities. Additionally, our credit ratings may not reflect the potential effect of risks relating to our business or the structure or marketing of the notes.
Any future lowering of our ratings likely would make it more difficult or more expensive for us to obtain additional debt financing. If any credit rating initially assigned to the notes is subsequently lowered or withdrawn for any reason, you may not be able to resell your notes without a substantial discount.
Many of the covenants in the indenture will be terminated if the notes are rated investment grade by both Moodys and Standard & Poors.
Many of the covenants in the indenture will not apply to us following any date on which the notes are rated investment grade by both Moodys and Standard & Poors. These include the covenants that restrict, among other things, our ability to pay distributions, incur debt and to enter into certain other transactions. There can be no assurance that the notes will ever be rated investment grade. However, removal of these covenants would allow us to engage in certain transactions that would not have been permitted while such covenants were in force. These covenants would not be subsequently reinstated if the notes fell below investment grade in the future. See Description of New NotesCertain CovenantsCovenant Termination.
Risks Related to our Business and Industry
We face strong competition. Our failure to compete effectively could have a material adverse effect on our business.
Our industry is highly competitive. We compete with many domestic and foreign companies ranging from small start-up enterprises that might sell only a single or limited number of competitive products or compete only in a specific market segment, to companies that are larger and more established than us, have a broad range of competitive products, participate in numerous markets and have access to significantly greater financial and marketing resources than we do. We also face competition from distributors who are expanding their private label portfolios and aggressively marketing their product lines. For example, our products are distributed by Cardinal Health, Inc. and Medline Industries, Inc., each of which sells its own private label products and solutions that compete with our offerings. Competitive factors include price, alternative clinical practices, innovation, quality and reputation. Our failure to compete effectively could have a material adverse effect on our results of operations, financial condition and cash flows.
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We may not be successful in developing, acquiring or marketing competitive products and technologies.
Our industry is characterized by extensive research and development and rapid technological advances. The future success of our business will depend, in part, on our ability to design, acquire and manufacture new competitive products and enhance existing products. Accordingly, we commit substantial time, funds and other resources to new product development, including research and development, acquisitions, licenses, clinical trials and physician education. We make these substantial expenditures without any assurance that our products will obtain regulatory clearance or reimbursement approval, acquire adequate intellectual property protection or receive market acceptance. Development by our competitors of improved products, technologies or enhancements may make our products, or those we develop, license or acquire in the future, obsolete or less competitive, which could negatively impact our net sales. Our failure to successfully develop, acquire or market competitive new products or enhance existing products could have a material adverse effect on our results of operations, financial condition and cash flows.
We are exposed to price fluctuations of key commodities, which may negatively impact our results of operations.
We rely on product inputs, such as polypropylene and nitrile, as well as other commodities, in the manufacture of our products. Prices of oil and gas affect our distribution and transportation costs. Prices of these commodities are volatile and have fluctuated significantly in recent years, which has contributed to, and in the future may continue to contribute to, fluctuations in our results of operations. Our ability to hedge commodity price volatility is limited. Furthermore, due to competitive dynamics, the cost containment efforts of our customers and third-party payors, and contractual limitations, particularly with respect to products we sell under group purchasing agreements, which generally set pricing for a three-year term, we may be unable to pass along commodity-driven cost increases through higher prices. If we cannot fully offset cost increases through other cost reductions, or recover these costs through price increases or surcharges, we could experience lower margins and profitability, which could have a material adverse effect on our results of operations, financial condition and cash flows.
An inability to obtain key components, raw materials or manufactured products from third parties may have a material adverse effect on our business.
We depend on the availability of various components, raw materials and manufactured products supplied by others for our operations. If the capabilities of our suppliers and third-party manufacturers are limited or stopped due to quality, regulatory or other reasons, it could negatively impact our ability to manufacture or deliver our products and could expose us to regulatory actions. Further, for quality assurance or cost effectiveness, we purchase from sole suppliers certain components and raw materials, such as polymers used in our S&IP products, latex bladders for our pain pumps, and synthetic rubber nitrile for our medical exam gloves. Although there are other sources in the marketplace for these items, we may not be able to quickly establish additional or replacement sources for certain components or materials due to regulations and requirements of the FDA and other regulatory authorities regarding the manufacture of our products. The loss of any sole supplier or any sustained supply interruption that affects our ability to manufacture or deliver our products in a timely or cost effective manner could have a material adverse effect on our business, results of operations, financial condition and cash flows.
An interruption in our ability to manufacture products may have a material adverse effect on our business.
Many of our key products are manufactured at single locations, with limited alternate facilities, including in certain cases by third-party manufacturers. If one or more of these facilities experience damage, or if these manufacturing capabilities are otherwise limited or stopped due to quality, regulatory or other reasons, including natural disasters or prolonged power or equipment failures, it may not be possible to timely manufacture the relevant products at previous levels or at all. For example, floods have negatively impacted our
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medical exam gloves manufacturing facility in Thailand in recent years, which has resulted in temporary shut downs of the facility and an associated decrease in production of our medical exam gloves. A reduction or interruption in any of these manufacturing processes could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We are subject to extensive government regulation, which may require us to incur significant expenses to ensure compliance.
Many of our products are subject to extensive regulation in the United States by the FDA and other regulatory authorities and by comparable government agencies in other countries concerning the development, design, approval, manufacture, labeling, importing and exporting and sale and marketing of many of our products. Furthermore, our facilities are subject to periodic inspection by the FDA and other federal, state and foreign government authorities, which require manufacturers of medical devices to adhere to certain regulations, including the FDAs Quality System Regulation, which requires periodic audits, design controls, quality control testing and documentation procedures, as well as complaint evaluations and investigation. Costs of complying with these regulations can be significant. Regulations regarding the development, manufacture and sale of medical products are also evolving and subject to future change. We cannot predict what impact those regulatory changes may have on our business, although we may incur significant costs to comply with such changes. Failure to comply with applicable regulations could lead to manufacturing shutdowns, product shortages, delays in product manufacturing, product seizures, recalls, operating restrictions, withdrawal or suspension of required licenses, and prohibitions against exporting of products to, or importing products from, countries outside the United States and may require significant resources to resolve. Any one or more of these events could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We are subject to healthcare fraud and abuse laws and regulations that could result in significant liability, require us to change our business practices or restrict our operations in the future.
We are subject to various U.S. federal, state and local laws targeting fraud and abuse in the healthcare industry, including anti-kickback and false claims laws. Violations of these laws are punishable by criminal or civil sanctions, including substantial fines, imprisonment and exclusion from participation in healthcare programs such as Medicare and Medicaid. These laws and regulations are wide ranging and subject to changing interpretation and application, which could restrict our sales or marketing practices. Furthermore, because many of our customers rely on reimbursement from Medicare, Medicaid and other governmental programs to cover a substantial portion of their expenditures, our exclusion from such programs as a result of a violation of these laws could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We must obtain clearance or approval from the appropriate regulatory authorities prior to introducing a new product or a modification to an existing product. The regulatory clearance process may result in substantial costs, delays and limitations on the types and uses of products we can bring to market, any of which could have a material adverse effect on our business.
In the United States, before we can market a new product, or a new use of, claim for, or significant modification to, an existing product, we generally must first receive clearance or approval from the FDA and certain other regulatory authorities. Most major markets for medical devices outside the United States also require clearance, approval or compliance with certain standards before a product can be commercially marketed. The process of obtaining regulatory clearances and approvals to market a medical device can be costly and time consuming, involve rigorous pre-clinical and clinical testing, require changes in products or result in limitations on the indicated uses of products. There can be no assurance that these clearances and approvals will be granted on a timely basis, or at all. In addition, once a medical device has been cleared or approved, a new clearance or approval may be required before the medical device may be modified, its labeling changed or it may be marketed for a different use. Medical devices are cleared or approved for one or more specific intended uses and promoting a device for an off-label use could result in government enforcement action. Furthermore, a product approval or
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clearance can be withdrawn or limited due to unforeseen problems with the medical device or issues relating to its application. The regulatory clearance and approval process may result in, among other things, delayed, if at all, realization of product net sales, substantial additional costs and limitations on the types of products we may bring to market or their indicated uses, any one of which could have a material adverse effect on our results of operations, financial condition and cash flows.
We may incur product liability losses, litigation liability, product recalls, safety alerts or regulatory action associated with our products, which can be costly and disruptive to our business.
The risk of product liability claims is inherent in the design, manufacture and marketing of the medical products of the type we produce and sell. A number of factors could result in an unsafe condition or injury to, or death of, a patient with respect to the products that we manufacture or sell, including physician technique and experience in performing the relevant surgical procedure, component failures, manufacturing flaws, design defects or inadequate disclosure of product-related risks or information.
We are one of several manufacturers of continuous infusion medical devices, such as our ON-Q PAINBUSTER pain pumps, that are involved in several different pending or threatened litigation matters brought by multiple plaintiffs alleging that use of the continuous infusion device to deliver anesthetics directly into a synovial joint after surgery resulted in postarthroscopic glenohumeral chondrolysis, or a disintegration of the cartilage covering the bones in the joint (typically, in the shoulder). Plaintiffs generally seek monetary damages and attorneys fees. While Kimberly-Clark retained the liabilities related to these matters that were asserted prior to the Spin-off, the distribution agreement between us and Kimberly-Clark provided that we indemnify Kimberly-Clark and assume the liability for any such claims and causes of actions arising after the distribution. Although no such claims arising after the distribution have been asserted, there can be no assurance that additional related or unrelated claims or other product liability claims, including potential class actions, will not be made that allege that our products have resulted in or could result in an unsafe condition or injury. Any of these proceedings, regardless of the merits, may result in substantial costs, the diversion of managements attention from other business concerns, additional restrictions on our sales or the use of our products, or settlement payments and adjustments not covered by or in excess of insurance. Although we believe we have insurance coverage that is adequate and customary for our business, insurance for these types of claims varies in cost and can be difficult to obtain on terms acceptable to us or at all.
In addition to product liability claims and litigation, an unsafe condition or injury to, or death of, a patient associated with our products could lead to a recall of, or issuance of a safety alert relating to, our products, or suspension or delay of regulatory product approvals or clearances, product seizures or detentions, governmental investigations, civil or criminal sanctions or injunctions to halt manufacturing and distribution of our products. Any one of these could result in significant costs and negative publicity resulting in reduced market acceptance and demand for our products and harm our reputation. In addition, a recall or injunction affecting our products could temporarily shut down production lines or place products on a shipping hold.
All of the foregoing types of legal proceedings and regulatory actions are inherently unpredictable and, regardless of the outcome, could disrupt our business, result in substantial costs or the diversion of management attention and could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Current economic conditions have affected and may continue to adversely affect our business, results of operations, financial condition and cash flows.
Disruptions in the financial markets and other macro-economic challenges currently affecting the economy and the economic outlook of the United States, Europe and other parts of the world may continue to have an adverse impact on our results of operations, financial condition and cash flows. Recessionary conditions and depressed levels of consumer and commercial spending have caused and may continue to cause our
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customers to reduce, modify, delay or cancel plans to purchase our products, and we have observed certain hospitals delaying as well as prioritizing purchasing decisions, which has had and may continue to have a material adverse effect on our results of operations, financial condition and cash flows.
In addition, as a result of these recessionary conditions, our customers inside and outside the United States, including foreign governmental entities or other entities that rely on government healthcare systems or government funding, may be unable to pay their obligations on a timely basis or to make payment in full. If our customers cash flow or operating and financial performance deteriorate or fail to improve, or if our customers are unable to make scheduled payments or obtain credit, they may not be able to pay, or may delay payment of, accounts receivable owed to us. These economic conditions also may have an adverse effect on certain of our suppliers who may reduce output or change terms of sales, which could cause a disruption in our ability to provide our products to our customers and have a material adverse effect on our business, results of operations, financial condition and cash flows. Any inability of current and/or potential customers to pay us for our products or any demands by our suppliers for different payment terms also may have a material adverse effect on our results of operations, financial condition and cash flows.
Cost-containment efforts of our customers, health care purchasing groups, third-party payors and governmental organizations could adversely affect our sales and profitability.
Many of our customers are members of group purchasing organizations (GPOs) or integrated delivery networks (IDNs). GPOs and IDNs negotiate pricing arrangements with healthcare product manufacturers and distributors and offer the negotiated prices to affiliated hospitals and other members. Although we are the sole contracted supplier to certain GPOs for certain product categories, members of the GPO are generally free to purchase from other suppliers, and such contract positions can offer no assurance that sales volumes of those products will be maintained. In addition, initiatives sponsored by government agencies and other third-party payors to limit healthcare costs, including price regulation and competitive bidding for the sale of our products, are ongoing in markets where we sell our products. Pricing pressure has also increased in our markets due to consolidation among healthcare providers, trends toward managed care, governments becoming payors of healthcare expenses and regulation relating to reimbursements. The increasing leverage of organized buying groups and consolidated customers and pricing pressure from third-party payors may reduce market prices for our products, thereby reducing our profitability and have a material adverse effect on our results of operations, financial condition and cash flows.
We face significant uncertainty in the healthcare industry due to government healthcare reform in the United States and elsewhere.
In March 2010, comprehensive healthcare reform legislation was signed into law in the United States through the passage of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act. Among other initiatives, the legislation implemented a 2.3% excise tax on the sales of certain medical devices in the United States, effective January 2013. In 2014, the excise tax had an impact on us of approximately $5 million. In addition, the legislation implemented payment system reforms and significantly altered Medicare and Medicaid reimbursements for medical services and medical devices, which could result in downward pricing pressure and decreased demand for our products.
As additional provisions of healthcare reform are implemented, we anticipate that the U.S. Congress, regulatory agencies and certain state legislatures, as well as international legislators and regulators, will continue to review and assess alternative healthcare delivery systems and payment methods with an objective of ultimately reducing healthcare costs and expanding access. We cannot predict with certainty what healthcare initiatives, if any, will be implemented by states or foreign governments or what ultimate effect federal healthcare reform or any future legislation or regulation may have on our customers purchasing decisions regarding our products. However, the implementation of new legislation and regulation may lower reimbursements for our products, reduce medical procedure volumes and adversely affect our results of operations, financial condition and cash flows.
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Our customers depend on third-party coverage and reimbursements. The failure of healthcare programs to provide coverage and reimbursement, or reductions in levels of reimbursement, could have a material adverse effect on our business.
The ability of our customers to obtain coverage and reimbursements for products they purchase from us is important to our business. Demand for many of our existing and new medical products is, and will continue to be, affected by the extent to which government healthcare programs and private health insurers reimburse our customers for patients medical expenses in the countries where we do business. Any reduction in the amount of reimbursements received by our customers could harm our business by reducing their selection of our products and the prices they are willing to pay.
In addition, as a result of their purchasing power, third-party payors are implementing cost-cutting measures such as seeking discounts, price reductions or other incentives from medical products suppliers and imposing limitations on coverage and reimbursements for medical technologies and procedures. These trends could compel us to reduce prices for our existing products and potential new products and could cause a decrease in the size of the market or a potential increase in competition that could have a material adverse effect on our results of operations, financial condition and cash flows.
We are subject to political, economic and regulatory risks associated with doing business outside of the United States.
We operate manufacturing facilities outside the United States in Honduras, Mexico and Thailand and source many of our raw materials and components from foreign suppliers. We distribute and sell our products in over 100 countries. In 2014, approximately 25% of our net sales (excluding related party sales) were generated outside of North America, and we expect this percentage will grow over time. Our operations outside of the United States are subject to risks that are inherent in conducting business internationally, including compliance with both United States and foreign laws and regulations that apply to our international operations. These laws and regulations include robust data privacy requirements, labor relations laws that may impede employer flexibility, tax laws, anti-competition regulations, import, customs and trade restrictions, export requirements, economic sanction laws, environmental, health and safety laws, and anti-bribery laws such as the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions. Given the high level of complexity of these laws, there is a risk that some provisions may be violated inadvertently or through fraudulent or negligent behavior of individual employees, our failure to comply with certain formal documentation requirements or otherwise. In addition, these laws are subject to changes, which may require additional resources or make it more difficult for us to comply with these laws. Violations of the laws and regulations governing our international operations could result in fines or criminal sanctions against us, our officers or our employees, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to manufacture or distribute our products in one or more countries and could have a material adverse effect on our reputation and brand, our international expansion efforts, our ability to attract and retain employees, and our results of operations, financial condition and cash flows. Our success depends, in part, on our ability to anticipate and prevent or mitigate these risks and manage difficulties as they arise.
In addition to the foregoing, engaging in international business inherently involves a number of other difficulties and risks, including:
| different product preferences and requirements, |
| price and currency controls and exchange rate fluctuations, |
| cost and availability of international shipping channels, |
| longer payment cycles in certain countries other than the United States, |
| minimal or diminished protection of intellectual property in certain countries, |
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| uncertainties regarding judicial systems, including difficulties in enforcing agreements through certain non-U.S. legal systems, |
| political instability and actual or anticipated military or political conflicts, expropriation of assets, economic instability and the impact on interest rates, inflation and the credit worthiness of our customers, |
| potentially negative consequences from changes in or interpretations of tax laws, including changes regarding taxation of income earned outside the United States, and |
| difficulties and costs of staffing and managing non-U.S. operations. |
These risks and difficulties, individually or in the aggregate, could have a material adverse effect on our results of operations, financial condition and cash flows.
Currency exchange rate fluctuations could have a material adverse effect on our results of operations .
Due to our international operations, we transact business in many foreign currencies and are subject to the effects of changes in foreign currency exchange rates, including the Thai baht, Mexican peso, Japanese yen, Australian dollar and the Euro. Our financial statements are reported in U.S. dollars with international transactions being translated into U.S. dollars. If the U.S. dollar strengthens in relation to the currencies of other countries where we sell our products, our U.S. dollar reported net sales and income will decrease. Additionally, we incur significant costs in foreign currencies and a fluctuation in those currencies value can negatively impact manufacturing and selling costs. While we currently engage, and may in the future engage, in various hedging transactions in attempts to minimize the effects of foreign currency exchange rate fluctuations, there can be no assurance that these hedging transactions will be effective. Changes in the relative values of currencies occur regularly and could have an adverse effect on our results of operations, financial condition and cash flows.
We cannot guarantee that any of our strategic acquisitions, investments or alliances will be successful.
We intend to supplement our growth through strategic acquisitions of, investments in and alliances with new medical technologies. The success of any acquisition, investment or alliance may be affected by a number of factors, including our ability to properly assess and value the potential business opportunity or to successfully integrate any business we may acquire into our existing business. These types of transactions may require more resources and investments than originally anticipated, may divert managements attention from our existing business, may result in exposure to unexpected liabilities of the acquired business, and may not result in the expected benefits, savings or synergies. There can be no assurance that any past or future acquisition, investment or alliance will be cost-effective, profitable or successful.
The terms of the Senior Secured Credit Facilities and the indenture restrict our current and future operations, particularly our ability to incur debt that we may need to fund initiatives in response to changes in our business, the industries in which we operate, the economy and governmental regulations.
The Credit Agreement and the indenture contain a number of restrictive covenants that impose significant operating and financial restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our long-term best interests, including restrictions on our and our subsidiaries ability to:
| incur or guarantee additional indebtedness or sell disqualified or preferred stock; |
| pay dividends on, repurchase, or make distributions in respect of, capital stock; |
| make investments or acquisitions; |
| sell, transfer or otherwise dispose of certain assets; |
| create liens; |
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| enter into sale/leaseback transactions; |
| enter into agreements restricting the ability to pay dividends or make other intercompany transfers; |
| consolidate, merge, sell or otherwise dispose of all or substantially all of our or our subsidiaries assets; |
| enter into transactions with affiliates; |
| prepay, repurchase or redeem certain kinds of indebtedness; |
| issue or sell stock of our subsidiaries; and |
| change the nature of our business. |
In addition, the Credit Agreement that governs the Revolving Credit Facility has two financial covenants, one that requires us to maintain a maximum consolidated net secured leverage ratio and the other requires us to maintain a minimum consolidated interest coverage ratio. Our ability to meet these financial covenants may be affected by events beyond our control.
As a result of all of these restrictions, we may be:
| limited in how we conduct our business and pursue our strategy; |
| unable to raise additional debt or equity financing to operate during general economic or business downturns; or |
| unable to compete effectively or to take advantage of new business opportunities. |
A breach of the covenants under the indenture or under the Credit Agreement could result in an event of default under the applicable agreement. If an event of default under the indenture or the Credit Agreement occurs, the lenders under the Senior Secured Credit Facilities and holders of the notes, as applicable, would have the right to accelerate the repayment of such debt, and an event of default or acceleration may result in the acceleration of the repayment of any other debt to which a cross-acceleration or cross-default provision applies.
In addition, an event of default under the Credit Agreement would also permit the lenders under the Senior Secured Credit Facilities to terminate all other commitments to extend additional credit under the Senior Secured Credit Facilities.
Furthermore, if we were unable to repay the amounts due and payable under the Senior Secured Credit Facilities, those lenders could proceed against the collateral that secures such indebtedness. In the event our creditors accelerate the repayment of our borrowings, we may not have sufficient assets to repay that indebtedness.
We may need additional financing in the future to meet our capital needs or to make acquisitions and such financing may not be available on favorable terms, if at all, and may be dilutive to existing stockholders.
We intend to increase our investment in research and development activities and make acquisitions. Prior to the Spin-off, our working capital and capital expenditure requirements were met from cash flow generated by our businesses and from Kimberly-Clark. Going forward, we may need to seek additional debt or equity financing. We may be unable to obtain any desired additional financing on terms favorable to us, if at all. If we lose a previously assigned credit rating or adequate funds are not available on acceptable terms, we may be unable to fund our expansion, successfully develop or enhance products or respond to competitive pressures, any of which could negatively affect our business. If we raise additional funds through the issuance of equity securities, Halyard stockholders will experience dilution of their ownership interest.
We may be unable to protect our intellectual property rights or may infringe the intellectual property rights of others.
We rely on patents, trademarks, trade secrets and other intellectual property assets in the operation of our business. Our efforts to protect our intellectual property and proprietary rights may not be sufficient. We
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cannot be sure that pending patent applications will result in the issuance of patents or that patents issued or licensed to us will remain valid or prevent competitors from introducing similar competing technologies. Our ability to enforce and protect our intellectual property rights may be limited in certain countries outside of the United States in which we operate, which could make it easier for our competitors to develop or distribute similar competing technologies in those jurisdictions. In addition, our competitive position may be adversely affected by expirations of our significant patents, which would allow competitors to freely use our technology to compete with us.
We operate in an industry characterized by extensive patent litigation, and competitors may claim that our products infringe their intellectual property rights. Resolution of patent litigation or other intellectual property claims is inherently unpredictable, typically time consuming and costly and can result in significant damage awards and injunctions that could prohibit the manufacture and sale of the affected products or require us to make significant royalty payments in order to continue selling the affected products. Any one of these could have a material adverse effect on our results of operations, financial condition and cash flows. At any given time, we are involved as either a plaintiff or a defendant in a number of patent infringement actions, the outcomes of which may not be known for prolonged periods of time. We can expect to face additional claims of patent infringement in the future.
We may be unable to attract and retain key employees necessary to be competitive.
Our ability to compete effectively depends upon our ability to attract and retain executives and other key employees, including people in technical, marketing, sales and research and development positions. Competition for experienced employees, particularly for persons with specialized skills, can be intense. Our ability to recruit such talent will depend on a number of factors, including compensation and benefits, work location and work environment. If we cannot effectively recruit and retain qualified executives and employees, our business could be materially adversely affected.
Breaches of our information technology systems could have a material adverse effect on our business.
We rely on information technology systems to process, transmit and store electronic information in our day-to-day operations. Our information technology systems may be subjected to computer viruses or other malicious codes, unauthorized access attempts and cyber- or phishing-attacks. We also store certain information with third parties that could be subject to these types of attacks. These attacks could result in our intellectual property and other confidential information, including personal health information being lost or stolen, disruption of our operations, loss of reputation and other negative consequences, such as increased costs for security measures or remediation costs and diversion of management attention. While we have implemented protective measures to reduce the risk of and detect future cyber incidents and will continue to monitor the need for additional measures, cyber-attacks are becoming more sophisticated and frequent, and the techniques used in such attacks change rapidly. There can be no assurances that our protective measures will prevent future attacks that could have a material adverse effect on our business.
Risks Related to the Spin-off and Our Separation from Kimberly-Clark
We had no operating history as a separate company prior to the Spin-off, and prior to the Spin-off, our historical financial data were not necessarily representative of the results we would have achieved as a stand-alone publicly-traded company and therefore may not be reliable as an indicator of our performance.
The historical financial data included in this prospectus presents the results of operations and financial position of Kimberly-Clarks Health Care business through October 31, 2014 (the Spin-off date) and our results as a stand-alone public company from November 1, 2014 through March 31, 2015. Prior to the Spin-off date, the historical combined financial data presented the results and financial position of Kimberly-Clarks Health Care business that was transferred to us at the Spin-off date as that business was operated by Kimberly-Clark. Our historical financial data included in this prospectus for the periods prior to the Spin-off are derived from the
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historical consolidated financial statements and accounting records of Kimberly-Clark. Accordingly, this data may not be indicative of our future performance, or necessarily reflect what our financial position and results of operations or cash flows would have been, had we operated as a separate, stand-alone publicly-traded entity during all of the periods presented. This is because, among other things:
| Prior to the Spin-off, Kimberly-Clark performed various corporate functions for us, such as employee payroll and benefits administration, information technology services, financial and tax services, transportation and logistics, procurement services, order management and processing, regulatory compliance and other support services. Kimberly-Clark is continuing to provide some of these functions to us for a limited period of time (see Note 2, Separation from Kimberly-Clark, to our audited consolidated and combined financial statements included elsewhere in this prospectus). Our historical combined financial data reflects adjustments and allocations with respect to corporate and administrative costs relating to these functions that are less than the expenses we expect would have been incurred had we operated as a stand-alone company. |
| Prior to the Spin-off, our business was integrated with the other businesses of Kimberly-Clark. Historically, we shared economies of scale in costs, employees, vendor relationships and customer relationships with Kimberly-Clark. At the time of the Spin-off, we entered into transition agreements that govern certain commercial and other relationships between us and Kimberly-Clark after the distribution. Those transitional arrangements do not fully capture the benefits our business enjoyed as a result of being integrated with the other businesses of Kimberly-Clark. The loss of these benefits could have a material adverse effect on our results of operations, financial condition and cash flows. |
| Prior to the Spin-off, our working capital requirements and capital for our general corporate purposes, including acquisitions, research and development and capital expenditures, were satisfied as part of the corporate-wide cash management policies of Kimberly-Clark. Following the Spin-off, we may need to obtain additional financing from banks, public offerings or private placements of debt or equity securities, strategic relationships or other arrangements. |
| Subsequent to the Spin-off, the cost of capital for our business is higher than Kimberly-Clarks cost of capital prior to the distribution due to, among other reasons, our credit rating being lower than Kimberly-Clarks. |
| Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as a stand-alone company separate from Kimberly-Clark. |
For additional information about the historical financial performance of our business, see Unaudited Pro Forma Condensed Combined Financial Statements, Selected Historical Combined Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and our audited consolidated and combined financial statements and unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this prospectus.
Prior to the Spin-off, we had not previously operated as an independent company and our management team has been assembled for only a short time.
Prior to the Spin-off, we had not previously operated as an independent public company, and our management has limited experience, as a group, in operating our business as a stand-alone entity. Following the Spin-off, we became fully responsible for arranging our own funding, managing all of our own administrative and employee arrangements and supervising all of our legal and financial affairs, including publicly reported financial statements. We anticipate that our success in these endeavors will depend substantially upon the ability of our Board of Directors, senior management and other key employees to work together. Although the individual members of our Board of Directors and senior management team have significant experience, they previously have not worked together as a group. The inability of our Board of Directors or senior management to function cohesively could delay or prevent us from implementing fully our business strategy, which could have a
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material adverse effect on our ability to grow, operate as an independent company or compete effectively, which could negatively impact our results of operations, financial condition and cash flows.
We could incur significant tax liabilities if the distribution becomes a taxable event.
In connection with the Spin-off, Kimberly-Clark received an opinion from Baker Botts L.L.P. to the effect that the distribution of Halyard common stock qualified as a tax-free spin-off under Sections 368(a)(1)(D) and 355 of the Code. The opinion relied on certain facts, assumptions, representations and undertakings from Kimberly-Clark and us regarding the past and future conduct of the companies respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not satisfied, we could be subject to significant tax liabilities.
Notwithstanding Kimberly-Clarks receipt of the legal opinion from Baker Botts L.L.P., there can be no assurance that the U.S. Internal Revenue Service will determine that the distribution is not a taxable event, including as a result of certain significant changes in the share ownership of Kimberly-Clark or Halyard after the distribution. If the distribution is determined to be taxable for U.S. federal income tax purposes, we could incur significant U.S. federal income tax liabilities.
We may not be able to engage in certain corporate transactions for up to two years after the distribution.
To preserve the treatment to Kimberly-Clark of the separation and the distribution as a reorganization under Sections 368(a)(1)(D) and 355 of the Code, under the tax matters agreement that we entered into with Kimberly-Clark at the time of the Spin-off, we are restricted from taking any action that prevents the separation and distribution from satisfying the requirements for tax-free treatment under Sections 368(a)(1)(D) and 355 of the Code, which could limit our flexibility in planning for, or reacting to, changes in our business and industry and placing us at a competitive disadvantage to our competitors. Under the tax matters agreement, for the two-year period following the Spin-off date (the Restricted Period), we are prohibited, except in certain circumstances, from, among other things:
| selling 50 percent or more of the assets of the healthcare business or engaging in mergers or other strategic transactions that may result in any stockholder owning (as determined under U.S. federal income tax law) 40 percent or more (by vote or value) of the outstanding shares of Halyard stock, |
| repurchasing outstanding shares of our stock, other than in open market repurchases constituting less than 20 percent of such stock outstanding immediately following the distribution, and |
| ceasing to actively conduct our business or liquidating. |
The foregoing prohibitions are in some cases more restrictive than that required under the Code due to the potential significant liability to Kimberly-Clark and its stockholders were the separation and the distribution determined to be a taxable transaction. Under the tax matters agreement, we have the ability to engage in certain otherwise prohibited transactions, such as additional stock issuances or stock repurchases during the Restricted Period, provided we first deliver to Kimberly-Clark a tax opinion that doing so will not adversely affect the tax-free treatment of the Spin-off.
The foregoing restrictions may limit our ability to pursue certain strategic transactions or other transactions that we believe to be in the best interests of our stockholders or that might increase the value of our business. In addition, under the tax matters agreement, we are required to indemnify Kimberly-Clark against any tax liabilities incurred primarily as a result of the violation of any of the foregoing restrictions, as well as any transaction (or series of transactions) that results in the distribution being considered part of a plan by us that includes a later change in control of us during the Restricted Period (as determined under U.S. federal income tax law).
28
As we build our information technology infrastructure and transition our data to our own systems, we could incur substantial additional costs and experience temporary business interruptions.
We are installing and implementing information technology infrastructure to support our critical business functions, including systems relating to accounting and reporting, manufacturing process control, customer service, inventory control and distribution. We may incur temporary interruptions in business operations if we cannot transition effectively from Kimberly-Clarks existing transactional and operational systems and data centers and the transition services that support these functions as we replace these systems. We may not be successful in effectively and efficiently implementing our new systems and transitioning our data, and we may incur substantially higher costs for implementation than currently anticipated. Our failure to avoid operational interruptions as we implement the new systems and replace Kimberly-Clarks information technology services, or our failure to implement the new systems and replace Kimberly-Clarks services effectively and efficiently, could disrupt our business and could have a material adverse effect on our financial condition, results of operations and cash flows.
We may not realize potential benefits from the separation of our business from Kimberly-Clarks other businesses.
There is no assurance that we will realize the potential benefits that we expect from our separation from Kimberly-Clark. The separation and Spin-off is expected to provide the following benefits, among others: (1) the ability of Halyard to focus on its own strategic and operational plans; (2) more efficient allocation of capital for Halyard; (3) a distinct investment identity allowing investors to evaluate the merits, performance and future prospects of Halyard separately from those of Kimberly-Clark; and (4) more effective equity-based compensation and greater alignment of management interests with our business.
Following the Spin-off, we may not achieve these and other anticipated benefits for a variety of reasons, including, among others:
| we will not have the same access to the financial, managerial and professional resources from which we have benefited in the past and will incur significant costs, which may be greater than those for which we have planned, to replace these resources; |
| the transition to a stand-alone company may require significant amounts of managements time and effort, which may divert managements attention away from Halyards business; |
| certain costs and liabilities that were otherwise less significant to Kimberly-Clark as a whole are more significant to us as a stand-alone company; |
| we may be more susceptible to market fluctuations and other adverse events than if we were still a part of Kimberly-Clark; and |
| our business is significantly less diversified than Kimberly-Clarks business prior to the Spin-off. |
If we fail to achieve some or all of the benefits expected to result from the Spin-off, or if such benefits are delayed, our financial condition, results of operations and cash flows could be adversely affected and the value of Halyard common stock could be adversely impacted.
The transition services being provided to us by Kimberly-Clark for a limited time may be difficult for us to perform or replace without operational problems or additional cost.
At the time of the Spin-off, we entered into a transition services agreement with Kimberly-Clark pursuant to which we and Kimberly-Clark and both our respective affiliates are providing to each other certain transition services for a period of time following the Spin-off. These services include employee payroll and benefits administration, information technology services, financial services, transportation and logistics,
29
procurement services, order management and processing, regulatory compliance and other support services. If, after the expiration of the transition services agreement, we are unable to perform these services or replace them in a timely manner or on reasonable terms, we may experience operational problems and increased costs.
Following our separation from Kimberly-Clark, we may experience increased costs resulting from decreased purchasing power, which could decrease our overall profitability and cash flow.
As part of Kimberly-Clark, we were able to take advantage of Kimberly-Clarks size and purchasing power in procuring goods, services and technology, such as management information services, health insurance, pension and other employee benefits, payroll administration, risk management, tax and other services. As a separate, stand-alone entity following the Spin-off, we may have to pay higher costs for certain materials used in our products due to a decline in purchasing scale if we are unable to obtain other similar goods, services and technology at prices or on terms as favorable as those obtained prior to the distribution.
30
This exchange offer is intended to satisfy our obligations under the registration rights agreement into which we entered when we issued the old notes. We will not receive any proceeds from the exchange offer. Any old notes that are properly tendered and exchanged pursuant to the exchange offer will be retired and cancelled and cannot be reissued. The issuance of the new notes under the exchange offer will not result in any increase in our outstanding indebtedness.
The net proceeds to us from the sale of the old notes were approximately $245.5 million.
31
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our historical earnings to fixed charges for the periods indicated. This information should be read in conjunction with our audited consolidated and combined financial statements and unaudited condensed consolidated financial statements and the accompanying notes included elsewhere in this prospectus.
Three Months Ended
March 31, 2015 |
Year Ended December 31, | |||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||
Ratio of earnings to fixed charges |
4.4 | 8.2 | 38.3 | 43.6 | 45.7 | 28.6 |
32
The following table sets forth our actual cash, cash equivalents and capitalization as of March 31, 2015. The information below should be read together with Managements Discussion and Analysis of Financial Condition and Results of Operations and our audited consolidated and combined financial statements and unaudited condensed consolidated financial statements and the accompanying notes included elsewhere in this prospectus.
As of
March 31, 2015 |
||||
Cash and cash equivalents |
$ | 166.2 | ||
|
|
|||
Indebtedness: |
||||
Senior Notes due 2022 |
$ | 250.0 | ||
Senior secured term loan |
385.3 | |||
Revolving credit facility |
| |||
|
|
|||
Total indebtedness: |
635.3 | |||
|
|
|||
Equity: |
||||
Common stock |
0.5 | |||
Additional paid-in capital |
1,507.9 | |||
Retained earnings |
29.0 | |||
Accumulated other comprehensive loss |
(25.6 | ) | ||
|
|
|||
Total stockholders equity |
1,511.8 | |||
|
|
|||
Total capitalization |
$ | 2,147.1 | ||
|
|
33
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements consist of unaudited pro forma condensed combined income statements for the three months ended March 31, 2014 and year ended December 31, 2014. The unaudited pro forma condensed combined financial statements should be read in conjunction with the information under Selected Historical Consolidated and Combined Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and the audited historical consolidated and combined financial statements as of December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013, and 2012 and the related notes thereto and the unaudited historical condensed consolidated financial statements as of March 31, 2015 and December 31, 2014 and for the three months ended March 31, 2015 and 2014 and the related notes thereto included elsewhere in this prospectus. The unaudited pro forma condensed combined income statements have been adjusted to give effect to the Pro Forma Transactions (as described in the Notes to Unaudited Pro Forma Condensed Combined Financial Statements) as if the Pro Forma Transactions had occurred or had become effective as of January 1, 2014. A pro forma balance sheet as of March 31, 2015 and December 31, 2014 and pro forma income statement for the three months ended March 31, 2015 have not been included, as the effect of the Pro Forma Transactions is already reflected within the audited historical consolidated balance sheet as of December 31, 2014 and the unaudited historical condensed consolidated financial statements as of and for the three months ended March 31, 2015 included elsewhere in this prospectus.
The unaudited pro forma condensed combined financial statements included in this prospectus have been derived from the historical consolidated and combined financial statements included elsewhere in this prospectus and do not purport to represent what our results of operations would have been had the Spin-off and related transactions occurred on the dates indicated or to project our financial performance for any future period. In addition, the unaudited pro forma condensed combined financial statements are provided for illustrative and informational purposes only and are not necessarily indicative of our future results of operations as a separate, stand-alone public company. The pro forma adjustments are based upon currently available information and certain assumptions that we believe are reasonable, but actual results may differ materially from the pro forma adjustments.
Kimberly-Clark did not account for us as, and we were not operated as, a separate, stand-alone public company prior to the Spin-off. Our unaudited pro forma condensed combined financial statements have been prepared to reflect adjustments to our audited historical consolidated and combined financial statements for the year ended December 31, 2014 and the unaudited historical combined financial statements for the three months ended March 31, 2014 that are (1) directly attributable to the Pro Forma Transactions; (2) factually supportable; and (3) expected to have a continuing impact on our results of operations. The unaudited pro forma condensed combined financial statements have been adjusted to give effect to the notes and borrowing under the Term Loan Facility, and the impact of, and transactions contemplated by, the distribution agreement and royalty agreement between us and Kimberly-Clark.
Transition Services Agreement
We entered into a transition services agreement with Kimberly-Clark prior to the Spin-off pursuant to which we and Kimberly-Clark and our and their respective affiliates provide to each other for an agreed-upon charge, on an interim, transitional basis, various services, including, but not limited to, employee payroll and benefits administration, information technology services, financial and tax services, transportation and logistics, procurement services, order management and processing, regulatory compliance and other support services. Charges under the transition services agreement were approximately $11 million in 2014 and are expected to be approximately $42 million in 2015. No pro forma adjustments have been made for these expenses. The services generally commenced on the Spin-off date for a term of up to two years following the Spin-off date.
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Corporate Allocations and Stand-Alone Public Company Costs
Kimberly-Clark provided certain corporate services to us, and costs associated with these functions have been allocated to us. These corporate services provided to us by Kimberly-Clark include executive management, supply chain, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury and other services. In addition, stock-based compensation expense attributable to our employees and an allocation of stock-based compensation attributable to employees of Kimberly-Clark, have been included. The costs of such services have been allocated to us based on the most relevant allocation method to the service provided, primarily based on relative percentage of total net sales, relative percentage of headcount or specific identification. The total amount of these allocations from Kimberly-Clark was approximately $74 million in the year ended December 31, 2014. These cost allocations are reflected within cost of products sold, selling and general expenses, and research and development in our audited historical consolidated and combined income statement for the three years ended December 31, 2014, 2013, and 2012 as described in Note 18 to our historical consolidated and combined financial statements and in our unaudited historical condensed consolidated income statement for the three months ended March 31, 2014 as described in Note 12 to our unaudited historical condensed consolidated financial statements appearing elsewhere in this prospectus. Management believes the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by us during the periods presented. Following the Spin-off, Kimberly-Clark has continued to provide many of these services related to these functions on a transitional basis for a fee pursuant to the transition services agreements described above.
Upon the Spin-off, we assumed responsibility for all of our stand-alone public company costs, including the costs of services provided by Kimberly-Clark. During the year ended December 31, 2014, we incurred approximately $74 million in corporate cost allocation from Kimberly-Clark for these services. We estimate that our aggregate annual expense for these costs will be approximately $146 million, including incremental expenses of $40 million per year of cash expense and $11 million per year of additional depreciation and amortization expense. In addition, as a result of the Spin-Off, we expect to incur additional ongoing net expenses that we estimate will be approximately $29 million on an annual basis related primarily to (1) a decline of purchasing scale, (2) stranded facility costs as a result of excess manufacturing capacity in certain facilities and underutilization of certain of our distribution facilities and inefficiencies in shipping costs and (3) a reduction in related party sales.
In addition, as a result of the Spin-Off, we expect to incur $60 million to $75 million of transitional costs after the Spin-Off through 2016 to establish our own capabilities as a stand-alone entity. These costs are related primarily to the transition services we expect to receive from Kimberly-Clark, as well as our branding and other supply chain transition costs.
No pro forma adjustments have been made for these stand-alone costs.
The unaudited pro forma condensed combined income statements also exclude certain non-recurring items that we incurred in connection with the Pro Forma Transactions, including costs related to legal, accounting and consulting services, which were $89 million in 2014. All of these costs were expensed.
35
HALYARD HEALTH, INC.
Unaudited Pro Forma Condensed Combined Income Statement
For the Three Months Ended March 31, 2014
(dollars in millions)
Historical |
Pro Forma
Adjustments |
Pro Forma | ||||||||||
Net Sales |
$ | 410.7 | $ | (5.6 | ) (c) | $ | 405.1 | |||||
Cost of products sold |
255.7 | (5.1 | ) (c) | 250.6 | ||||||||
|
|
|
|
|
|
|||||||
Gross Profit |
155.0 | (0.5 | ) | 154.5 | ||||||||
Research and development expenses |
8.3 | | 8.3 | |||||||||
Selling and general expenses |
85.5 | (4.4 | ) (a) (b) | 81.1 | ||||||||
Other income, net |
(0.5 | ) | | (0.5 | ) | |||||||
|
|
|
|
|
|
|||||||
Operating Profit |
61.7 | 3.9 | 65.6 | |||||||||
Interest income |
1.0 | | 1.0 | |||||||||
Interest expense |
| (8.5 | ) (d) | (8.5 | ) | |||||||
|
|
|
|
|
|
|||||||
Income Before Income Taxes |
62.7 | (4.6 | ) | 58.1 | ||||||||
Provision for income taxes |
(21.3 | ) | 1.0 | (e) | (20.3 | ) | ||||||
|
|
|
|
|
|
|||||||
Net Income |
$ | 41.4 | $ | (3.6 | ) | $ | 37.8 | |||||
|
|
|
|
|
|
|||||||
Pro forma earnings per share |
||||||||||||
Basic |
$ | 0.81 | ||||||||||
|
|
|||||||||||
Diluted |
$ | 0.81 | ||||||||||
|
|
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
36
HALYARD HEALTH, INC.
Unaudited Pro Forma Condensed Combined Income Statement
For the Year Ended December 31, 2014
(dollars in millions)
Historical |
Pro Forma
Adjustments |
Pro Forma | ||||||||||
Net Sales |
$ | 1,672.1 | $ | (19.6 | ) (c) | $ | 1,652.5 | |||||
Cost of products sold |
1,123.5 | (22.3 | ) (c) | 1,101.2 | ||||||||
|
|
|
|
|
|
|||||||
Gross Profit |
548.6 | 2.7 | 551.3 | |||||||||
Research and development expenses |
33.6 | (0.1 | ) (b) | 33.5 | ||||||||
Selling and general expenses |
424.5 | (75.6 | ) (a) (b) | 348.9 | ||||||||
Other income, net |
(3.8 | ) | | (3.8 | ) | |||||||
|
|
|
|
|
|
|||||||
Operating Profit |
94.3 | 78.4 | 172.7 | |||||||||
Interest income |
2.9 | | 2.9 | |||||||||
Interest expense |
(6.0 | ) | (28.3 | ) (d) | (34.3 | ) | ||||||
|
|
|
|
|
|
|||||||
Income Before Income Taxes |
91.2 | 50.1 | 141.3 | |||||||||
Provision for income taxes |
(64.1 | ) | 11.4 | (e) | (52.7 | ) | ||||||
|
|
|
|
|
|
|||||||
Net Income |
$ | 27.1 | $ | 61.5 | $ | 88.6 | ||||||
|
|
|
|
|
|
|||||||
Pro forma earnings per share |
||||||||||||
Basic |
$ | 1.90 | ||||||||||
|
|
|||||||||||
Diluted |
$ | 1.90 | ||||||||||
|
|
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
37
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(a) | Intellectual Property Agreements |
We entered into a royalty agreement under which we have access to use the Kimberly-Clark brand for up to 24 months as we manage the packaging changes with global regulatory bodies. Royalties are required to be paid for products sold bearing the Kimberly-Clark brand only. These royalties are included in the actual results for the periods from November 1, 2014 through December 31, 2014. The royalties are included in selling and general expenses and were estimated to be approximately $3 million for the three months ended March 31, 2014 and $9 million for the period from January 1, 2014 through October 31, 2014.
(b) | Transaction Costs |
We incurred costs related to our separation from Kimberly-Clark of $7 million for the three months ended March 31, 2014, which are included in selling and general expenses. For the period from January 1, 2014 through October 31, 2014, we incurred $89 million of costs related to our separation from Kimberly-Clark, of which $4 million are included in cost of products sold and $85 million are included in selling and general expenses.
(c) | Related Party Sales |
The unaudited pro forma condensed combined income statements reflect an adjustment to eliminate related party sales associated with certain feminine care products manufactured by Halyard for Kimberly-Clark that were discontinued upon our separation from Kimberly-Clark. The net effect of these sales was a decrease in net sales of $6 million and cost of products sold of $5 million for the three months ended March 31, 2014 and net sales of $20 million and cost of products sold of $18 million for the period from January 1, 2014 through October 31, 2014.
(d) | Debt Financing |
We issued 6.25% senior unsecured notes for $250 million and a senior secured term loan for $390 million (bearing interest at 4.00% as of December 31, 2014) in conjunction with our spin-off from Kimberly-Clark. The unaudited pro forma condensed combined income statements include incremental interest expense of $9 million for the three months ended March 31, 2014 and $28 million for the year ended December 31, 2014.
(e) | Resulting Tax Effects |
The tax effects for the items noted in (a) through (d) resulted in a decrease in the provision for income taxes of $1 million for the three months ended March 31, 2014 and a decrease of $11 million for the year ended December 31, 2014 at an assumed tax rate of 33% for deductible expenses.
Pro Forma Earnings Per Share
The average number of common shares outstanding is reconciled to those used in the pro forma basic and diluted earnings per share computations as follows as of March 31, 2014 and December 31, 2014 (thousands of shares):
As of
March 31, 2014 |
As of
December 31, 2014 |
|||||||
Basic weighted average shares outstanding |
46,536 | 46,536 | ||||||
Dilutive effect of stock options and restricted share units |
| 2 | ||||||
|
|
|
|
|||||
Diluted weighted average shares outstanding |
46,536 | 46,538 | ||||||
|
|
|
|
38
SELECTED HISTORICAL CONSOLIDATED AND COMBINED FINANCIAL DATA
The following selected historical consolidated and combined financial data should be read in conjunction with our audited historical consolidated and combined financial statements and unaudited historical condensed consolidated financial statements and the related notes thereto included elsewhere in this prospectus, Unaudited Pro Forma Condensed Combined Financial Statements and Managements Discussion and Analysis of Financial Condition and Results of Operations.
Three Months Ended
March 31, |
Year Ended December 31, | |||||||||||||||||||||||||||
2015 | 2014 | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||||
Income Statement Data: |
||||||||||||||||||||||||||||
Net Sales |
$ | 394.2 | $ | 410.7 | $ | 1,672.1 | $ | 1,677.5 | $ | 1,684.0 | $ | 1,659.9 | $ | 1,495.8 | ||||||||||||||
Gross Profit |
132.1 | 155.0 | 548.6 | 612.2 | 602.5 | 590.8 | 543.6 | |||||||||||||||||||||
Operating Profit |
40.9 | 61.7 | 94.3 | 225.3 | 228.0 | 210.7 | 157.6 | |||||||||||||||||||||
Income Before Income Taxes |
32.7 | 62.7 | 91.2 | 227.8 | 229.8 | 214.6 | 159.9 | |||||||||||||||||||||
Net Income (a) (b) (c) |
21.7 | 41.4 | 27.1 | 154.6 | 152.6 | 142.4 | 88.0 | |||||||||||||||||||||
Earnings Per Share: |
||||||||||||||||||||||||||||
Basic |
$ | 0.47 | $ | 0.89 | $ | 0.58 | $ | 3.32 | $ | 3.28 | $ | 3.06 | $ | 1.89 | ||||||||||||||
Diluted |
$ | 0.46 | $ | 0.89 | $ | 0.58 | $ | 3.32 | $ | 3.28 | $ | 3.06 | $ | 1.89 |
(a) | Net income for the three months ended March 31, 2015 includes a gain on the sale of the disposable glove facility in Thailand of $8 million, net of tax, and $7 million, net of tax, for Spin-off related transition charges. See Note 2 in the Notes to the Unaudited Condensed Consolidated Financial Statements. |
(b) | Net income for the three months ended March 31, 2014 includes $4 million, net of tax, for Spin-off related transaction charges. |
(c) | Net income for the year ended December 31, 2014 includes charges of $88 million, net of tax, related to the Spin-off (see Note 2 in the Notes to the Consolidated and Combined Financial Statements, Separation from Kimberly-Clark) and $47 million, net of tax, related to our strategic changes to our manufacturing footprint (see Note 3 in the Notes to the Consolidated and Combined Financial Statements, Manufacturing Footprint Strategic Changes) and $8 million, net of tax, related to post Spin-off transition charges (see Note 2 in the Notes to the Consolidated and Combined Financial Statements, Separation from Kimberly-Clark). |
As of March 31, |
As of December 31, | |||||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||||||
Cash |
$ | 166.2 | $ | 149.0 | $ | 44.1 | $ | 47.9 | $ | 20.1 | $ | 34.3 | ||||||||||||
Property, Plant and Equipment, Net |
281.8 | 277.8 | 324.9 | 325.7 | 320.0 | 326.4 | ||||||||||||||||||
Total Assets |
2,536.4 | 2,527.6 | 2,484.0 | 2,534.2 | 2,509.5 | 2,518.3 | ||||||||||||||||||
Debt |
635.3 | 636.2 | 11.9 | 75.9 | 100.0 | 88.2 | ||||||||||||||||||
Stockholders Equity |
1,511.8 | 1,491.2 | | | | | ||||||||||||||||||
Kimberly-Clarks Net Investment |
| | 2,098.7 | 2,045.6 | 2,000.9 | 1,981.6 |
39
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
This managements discussion and analysis is intended to provide investors with an understanding of our recent performance, financial condition and prospects and should be read in conjunction with our audited historical combined financial statements for the year ended December 31, 2014 and our unaudited historical combined financial statements for the three months ended March 31, 2015 and the related notes thereto included elsewhere in this prospectus. This managements discussion and analysis represents the global operations of Halyard and its subsidiaries as an independent publicly-traded company following the Spin-off, and a combined reporting entity comprising the financial position, results of operations and cash flows of Kimberly-Clarks Health Care business prior to the Spin-off. The results of operations of our business after the Spin-off will be significantly different than the results of operations of our business prior to the Spin-off. This difference results from, among other things, the impact of debt incurred, the impact of our operating as a separate, stand-alone public company, and the impact of, and transactions contemplated by, the various agreements between us and Kimberly-Clark. The following are discussed and analyzed below:
| Overview of Business |
| Separation from Kimberly-Clark |
| Spin-Related Transaction and Transition Costs |
| Results of Operations and Related Information |
| Unaudited Quarterly Data |
| Liquidity and Capital Resources |
| Critical Accounting Policies and Use of Estimates |
| Legal Matters |
| Quantitative and Qualitative Disclosures About Market Risk |
Overview of Business
Halyard is a global company which seeks to advance health and healthcare by preventing infection, eliminating pain and speeding recovery. Our products and solutions are designed to address some of todays most important healthcare needs, namely, preventing infection and reducing the use of narcotics while helping patients move from surgery to recovery. We market and support the efficacy, safety and economic benefit of our products with a significant body of clinical evidence. We have two business segments: Surgical and Infection Prevention (S&IP) and Medical Devices.
Separation from Kimberly-Clark
In November 2013, Kimberly-Clark announced its intention to evaluate a potential tax-free Spin-off of our business. The Spin-off was completed on October 31, 2014 and at that time we became a stand-alone publicly-traded company. Prior to the Spin-off, we engaged in a series of transactions with Kimberly-Clark that were designed to transfer ownership of Kimberly-Clarks Health Care business to us. Prior to the Spin-off, we borrowed $640 million through the issuance of the notes and a secured term loan. We used the net proceeds from the notes and the secured term loan to fund a portion of a $680 million cash distribution we made to Kimberly-Clark prior to the Spin-off. Following the Spin-off, we became a separate public company, and Kimberly-Clark has no continuing stock ownership in us.
40
Prior to the Spin-off, we entered into a distribution agreement with Kimberly-Clark. In connection with the Spin-off, we also entered into various other agreements to effect the separation of our business from Kimberly-Clarks other businesses and set forth our contractual relationships with Kimberly-Clark after the Spin-off. These agreements provide for the allocation, between us and Kimberly-Clark, of Kimberly-Clarks assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after the Spin-off. The agreements include a transition services agreement, a tax matters agreement, an employee matters agreement, intellectual property agreements and manufacturing and supply agreements.
At the time of the Spin-off, we assumed responsibility for all of our stand-alone public company costs, including the costs of corporate services provided by Kimberly-Clark prior to the Spin-off. The corporate services provided to us included executive management, supply chain, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury and other services. We estimate that our aggregate annual expense for these costs will be $146 million, including incremental cash expenses of $40 million per year and $11 million per year of additional depreciation expense. In addition, as a result of the separation and Spin-off, we expect to incur additional ongoing net expenses that we estimate will be approximately $29 million on an annual basis, related primarily to: (1) a decline in purchasing scale; (2) stranded facility costs as a result of excess manufacturing capacity in certain facilities, underutilization of certain of our distribution facilities and inefficiencies in shipping costs; and (3) a reduction in sales to Kimberly-Clark.
Spin-Related Transaction and Transition Costs
We expect to incur $60 to $75 million of transitional costs following the Spin-off through 2016 to establish our own capabilities as a stand-alone entity. These costs are related primarily to the activities described below. Through the Spin-off date, we incurred $89 million of transaction-related costs.
Completion of the Sale of Disposable Glove Facility
In 2014, Kimberly-Clark initiated a plan to exit one of the disposable glove facilities in Thailand and outsource the related production to improve the underlying profitability and return on invested capital of our surgical and infection prevention business. The plan resulted in a reduction of our workforce by approximately 2,500 positions and cumulative charges of $57 million ($47 million after-tax) through the Spin-off date that were recognized in cost of sales. The charges consisted of non-cash asset impairment of $42 million, accelerated depreciation of $10 million and workforce reduction and other exit cash costs of $5 million.
The asset impairment charge was based on the excess of the carrying value of the impacted asset group of about $94 million over its fair value of $52 million. The fair value was measured using discounted cash flows expected over the time the asset group would remain in use. The use of the discounted cash flows represents a level 3 measure under the fair value hierarchy.
Following the Spin-off, we incurred additional costs of $3 million ($2 million net of tax) primarily for accelerated depreciation through December 8, 2014. Payments of $5 million were made for severance and other costs in 2014, and there were no remaining accrued expenses related to the sale as of December 31, 2014.
On December 8, 2014, we entered into a definitive agreement to sell the disposable glove facility to a third party. We received advance cash payments of $8 million before the end of 2014, which is included in Accrued Expenses in the accompanying audited consolidated and combined balance sheet. The net book value of the assets is classified as Assets Held for Sale in the accompanying audited consolidated and combined balance sheet. The sale closed in January 2015, resulting in a gain on sale of $12 million, which was recorded in the first quarter of 2015.
41
Manufacturing Alignment, Marketing and Rebranding and Incremental Transition Services from Kimberly-Clark
As a result of the Spin-off, we are making changes to our plant and equipment, primarily in North America, to align with our manufacturing requirements. These changes include modifications to certain equipment and the movement of health-care equipment from Kimberly-Clark locations to Halyard facilities.
We are undertaking efforts to ensure our customers transition from the Kimberly-Clark brand to our Halyard-branded products. We have entered into a royalty agreement under which we have access to use the Kimberly-Clark brand for up to 24 months as we manage the packaging changes with global regulatory bodies. Royalties are required to be paid for products sold bearing the Kimberly-Clark brand only. In addition to the royalty expense, we expect to incur costs for packaging, marketing and regulatory approval in order to complete this transition.
While building our own capabilities as a stand-alone company, we have entered into transition service agreements with Kimberly-Clark to provide temporary supporting services until we have the necessary resources and infrastructure in place.
From the Spin-off through December 31, 2014, we incurred $12 million ($8 million net of tax) for the above programs. In the three months ended March 31, 2015, we incurred $11 million ($7million net of tax) for the above programs.
Results of Operations and Related Information for the Three Months Ended March 31, 2015 Compared to the Same Period in 2014
This section presents a discussion and analysis of our net sales, operating profit and other information relevant to an understanding of our results of operations. This discussion and analysis compares the results for the three months ended March 31, 2015 to the same period in 2014.
Net Sales by Segment
(in millions) |
Three Months Ended March 31, | |||||||||||
2015 | 2014 | Change | ||||||||||
Net Sales |
||||||||||||
Surgical and Infection Prevention |
$ | 254.8 | $ | 275.5 | (7.5 | )% | ||||||
Medical Devices |
122.3 | 129.6 | (5.6 | ) | ||||||||
Corporate & Other |
17.1 | 5.6 | N.M. | |||||||||
|
|
|
|
|||||||||
Total Net Sales |
$ | 394.2 | $ | 410.7 | (4.0 | )% | ||||||
|
|
|
|
N.M. - Not meaningful
Percentage Change
Changes Due To | ||||||||||||||||||||
2015 vs. 2014 |
Total | Volume | Pricing/Mix | Currency | Other (a) | |||||||||||||||
Consolidated |
(4 | )% | (1 | )% | (1 | )% | (2 | )% | | % | ||||||||||
S&IP |
(8 | ) | (4 | ) | (1 | ) | (3 | ) | | |||||||||||
Medical Devices |
(6 | ) | (3 | ) | (1 | ) | (1 | ) | (1 | ) |
(a) | Other includes rounding. |
42
Sales for the three months ended March 31, 2015 of $394 million were 4% lower compared to the same period last year due to lower sales volume, selling prices and unfavorable changes in currency exchange rates. Sales in the three months ended March 31, 2015 includes $17 million of sales to Kimberly-Clark which is included in Corporate and Other related to the sale of non-woven materials.
Surgical and Infection Prevention
S&IP net sales decreased 8% to $255 million compared to net sales of $276 million in the prior year driven by lower volume across the majority of our product categories, unfavorable pricing in exam gloves and sterilization and unfavorable changes in currency exchange rates.
Medical Devices
Medical Devices net sales decreased 6% to $122 million, compared to net sales of $130 million in the prior year driven by lower volume in respiratory health, lower volume and selling prices in surgical pain and unfavorable changes in currency exchange rates partially offset by volume gains in digestive health and interventional pain management and higher net selling prices in interventional pain management.
Net Sales By Geographic Region
(in millions) |
Three Months Ended March 31, | |||||||||||
2015 | 2014 | Change | ||||||||||
Net Sales (a) |
||||||||||||
North America |
$ | 303.0 | $ | 300.7 | 0.8 | % | ||||||
Europe, Middle East and Africa |
48.4 | 60.8 | (20.4 | ) | ||||||||
Asia Pacific and Latin America |
42.8 | 49.2 | (13.0 | ) | ||||||||
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|
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Total Net Sales |
$ | 394.2 | $ | 410.7 | (4.0 | )% | ||||||
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(a) | Prior year sales to Kimberly-Clark of $21.3 million have been allocated to the regions for comparative purposes. |
Net sales in North America increased by 1% driven primarily by sales of non-woven materials to Kimberly-Clark, increased S&IP volume in facial protection, higher Medical Devices volume in surgical pain management partially offset by lower S&IP volume in exam gloves, surgical wraps, drapes and gowns and lower Medical Devices volume in surgical pain.
Net sales in Europe, Middle East and Africa decreased 20% primarily due to lower S&IP volume in exam gloves and surgical solutions and lower Medical Devices volume in surgical pain and unfavorable changes in currency exchange rates.
In Asia Pacific and Latin America, net sales decreased 13% driven primarily by unfavorable currency exchange rates and lower S&IP volume in sterilization and surgical solutions partially offset by S&IP volume growth in facial protection and exam gloves and higher selling prices.
43
Operating Profit by Segment
Three Months Ended March 31, | ||||||||||||
2015 | 2014 | Change | ||||||||||
Operating Profit |
||||||||||||
Surgical and Infection Prevention |
$ | 19.5 | $ | 40.1 | (51.4 | )% | ||||||
Medical Devices |
24.8 | 31.4 | (21.0 | ) | ||||||||
Corporate and Other (a) |
(15.4 | ) | (10.3 | ) | 49.5 | |||||||
Other income and (expense), net (b) |
12.0 | 0.5 | N.M. | |||||||||
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Total Operating Profit |
$ | 40.9 | $ | 61.7 | (33.7 | )% | ||||||
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(a) | Corporate and Other for the three months ended March 31, 2015 includes $11 million of post-spin related transition expenses. Corporate and Other for the three months ended March 31, 2014 includes $7 million of spin-off related transaction costs. |
(b) | Other income, net includes a $12 million gain on the disposal of one of our disposable glove facilities in Thailand. |
Operating profit for the three months ended March 31, 2015 was $41 million compared to $62 million in the same period last year due to lower sales and higher distribution costs and general expenses primarily related to spin-related items partially offset by a $12 million gain realized on the sale of our glove manufacturing facility in Thailand.
Surgical and Infection Prevention
S&IP operating profit decreased 51% to $20 million, compared to operating profit of $40 million in the prior year driven by lower sales, higher distribution costs, unfavorable changes in currency exchange rates, and higher general expenses primarily related to spin-related items and stand-alone costs partially offset by lower raw material costs, primarily related to oil-based polymers.
Medical Devices
Medical Devices operating profit decreased 21% to $25 million, compared to operating profit of $31 million in the prior year driven by lower sales and higher general expenses primarily related to spin-related items and stand-alone costs.
Interest Income and Expense
In the three months ended March 31, 2015, we incurred interest expense of $8 million on our senior secured term loan and senior unsecured notes. In the three months ended March 31, 2014, we earned $1 million of interest income.
Provision for Income Taxes
The provision for income taxes was $11 million for the three months ended March 31, 2015 compared to $21 million in the prior year. Our effective tax rate for the three months ended March 31, 2015 was 34% compared to 34% in the prior year.
Results of Operations and Related Information for 2014 Compared to 2013 and 2013 Compared to 2012
This section presents a discussion and analysis of our net sales, operating profit and other information relevant to an understanding of our results of operations. This discussion and analysis compares 2014 results to 2013 results, and 2013 to 2012.
44
Net Sales
Year Ended December 31, | ||||||||||||||||||||
(in millions) |
2014 | 2013 | Change | 2012 | Change | |||||||||||||||
Business Segment |
||||||||||||||||||||
Surgical and Infection Prevention |
$ | 1,139.3 | $ | 1,153.1 | (1.2 | )% | $ | 1,185.1 | (2.7 | )% | ||||||||||
Medical Devices |
501.7 | 499.0 | 0.5 | 477.6 | 4.5 | |||||||||||||||
Corporate and Other |
31.1 | 25.4 | N.M. | 21.3 | N.M. | |||||||||||||||
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|
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|
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Total Net Sales |
$ | 1,672.1 | $ | 1,677.5 | (0.3 | )% | $ | 1,684.0 | (0.4 | )% | ||||||||||
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Percentage Change
Changes Due To | ||||||||||||||||||||
Total | Volume | Pricing / Mix | Currency | Other (a) | ||||||||||||||||
2014 vs. 2013 |
||||||||||||||||||||
Consolidated |
| % | 2 | % | (1 | )% | (1 | )% | | % | ||||||||||
S&IP |
(1 | ) | 1 | (1 | ) | (1 | ) | | ||||||||||||
Medical Devices |
1 | 2 | (1 | ) | | | ||||||||||||||
2013 vs. 2012 |
||||||||||||||||||||
Consolidated |
| % | 1 | % | | % | (1 | )% | | % | ||||||||||
S&IP |
(3 | ) | (1 | ) | | (1 | ) | (1 | ) | |||||||||||
Medical Devices |
4 | 5 | 1 | (1 | ) | (1 | ) |
(a) | Other includes rounding. |
Net Sales by Segment - 2014 Compared to 2013
Full-year 2014 net sales of $1.7 billion were even compared to 2013 as volume growth of 2% was offset by the impact of price and unfavorable changes in currency exchange rates.
Surgical and Infection Prevention
S&IP net sales decreased 1% to $1.1 billion, compared to net sales of $1.2 billion in the prior year driven by lower pricing across the majority of our categories, net unfavorable changes in currency exchange rates primarily in Asia Pacific and Latin America partially offset by volume growth in facial protection, sterilization and surgical drapes and gowns.
Medical Devices
Net sales of Medical Devices increased 1% to $502 million compared to $499 million in the prior year driven by volume growth in digestive health, respiratory health and interventional pain management partially offset by lower selling prices in digestive health and respiratory health and net unfavorable changes in currency exchange rates due to the weakening of the Australian dollar and the Japanese yen.
Net Sales by Segment - 2013 Compared to 2012
Net sales of $1.7 billion in 2013 were essentially even with the prior year as a 1% unfavorable change in foreign currency exchange rates were mostly offset by increased sales volumes of 1%.
45
Surgical and Infection Prevention
Net sales of $1.2 billion decreased 3%, as sales volumes and unfavorable currency rates each negatively impacted net sales by 1%. The decrease in sales volumes resulted from contract losses in certain low profitability accounts largely in the medical exam glove category partially offset by increased sales volume of facial protection products due to a severe flu season in all regions and sales of surgical drapes and gowns in North America.
Medical Devices
Net sales of $499 million increased 4%, as higher sales volumes of 5% and improved product mix (i.e., the impact of a shift in the composition of products sold) were partially offset by a 1% unfavorable change in currency exchange rates. For the volume improvement, a supply chain disruption experienced by a competitor in Europe, Middle East and Africa surgical pain business contributed 2% of the gain while the respiratory and digestive health businesses each added 1% respectively.
Year Ended December 31, | ||||||||||||||||||||
(in millions) |
2014 | 2013 | Change | 2012 | Change | |||||||||||||||
Geography |
||||||||||||||||||||
North America |
$ | 1,168.8 | $ | 1,147.7 | 1.8 | % | $ | 1,136.8 | 1.0 | % | ||||||||||
Europe, Middle East and Africa |
224.1 | 231.9 | (3.4 | ) | 226.8 | 2.2 | ||||||||||||||
Asia Pacific and Latin America |
201.1 | 206.6 | (2.7 | ) | 227.8 | (9.3 | ) | |||||||||||||
Related Party |
78.1 | 91.3 | (14.5 | ) | 92.6 | (1.4 | ) | |||||||||||||
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|
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|
|||||||||||||||
Total Net Sales |
$ | 1,672.1 | $ | 1,677.5 | (0.3 | )% | $ | 1,684.0 | (0.4 | )% | ||||||||||
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Net Sales by Geographic Region - 2014 Compared to 2013
Net sales in North America were up 2% compared to 2013 driven primarily by S&IP volume gains in facial protection, sterilization wrap and surgical drapes and gowns and Medical Devices volume gains in interventional pain management, digestive health and respiratory health. This was partially offset by lower selling prices in S&IP primarily in sterilization wrap and exam gloves and lower Medical Devices selling prices for respiratory health and digestive health.
In Europe, Middle East and Africa, net sales decreased 3% driven primarily by lower S&IP volume for exam gloves and surgical drapes and gowns, lower Medical Devices volume in surgical pain and lower selling prices for respiratory health and surgical pain. This was partially offset by increased S&IP volume in facial protection, Medical Devices volume in digestive health and favorable currency exchange rates driven primarily by the strengthening of the euro relative to the U.S. dollar.
In Asia Pacific and Latin America, net sales decreased 3% driven by unfavorable currency exchange rates due primarily to the weakening Australian dollar and the Japanese yen relative to the U.S. dollar. This was partially offset by increased demand for S&IP products primarily in surgical drapes and gowns, sterilization wrap and exam gloves and Medical Devices volume in surgical pain and increased selling prices.
Net Sales by Geographic Region - 2013 Compared to 2012
Net sales in North America increased 1% due primarily to increased Medical Devices volume in respiratory and digestive health products. Respiratory health sales benefited from a severe flu season accompanied by pandemic orders, new contract gains and ongoing expansion into the non-acute care markets. Digestive health sales were driven by market growth and a competitors exit from the enteral feeding tube market where we were able to gain a large portion of the stranded sales. There were also increased S&IP volume in
46
surgical drapes and gowns resulting from improved GPO contract positions as well as new product introductions and an increase in facial protection due to a severe flu season, partially offset lower volume in medical exam gloves.
Net sales in Europe, Middle East and Africa increased 2% primarily due to increased demand in Medical Devices associated with a supply chain disruption experienced by a competitor, modest increases in S&IP volume in sterilization wrap and facial protection and favorable currency rates partially offset by reduced S&IP sales volume in medical exam gloves and surgical drapes and gowns and reduced S&IP net selling prices. The decreased sales volume in medical exam gloves and surgical drapes and gowns was reduced in certain less profitable accounts.
Net sales in Asia Pacific and Latin America decreased 9% primarily due to the weakening of the Japanese yen and the Australian dollar relative to the U.S. dollar and reduced Medical Devices sales volume partially offset by higher Medical Devices net selling prices.
Operating Profit
Year Ended December 31, | ||||||||||||||||||||
2014 | 2013 | Change | 2012 | Change | ||||||||||||||||
Business Segment |
||||||||||||||||||||
Surgical and Infection Prevention |
$ | 166.3 | $ | 151.2 | 10.0 | % | $ | 155.2 | (2.6 | )% | ||||||||||
Medical Devices |
104.6 | 85.6 | 22.2 | 88.8 | (3.6 | ) | ||||||||||||||
Corporate and Other (a) |
(180.4 | ) | (13.9 | ) | N.M. | (17.5 | ) | N.M. | ||||||||||||
Other income and (expense), net |
3.8 | 2.4 | N.M. | 1.5 | N.M. | |||||||||||||||
|
|
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|
|||||||||||||||
Total Operating Profit |
$ | 94.3 | $ | 225.3 | (58.1 | )% | $ | 228.0 | (1.2 | )% | ||||||||||
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|
(a) | Corporate & Other includes $60 million associated with the exit of our gloves manufacturing facility in Thailand, $89 million of transaction costs associated with the Spin-off and $12 million of transition-related costs incurred following the Spin-off for the year ended December 31, 2014. |
N.M. - Not meaningful.
Operating Profit - 2014 Compared to 2013
Total
Operating profit was $94 million versus $225 million in 2013. Operating profit in 2014 was impacted by Corporate and Other charges of $60 million associated with the exit from our glove manufacturing facility in Thailand, $89 million of transaction-related charges associated with the Spin-off and $12 million of transition-related incremental expenses following the Spin-off.
Surgical and Infection Prevention
Operating profit was $166 million compared to $151 million in 2013, an increase of 10% primarily due to improved supply chain costs, a reduction in selling and general expenses mainly due to a strategic reorganization which led to headcount reductions in the fourth quarter of 2013.
Medical Devices
Operating profit was $105 million compared to $86 million in 2013, an increase of 22% primarily due to a reduction in selling and general expenses largely from decreased legal expenses and improved supply chain costs.
47
Operating Profit - 2013 Compared to 2012
Operating profit of $225 million in 2013 decreased 1% compared to the prior year. Improvement from higher sales volumes and a decrease in input costs was offset by increased amortization expenses, unfavorable changes in foreign currency exchange rates, and higher operating expenses primarily from the impact of the medical device excise tax.
Surgical and Infection Prevention
Operating profit of $151 million decreased 3% compared to the prior year due to declines in input costs primarily from a decrease in the price of nitrile, offset by unfavorable currency rates, reduced net selling prices from higher rebates and discounts and higher supply chain costs.
Medical Devices
Operating profit of $86 million decreased 4% from higher amortization of acquired technologies, which are amortized based on the estimated economic benefit of the asset, increased operating expenses from the impact of the medical device excise tax and unfavorable currency exchange rates, primarily from the weakening of the Japanese yen relative to the U.S. dollar. These increases to expense were partially offset by improved sales volumes and higher net selling prices.
Interest Income and Expense
Interest income was $3 million in each of the last three years ended December 31, 2014, 2013 and 2012, respectively.
Interest expense was $6 million in 2014 and consisted primarily of interest expense, amortization of debt discount and amortization of deferred financing fees on $250 million of the notes and our $390 million senior secured term loan. See Item 8, Note 9, Debt for further discussion of our indebtedness. Interest expense was not significant in 2013 or 2012.
Provision for Income Taxes
The provision for income taxes was $64 million in 2014 compared to $73 million in 2013. Our effective tax rate in 2014 was 70% compared to 32% in 2013 due to spin-related foreign cash repatriation and non-deductible transaction costs.
The provision for income taxes was $77 million in 2012 and the effective tax rate was 34%.
Unaudited Quarterly Data
2014 | 2013 | |||||||||||||||||||||||||||||||
(in millions, except per-share amounts) |
Fourth | Third | Second | First | Fourth | Third | Second | First | ||||||||||||||||||||||||
Net sales |
$ | 439.4 | $ | 408.5 | $ | 413.5 | $ | 410.7 | $ | 431.3 | $ | 419.5 | $ | 415.9 | $ | 410.8 | ||||||||||||||||
Gross profit |
156.5 | 132.2 | 104.9 | 155.0 | 155.3 | 161.5 | 154.0 | 141.4 | ||||||||||||||||||||||||
Operating profit |
24.0 | 13.1 | (4.5 | ) | 61.7 | 57.6 | 70.3 | 56.9 | 40.5 | |||||||||||||||||||||||
Net income |
(2.4 | ) | (7.4 | ) | (4.5 | ) | 41.4 | 39.8 | 47.9 | 38.6 | 28.3 | |||||||||||||||||||||
Basic earnings per share |
(0.05 | ) | (0.16 | ) | (0.10 | ) | 0.89 | 0.86 | 1.03 | 0.83 | 0.61 | |||||||||||||||||||||
Diluted earnings per share |
(0.05 | ) | (0.16 | ) | (0.10 | ) | 0.89 | 0.86 | 1.03 | 0.83 | 0.61 |
48
The opening market price for Halyard common stock on October 21, 2014, our first day of trading, was $37.52, and our closing market price on December 31, 2014 was $45.47. The high and low prices for the period from October 21, 2014 to December 31, 2014 were $46.14 and $35.56, respectively.
Liquidity and Capital Resources
General
Prior to the Spin-off, Kimberly-Clark provided financing, cash management and other treasury services to us. In North America, our cash balances were swept daily by Kimberly-Clark and historically we received funding from Kimberly-Clark for most of our operating and investing cash needs. Cash transferred to and from Kimberly-Clark was recorded as intercompany receivables and payables. Upon completion of the Spin-off, we maintain separate cash management and financing functions from Kimberly-Clark for our operations. Following the Spin-off, our primary sources of liquidity are cash on hand provided from operating activities and amounts available under our revolving credit facility.
Operating Activities
Operating activities provided $40 million in the three months ended March 31, 2015 compared to $26 million in the three months ended March 31, 2014, with the increase primarily driven by changes in operating assets and liabilities partially offset by lower net income.
Cash provided by operating activities was $148 million in 2014 compared to $224 million in 2013 with the decrease primarily due to lower net income partially offset by cash provided by changes in operating assets and liabilities.
Cash provided by operating activities was $224 million in 2013 compared to $203 million in 2012 with the increase primarily due to lower income tax payments and higher cash earnings.
Investing Activities
Investing activities used $20 million in the three months ended March 31, 2015 compared to $8 million in the three months ended March 31, 2014. Capital expenditures were $28 million in the three months ended March 31, 2015 and were primarily associated with our separation from Kimberly-Clark and modifying facilities necessary to operate as a stand-alone company. Capital expenditures in the three months ended March 31, 2015 were partially offset by proceeds from the disposition of assets of $8 million, which are the remaining proceeds from the sale of our glove manufacturing facility in Thailand.
During 2014, our cash used in investing activities was $71 million, compared to $51 million in the prior year. Capital expenditures in 2014 were $79 million compared to $49 million in 2013. The increase in capital expenditures is primarily related to the separation from Kimberly-Clark and associated with modifying facilities necessary to operate as a stand-alone company.
During 2013, our capital expenditures were $49 million compared to $41 million in 2012. The increase is mainly due to capital spending in 2013 for equipment and building improvements to support the production of feminine care products for Kimberly-Clark.
Financing Activities
Financing activities used $1 million in the three months ended March 31, 2015, which was our scheduled principal payment on our senior secured term loan. Financing activities used $26 million in the three months ended March 31, 2014, and was primarily net transfers to Kimberly-Clark.
49
As of March 31, 2015, debt, including debt payable within one year, was $635 million and consisted of (i) $385 million, net of unamortized discount, on our Senior Secured Term Loan and $250 million of Senior Unsecured Notes.
During 2014, financing activities provided $29 million compared to $180 million used by financing activities in the prior year due to the receipt of loan proceeds and contributions from Kimberly-Clark partially offset by the Spin-off cash distribution to Kimberly-Clark.
At December 31, 2014 and 2013, debt payable within one year was $4 million and $12 million, respectively. At December 31, 2014, long-term debt consisted of $386 million from our senior secured term loan and $250 million from our senior unsecured notes. As of December 31, 2013, debt consisted of a short-term bank loan executed by a non-U.S. subsidiary and related party debt owed to wholly-owned Kimberly-Clark subsidiaries. The bank loan was repaid in March 2014 and the related party debt was repaid in connection with the Spin-off.
We believe that our ability to generate cash from operations and our capacity to issue short-term and long-term debt are adequate to fund working capital, capital spending and other needs for the foreseeable future. Further, we do not expect restrictions or taxes on repatriation of cash held outside of the United States to have a material effect on our overall liquidity, financial condition or results of operations for the foreseeable future.
Senior Unsecured Notes, Term Loan and Revolving Credit Facilities
Prior to the Spin-off, we issued $250 million of the notes. The notes will mature on October 15, 2022 and interest will accrue at a rate of 6.25% per annum from October 17, 2014 and will be payable semi-annually in arrears on April 15 and October 15 of each year, beginning on April 15, 2015.
At the time of the Spin-off, we entered into a Credit Agreement establishing credit facilities in an aggregate principal amount of $640 million, including a five-year senior secured Revolving Credit Facility allowing borrowings of up to $250 million, with a letter of credit sub-facility in an amount of $75 million and a swingline sub-facility in an amount of $25 million, and a seven-year senior secured Term Loan Facility of $390 million. The Senior Secured Credit Facilities are secured by substantially all of our assets located in the United States and a certain percentage of our foreign subsidiaries capital stock.
In conjunction with the Credit Agreements described above, we paid $12 million in financing fees that were deferred and will be amortized to interest expense over the life of the Credit Agreement using the effective interest method.
Borrowings under the Term Loan Facility will bear interest, at Halyards option, at either (i) a reserve-adjusted London Interbank Offer Rate (LIBOR) rate, subject to a floor of 0.75%, plus 3.25%, or (ii) a base rate, subject to a floor of 0.75%, (calculated as the greatest of (1) the prime rate, (2) the U.S. federal funds effective rate plus 0.50% and (3) the one month LIBOR rate plus 1.00%) plus 2.25%. The Term Loan Facility requires quarterly amortization payments equal to 0.25% of the aggregate principal amount of the term loans outstanding on the closing date. As of December 31, 2014, the interest rate in effect for the Term Loan Facility was 4.00%.
Borrowings under the Revolving Credit Facility will bear interest, at Halyards option, at either (i) a reserve-adjusted LIBOR rate, plus a margin initially equal to 2.25% and then, following Halyards delivery under the Credit Agreement of Halyards financial statements for Halyards fiscal quarter ending March 31, 2015, ranging between 1.75% to 2.50% per annum, depending on Halyards consolidated total leverage ratio, or (ii) the base rate plus a margin initially equal to 1.25% and then, following Halyards delivery of those financial statements, ranging between 0.75% to 1.50% per annum, depending on Halyards consolidated total leverage ratio. The unused portion of Halyards Revolving Credit Facility will be subject to a commitment fee equal to (i) 0.25% per annum, when Halyards consolidated total leverage ratio is less than 2.25 to 1.00 and (ii) 0.40% per annum, otherwise.
50
Funds under the Revolving Credit Facility are available for our working capital and other liquidity requirements. As of March 31, 2015, we had no borrowings and letters of credit of $3 million outstanding under the Revolving Credit Facility, leaving $247 million available for borrowing. See Note 4 to the accompanying condensed consolidated financial statements, Long-Term Debt for further details regarding our debt agreements.
On April 30, 2015, we made a $50 million principal payment on our senior secured term loan without prepayment penalties pursuant to the terms of the governing loan agreement. We recognized a charge of $1 million in the second quarter of 2015 related to the write-off of related debt issuance costs and original issue discount.
We will incur significant interest expense and financial obligations related to our senior notes, secured term loan and revolving credit facility. We will continue to make capital expenditures to introduce new products, enhance the efficacy, reliability and safety of our existing products and to maximize cost savings.
For further information regarding our debt arrangements, see Note 9, Debt to our audited historical combined financial statements for the year ended December 31, 2014 and Note 4, Long-Term Debt to our unaudited historical combined financial statements for the three months ended March 31, 2015 included elsewhere in this prospectus.
Obligations
The following table presents our total contractual obligations for which cash flows are fixed or determinable as of December 31, 2014 (in millions):
Payments Due by Period | ||||||||||||||||||||
Total |
Less than
1 Year |
1-3 Years | 3-5 Years |
More than
5 Years |
||||||||||||||||
Debt |
$ | 632.3 | $ | 3.9 | $ | 7.8 | $ | 7.8 | $ | 612.8 | ||||||||||
Interest payments on long-term debt |
232.1 | 31.2 | 62.5 | 61.8 | 76.6 | |||||||||||||||
Operating leases |
79.5 | 11.5 | 18.5 | 14.3 | 35.2 | |||||||||||||||
Open purchase orders (a) |
200.4 | 199.5 | 0.9 | | | |||||||||||||||
Pension obligations |
3.0 | | | | 3.0 | |||||||||||||||
Other commitments (b) |
24.1 | 4.8 | 3.3 | 4.0 | 12.0 | |||||||||||||||
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Total contractual obligations |
$ | 1,171.4 | $ | 250.9 | $ | 93.0 | $ | 87.9 | $ | 739.6 | ||||||||||
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(a) | The open purchase orders displayed in the table represent amounts that we anticipate will become payable within the next year for goods and services that we have negotiated for delivery. The table does not include payments that are discretionary or for which timing is uncertain. |
(b) | Other commitments includes uncertain tax positions of $2 million. See Item 8, Note 10, Income Taxes. |
Critical Accounting Policies and Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. The critical accounting policies we used in the preparation of the consolidated and combined financial statements are those that are important both to the presentation of our financial condition and results of operations and require significant judgments by management with regard to estimates used. The critical judgments by management relate to distributor rebate accruals, future cash flows associated with impairment testing for goodwill and long-lived assets, loss contingencies and deferred income taxes and potential tax assessments.
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Recent Pronouncements
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. This ASU addresses the different balance sheet presentation requirements for debt issuance costs, discounts and premiums under the FASB Accounting Standards Codification (ASC) Subtopic 835-30, Interest - Imputation of Interest . Currently, GAAP recognizes debt issuance costs as a deferred charge (i.e., an asset), which conflicts with FASB Concepts Statement No. 6, Elements of Financial Statements , which says that debt issuance costs are similar to debt discounts and reduce the proceeds of borrowing, thereby increasing the effective interest rate. Accordingly, ASU No. 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU will become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption will be permitted for financial statements that have not been previously issued. Application of this ASU will result in the reclassification of our debt issuance costs of approximately $10 million as of each quarter ended March 31, 2016 and December 31, 2015 from other assets to long-term debt.
In January 2015, the FASB issued ASU No. 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU No. 2015-01 eliminates ASC Subtopic 225-20, Income Statement - Extraordinary and Unusual Items , which, until now, required that an entity separately classify, present, and disclose transactions and events that were determined to be both unusual and infrequent as extraordinary items. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments (i) prospectively or (ii) retrospectively to all prior periods presented in the financial statements. The application of this ASU is not expected to have a material effect on our financial position, results of operations and cash flows.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entitys Ability to Continue as a Going Concern, which will require management to assess an entitys ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. In connection with each annual and interim period, management will assess if there is substantial doubt about an entitys ability to continue as a going concern within one year after the issuance date. Substantial doubt exists if it is probable that the entity will be unable to meet its obligations within one year after the issuance date. The new standard defines substantial doubt and provides example indicators. Disclosures will be required if conditions give rise to substantial doubt. However, management will need to assess if its plans will alleviate substantial doubt to determine the specific disclosures. This ASU will become effective for annual periods ending after December 15, 2016. Earlier application is permitted. The application of this ASU is not expected to have a material effect on our financial position, results of operations and cash flows.
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers , which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Adoption prior to interim periods beginning after December 15, 2016 is not permitted. The guidance permits two implementation approaches, one requiring retrospective application of the new ASU with restatement of prior years and one requiring prospective application of the new ASU with disclosure of results under old standards. The effects of this ASU on our financial position, results of operations and cash flows are not yet known.
Distributor Rebate Accruals
Distributor rebates are estimated based on the historical cost differences between list prices and average end user contract prices and the quantity of products expected to be sold to specific end users. Changes in the rebate accrual estimate occur due to changes in volume, list prices and/or contract prices. Rebate accruals were $82 million as of each year ended December 31, 2014 and 2013, respectively.
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Goodwill and Other Intangible Assets
Goodwill is tested for impairment annually and whenever events and circumstances indicate that impairment may have occurred. For 2014, we completed the required annual testing of goodwill for impairment for all reporting units using the beginning of the third quarter of 2014 as the measurement date. The fair value for all reporting units was in excess of the book value. The fair value of our Medical Devices unit exceeded the carrying value of its net assets by 76%; the fair value of our S&IP unit exceeded the carrying value of its net assets by 6% primarily because of the incremental corporate and ongoing costs that we will incur as a stand-alone public company.
The evaluation of goodwill involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. We considered the market approach and used a discounted cash flow model to estimate the current fair value of our reporting units. The fair value determination utilized key assumptions regarding the growth of the business and stand-alone public company corporate and ongoing costs, each of which required significant management judgment, including estimated future sales volumes, selling prices and costs, changes in working capital and investments in property and equipment. These assumptions and estimates were based upon our historical experience and projections of future activity. In addition, the selection of the discount rate used to determine fair value was based upon current market rates and our current cost of financing. There can be no assurance that the assumptions and estimates made for purposes of the annual goodwill impairment test will prove to be accurate. Volatility in the equity and debt markets, or increases in interest rates, could result in a higher discount rate. Changes in sales volumes, selling prices and costs of goods sold, additional stand-alone public company costs, and increases in interest rates could cause changes in our forecasted cash flows. Unfavorable changes in any of the factors described above could result in a goodwill impairment charge in the future.
As of each year ended December 31, 2014 and 2013, we had intangible assets with indefinite useful lives of $7 million related to acquired in-process research and development.
At December 31, 2014, we had intangible assets with finite useful lives with a gross carrying amount of $324 million and a net carrying amount of $102 million. These intangibles are being amortized over their estimated useful lives and are tested for impairment whenever events or circumstances indicate that impairment may have occurred. If the carrying amount of an intangible asset is not recoverable based on estimated future undiscounted cash flows, an impairment loss would be indicated. The amount of the impairment loss to be recorded would be based on the excess of the carrying amount of the intangible asset over its fair value (based on discounted future cash flows). Judgment is used in assessing whether the carrying amount of intangible assets is not expected to be recoverable over their estimated remaining useful lives. The factors considered are similar to those outlined in the goodwill impairment discussion above.
Loss Contingencies
The outcome of loss contingencies and legal proceedings and claims brought against us is subject to uncertainty. An estimated loss contingency is accrued by a charge to earnings if it is probable that an asset has been impaired or a liability has been incurred and the amount can be reasonably estimated. Determination of whether to accrue a loss requires evaluation of the probability of an unfavorable outcome and the ability to make a reasonable estimate. Changes in these estimates could affect the timing and amount of accrual of loss contingencies.
Income Taxes
Prior to the Spin-off, for purposes of the consolidated and combined financial statements, our operations were included in Kimberly-Clarks consolidated U.S. federal and state income tax returns and some of its foreign income tax returns. The provision for income taxes and related deferred tax balances were estimated
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as if we filed income tax returns on a stand-alone basis separate from Kimberly-Clark. As a stand-alone entity, our deferred taxes and effective tax rate may differ from those in the historical periods.
We recognize tax benefits in our financial statements when our uncertain tax positions are more likely than not to be sustained upon audit. The amount we recognize is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.
We recognize deferred tax assets for deductible temporary differences, operating loss carry-forwards and tax credit carry-forwards. We record valuation allowances to reduce deferred tax assets to amounts that are more likely than not to be realized. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses. This assessment, which is completed on a taxing jurisdiction basis, takes into account a number of types of evidence, including the nature, frequency, and severity of current and cumulative financial reporting losses, sources of future taxable income, taxable income in prior carryback year(s) and tax planning strategies.
If it is determined that we would be able to realize deferred tax assets in the future in excess of our net recorded amount, an adjustment to the net deferred tax asset would increase income in the period that such determination was made. Likewise, should we determine that we would not be able to realize all or part of the net deferred tax assets in the future, an adjustment to the net deferred tax asset would decrease income in the period such determination was made. We regularly evaluate the need for valuation allowances against its deferred tax assets.
Legal Matters
We are subject to various legal proceedings, claims and governmental inspections, audits or investigations pertaining to issues such as contract disputes, product liability, tax matters, patents and trademarks, advertising, governmental regulations, employment and other matters, including the matters described below. Under the terms of the distribution agreement we entered into with Kimberly-Clark prior to the Spin-off, legal proceedings, claims and other liabilities that are primarily related to our business will be our responsibility and we will be obligated to indemnify and hold Kimberly-Clark harmless for such matters (Indemnification Obligation).
We have an Indemnification Obligation for, and have assumed the defense of, the matter styled Shahinian, et al. v. Kimberly-Clark Corporation, et al. , No. 2:14-cv-08390-DMG-SH (C.D. Cal.), filed on October 29, 2014. In that case, the plaintiff brings a putative nationwide class action asserting claims for common law fraud (affirmative misrepresentation and fraudulent concealment), negligent misrepresentation, and violation of Californias Unfair Competition Law in connection with our marketing and sale of MicroCool surgical gowns. On February 6, 2015, we moved to dismiss the complaint. On July 10, 2015, the Court issued an order on the motion to dismiss, dismissing the negligent misrepresentation claim but permitting the remaining claims to stand and proceed to discovery. We intend to continue our vigorous defense of the matter.
The only exception to the Indemnification Obligation relates to the pain pump litigation described in this paragraph. We are one of several manufacturers of continuous infusion medical devices, such as our ON-Q PAINBUSTER pain pumps, that are involved in several different pending or threatened litigation matters from multiple plaintiffs alleging that use of the continuous infusion device to deliver anesthetics directly into a synovial joint after surgery resulted in postarthroscopic glenohumeral chondrolysis, or a disintegration of the cartilage covering the bones in the joint (typically, in the shoulder). Plaintiffs generally seek monetary damages and attorneys fees. While Kimberly-Clark is retaining the liabilities related to these matters, the distribution agreement between us and Kimberly-Clark provides that we will indemnify Kimberly-Clark for any such claims or causes of actions arising after the Spin-off.
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We operate in an industry characterized by extensive patent litigation and competitors may claim that our products infringe upon their intellectual property. Resolution of patent litigation or other intellectual property claims is typically time consuming and costly and can result in significant damage awards and injunctions that could prevent the manufacture and sale of the affected products or require us to make significant royalty payments in order to continue selling the affected products. At any given time we are involved as either a plaintiff or a defendant in a number of patent infringement actions, the outcomes of which may not be known for prolonged periods of time.
Although the results of litigation and claims cannot be predicted with certainty, we believe that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, individually or in the aggregate, on our business, financial condition, results of operations or liquidity.
We are subject to federal, state and local environmental protection laws and regulations with respect to our business operations and are operating in compliance with, or taking action aimed at ensuring compliance with, these laws and regulations. None of our compliance obligations with environmental protection laws and regulations, individually or in the aggregate, is expected to have a material adverse effect on our business, financial condition, results of operations or liquidity.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to risks such as changes in foreign currency exchange rates and commodity prices. A variety of practices are employed to manage these risks, including derivative instruments where deemed appropriate. Derivative instruments are used only for risk management purposes and not for speculation. All foreign currency derivative instruments are entered into with major financial institutions. Our credit exposure under these arrangements is limited to agreements with a positive fair value at the reporting date. Credit risk with respect to the counterparties is actively monitored but is not considered significant.
Presented below is a description of our risk together with a sensitivity analysis, performed annually, based on selected changes in market rates and prices. These analyses reflect managements view of changes which are reasonably possible to occur over a one-year period. Also included is a description of our commodity price risk.
Foreign Currency Risk
Foreign currency risk is managed by the systematic use of foreign currency forward and swap contracts for a limited portion of our exposure. The use of these instruments allows the management of transactional exposures to exchange rate fluctuations because the gains or losses incurred on the derivative instruments will offset, in whole or in part, losses or gains on the underlying foreign currency exposure.
Foreign currency contracts and transactional exposures are sensitive to changes in foreign currency exchange rates. An annual test is performed to quantify the effects that possible changes in foreign currency exchange rates would have on annual operating profit based on our foreign currency contracts and transactional exposures at the current year-end. The balance sheet effect is calculated by multiplying each affiliates net monetary asset or liability position by a 10% change in the foreign currency exchange rate versus the U.S. dollar. The results of these sensitivity tests are presented in the following paragraph.
As of December 31, 2014, a 10% unfavorable change in the exchange rate of the U.S. dollar against the prevailing market rates of foreign currencies involving balance sheet transactional exposures would have an effect of $4 million to our consolidated and combined financial position, results of operations or cash flows. These hypothetical losses on transactional exposures are based on the difference between the December 31, 2014 rates and the assumed rates.
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The translation of the balance sheets of non-U.S. operations from local currencies into U.S. dollars is also sensitive to changes in foreign currency exchange rates. Consequently, an annual test is performed to determine if changes in currency exchange rates would have a significant effect on the translation of the balance sheets of non-U.S. operations into U.S. dollars. These translation gains or losses are recorded as unrealized translation adjustments (UTA) within stockholders equity. The hypothetical change in UTA is calculated by multiplying the net assets of these non-U.S. operations by a 10% change in the currency exchange rates.
As of December 31, 2014, a 10% unfavorable change in the exchange rate of the U.S. dollar against the prevailing market rates of our foreign currency translation exposures would have reduced stockholders equity by approximately $18 million. These hypothetical adjustments in UTA are based on the difference between the December 31, 2014 exchange rates and the assumed rates. In the view of management, the above UTA adjustments resulting from these assumed changes in foreign currency exchange rates are not material to our combined financial position because they would not affect our cash flow.
Commodity Price Risk
We are subject to commodity price risk, the most significant of which relates to the price of polypropylene and nitrile. As previously discussed under Risk Factors, increases in commodities prices could adversely affect our earnings if selling prices are not adjusted or if such adjustments significantly trail the increases in commodities prices.
Our energy, manufacturing and transportation costs are affected by various market factors including the availability of supplies of particular forms of energy, energy prices and local and national regulatory decisions. As previously discussed in Risk Factors, there can be no assurance we will be fully protected against substantial changes in the price or availability of energy sources. In addition, we are subject to price risk for utilities and manufacturing inputs, which are used in our manufacturing operations.
Interest Rate Risk
Our Term Loan Facility for $390 million is subject to a variable interest rate based on LIBOR, subject to a floor of 0.75%. As of December 31, 2014, a one percentage point increase in LIBOR would result in $2 million of incremental interest expense.
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Overview
Halyard Health, Inc. is a global company which seeks to advance health and healthcare by preventing infection, eliminating pain and speeding recovery. We have two business segments: S&IP and Medical Devices.
Our products and solutions are designed to address some of todays most important healthcare needs, namely, preventing infection and reducing the use of narcotics while helping patients move from surgery to recovery. We sell our products in more than 100 countries. We market and support the efficacy, safety and economic benefit of our products with a significant body of clinical evidence.
On October 31, 2014, Kimberly-Clark distributed all of our capital stock to its shareholders and completed the previously announced spin-off of its healthcare division. Halyard was incorporated as a Delaware corporation in February 2014 in anticipation of that Spin-off, and Kimberly-Clark transferred its Health Care business to us prior to the Spin-off.
The address of our principal executive offices is 5405 Windward Parkway, Suite 100 South, Alpharetta, Georgia 30004, and our telephone number is (678) 425-9273.
Business Segments
We are organized into two operating segments based on product groupings: S&IP and Medical Devices. These operating segments, which are also our reportable global business segments, were determined in accordance with how our executive managers develop and execute global strategies to drive growth and profitability. These strategies include global plans for branding and product positioning, technology, research and development programs, cost reductions including supply chain management, and capacity and capital investments for each of these businesses. Segment management is evaluated on several factors, including operating profit. Segment operating profit excludes other income and expense and expenses not associated with the business units, including charges related to the Spin-off and manufacturing footprint changes in Thailand.
The principal sources of revenue in each global business segment are described below:
| S&IP provides healthcare supplies and solutions that target the prevention of healthcare-associated infections. This segment has recognized brands across its portfolio of product offerings, including sterilization wrap, surgical drapes and gowns, facial protection, protective apparel and medical exam gloves. This business is also a global leader in education to prevent healthcare-associated infections. Products in this segment are sold under the KIMGUARD ONE-STEP, QUICK CHECK, SMART-FOLD, POWERGUARD, MICROCOOL, FLUIDSHIELD, PURPLE NITRILE, LAVENDER, STERLING and other brand names. |
| Medical Devices provides a portfolio of innovative product offerings focused on pain management and respiratory and digestive health to improve patient outcomes and reduce the cost of care. These products include post-operative pain management solutions, minimally invasive interventional (or chronic) pain therapies, closed airway suction systems and enteral feeding tubes. Products in this segment are sold under the ON-Q, COOLIEF, MICROCUFF, MIC-KEY and other brand names. |
For additional information concerning our business segments, please refer to Note 17 to the audited consolidated and combined financial statements and Note 11 to the unaudited condensed consolidated financial statements included elsewhere in this prospectus.
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Sales and Marketing
We direct our primary sales and marketing efforts toward hospitals and other healthcare providers to highlight the unique benefits and competitive differentiation of our branded products. We work directly with physicians, nurses, professional societies, hospital administrators and health care GPOs to collaborate and educate on emerging practices and clinical techniques that prevent infection, eliminate pain and speed recovery. These marketing programs are delivered directly to healthcare providers. Additionally, we provide marketing programs to our strategic distribution partners throughout the world.
Distribution
While our products are generally marketed directly to hospitals and other healthcare providers, they are often sold through third-party distribution channels.
Our products are sold principally through independent wholesale distributors, with some sales directly to healthcare facilities and other end customers. In 2014, approximately 53% of our net sales were made through distributors. Sales to one distributor accounted for approximately 19% of our 2014 net sales. No other customer or distributor accounted for more than 10% of our net sales in 2014. This distributor purchases both S&IP and Medical Device products from us under standard terms and conditions of sale. In certain cases, this distributor also competes with us. See Competition.
Approximately 44% of our 2014 net sales, including sales to wholesale distributors, were contracted through five major national GPOs, principally relating to our S&IP business. Of these 2014 GPO-contracted sales, 59% were represented by contracts that will expire by the end of 2015 and 41% were represented by contracts that will expire between 2016 and 2017.
Outside North America, sales are made either directly to end customers or through distributors, depending on the market served. In 2014, approximately 61% of our net sales outside North America were made through wholesalers or distributors.
We operate five major distribution centers located in North America, Europe, Australia and Japan that ship multiple finished products to multiple customers, as well as 12 other distribution sites that also have customer shipping capabilities, in order to optimize cost effectiveness with customer service requirements.
No material portion of our business is subject to renegotiation of profits or termination of contracts at the election of the government.
Raw Materials
We use a wide variety of raw materials and other inputs in our production processes, with polypropylene polymers and nitrile constituting our most significant raw material purchases. We base our purchasing decisions on quality assurance, cost effectiveness and constraints resulting from regulatory requirements, and we work closely with our suppliers to assure continuity of supply while maintaining high quality and reliability. We primarily purchase these materials from external suppliers, some of which are single-source suppliers.
Global commodity prices can affect pricing of certain raw materials on which we rely. In our S&IP business, polypropylene polymers, which are oil based, and nitrile represent a significant component of our manufacturing costs. In addition, the prices of other raw materials we use, such as resins and finishing supplies, often fluctuate in response to changes in oil prices. Prices of these commodities can be volatile and have varied significantly in recent years, contributing to fluctuations in our results of operations.
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Competition
The markets for our products are highly competitive. No one company competes with us across the breadth of our offerings, but we face significant competition in U.S. and international markets.
Surgical and Infection Prevention
There are a significant number of manufacturers and distributors of medical supplies, and the market for S&IP products is extremely competitive. In the developed markets, the major competitors of our S&IP business include Cardinal Health, Inc., Medline Industries, Inc., Hogy Medical, Multigate Medical Products, Mölnlycke Health Care and HARTMANN Group. In the United States several of our distribution partners and GPOs are also competitors or are increasingly seeking to direct source products. In developing and emerging markets, we compete against multiple use products, or non-use of infection prevention products, due in large part to lack of infection prevention awareness and education.
The highly competitive environment of the S&IP business requires us to continually seek out technological innovations and to market our products effectively. Our products face competition from other brands that may be less expensive than our products and from other companies that may have more resources than we do. Competitive factors include price, alternative clinical practices, innovation, quality and reputation. To successfully compete, we must often demonstrate that our products offer higher quality, more innovative features or better value versus other products.
Medical Devices
There are a variety of treatment means and alternative clinical practices to address the management of surgical and chronic pain and respiratory and digestive health, especially within our pain management business. We face competition from these alternative treatments, as well as improvements and innovations in products and technologies by our competitors.
Competitors for our medical device products are fragmented by particular product category and the individual markets for these products are highly competitive. Major competitors of our Medical Devices business include, among others:
| Pain Management: B. Braun Medical Inc., St. Jude Medical, Pacira Pharmaceuticals, Inc., Stryker Corporation and Teleflex Incorporated |
| Respiratory: CareFusion Corporation, Sage Products LLC and Smiths Medical |
| Digestive Health: Boston Scientific Corporation, Medtronic plc and Cook Medical |
In developing and emerging markets, alternative clinical practices and different standards of care are our primary competition.
While we believe that the number of procedures using our medical devices will grow due, in part, to increasing global access to healthcare, we expect that our ability to compete with other providers of similar devices will be impacted by rapid technological advances, pricing pressures and third-party reimbursement practices. We believe that our key product characteristics, such as proven efficacy, reliability and safety, coupled with our core competencies such as our efficient manufacturing processes, established distribution network, field sales organization and customer service, are important factors that distinguish us from our competitors.
Research and Development
We continuously engage in research and development to commercialize new products and enhance the effectiveness, reliability and safety of our existing products. We incurred $34 million in 2014, $38 million in
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2013 and $33 million in 2012 on research and development to develop new products and processes, and to improve existing products and processes. These expenses consisted primarily of salaries and related expenses for personnel, product trial costs, outside laboratory and license fees, and the costs of laboratory equipment and facilities. We intend to increase our research and development efforts as a key strategy for growth.
In our S&IP business, we are focused on maintaining our market position by providing innovative customer-preferred product enhancements, with a particular focus on the operating room. Leveraging customer insights and our vertically integrated manufacturing capabilities, we seek to continuously improve our product designs, specifications and features to deliver cost efficiencies while improving healthcare worker and patient protection. In 2014, we launched AERO BLUE Performance Surgical Gowns that provide improved fluid protection with a lighter and more breathable material. In 2013, we launched SMART-FOLD sterilization wrap, which provides increased wrapping durability to improve sterility assurance and to decrease the labor required to both wrap and unwrap procedural trays. We are also launching new face mask innovations and products that complement our current broad product portfolio. We continuously refresh our surgical drape and gown portfolio to ensure that our products are aligned with the latest procedural and market trends. Our research team works with healthcare providers to develop and design exam glove and apparel portfolios that optimize comfort and fit and provide cost-effective infection prevention solutions for use throughout the hospital.
In our Medical Devices business, we collaborate with physicians to develop solutions that seek to accelerate the global adoption of our therapies and procedures. We are investing to expand the indications for use of our pain products with clinical research and studies and associated new product developments. We are expanding our portfolio with customer-preferred product enhancements, such as next generation cooled radiofrequency generators and a full line of needles, kits and accessories for continuous peripheral nerve block procedures. We are also investing in new categories and solutions that complement our technical expertise and existing intellectual property. We are particularly focused on those new categories that we believe will leverage our existing scalable technology platforms as well as our sales and marketing expertise.
Intellectual Property
Patents, trademarks and other proprietary rights are very important to our business. We also rely upon trade secrets, manufacturing know-how, continuing technological innovations and licensing opportunities to maintain and improve our competitive position. We review third-party proprietary rights, including patents and patent applications, as available, in an effort to develop an effective intellectual property strategy, avoid infringement of third-party proprietary rights, identify licensing opportunities and monitor the intellectual property owned by others. We hold numerous patents and have numerous patent applications pending in the United States and in other countries that relate to the technology used in many of our products. For example, we utilize patents in our sterilization wrap, surgical drapes and gowns, facial protection, protective apparel and medical exam gloves in our S&IP segment. These patents generally expire between 2015 and 2032. None of the patents we license from third parties are material to our S&IP segment. In our Medical Devices segment, we utilize patents in our surgical pain management, chronic pain management, respiratory health and digestive health products. These patents generally expire between 2019 and 2032. None of the patents we license from third parties are material to our Medical Devices segment.
In connection with the Spin-off, we entered into a trademark license agreement pursuant to which Kimberly-Clark granted us a license to use certain of Kimberly-Clarks trademarks, trade names and service marks used in our business as of the Spin-off date.
We consider the patents and trademarks which we own and the trademarks under which we sell certain of our products, as a whole, to be material to our business. However, we do not consider our business to be materially dependent upon any individual patent or trademark.
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Regulatory Matters
The development, manufacture, marketing, sale, promotion and distribution of our products are subject to comprehensive government regulation. Government regulation by various national, regional, federal, state and local agencies, both in the United States and other countries, addresses (among other matters) inspection of, and controls over, research and laboratory procedures, clinical investigations, product approvals and manufacturing, labeling, packaging, marketing and promotion, pricing and reimbursement, sampling, distribution, quality control, post-market surveillance, record keeping, storage and disposal practices. Our operations are also affected by trade regulations in many countries that limit the import of raw materials and finished products and by laws and regulations that seek to prevent corruption and bribery in the marketplace (including the U.S. Foreign Corrupt Practices Act and the United Kingdom Bribery Act, which provide guidance on corporate interactions with government officials) and require safeguards for the protection of personal data. In addition, we are subject to laws and regulations pertaining to healthcare fraud and abuse, including state and federal anti-kickback and false claims laws in the United States.
Compliance with these laws and regulations is costly and materially affects our business. Among other effects, healthcare regulations substantially increase the time, difficulty and costs incurred in obtaining and maintaining approval to market newly developed and existing products. For example, in the United States, before we can market a new medical product, or market a new use for, claim for or significant modification to an existing product, we generally must first receive clearance under Section 510(k) of the Food, Drug and Cosmetic Act (510(k) clearance) from the United States Food and Drug Administration (FDA). In order for us to obtain 510(k) clearance, the FDA must determine that our proposed product is substantially equivalent to a device legally on the market, known as a predicate device, with respect to intended use, technology, safety and effectiveness. Similarly, most major markets for medical devices outside the United States also require clearance, approval or compliance with certain standards before a product can be commercially marketed. For instance, the European Commission, or EC, has harmonized national regulations for the control of medical devices through European Medical Device Directives with which manufacturers must comply. Under these regulations, manufacturing plants must have received certification of conformity from a notified body in order to be able to sell products within the member states of the European Union. Certification allows manufacturers to stamp the products of certified plants with a CE mark. Products covered by the EC regulations that do not bear the CE mark may not be sold or distributed in the European Union.
We expect compliance with these regulations to continue to require significant technical expertise and capital investment to ensure compliance. Failure to comply can delay the release of a new product or result in regulatory and enforcement actions, the seizure or recall of a product, the suspension or revocation of the authority necessary for a products production and sale, and other civil or criminal sanctions, including fines and penalties. In addition to regulatory initiatives, our business can be affected by ongoing studies of the utilization, safety, efficacy, and outcomes of healthcare products and their components that are regularly conducted by industry participants, government agencies, and others. These studies can call into question the utilization, safety, and efficacy of previously marketed products. In some cases, these studies have resulted, and may in the future result, in the discontinuance of, or limitations on, marketing of such products domestically or worldwide, and may give rise to claims for damages from persons who believe they have been injured as a result of their use.
Access to healthcare products continues to be a subject of investigation and action by governmental agencies, legislative bodies, and private organizations in the United States and other countries. A major focus is cost containment. Efforts to reduce healthcare costs are also being made in the private sector, notably by healthcare payors and providers, which have instituted various cost reduction and containment measures. We expect insurers and providers to continue attempts to reduce the cost of healthcare products. Outside the United States, many countries control the price of healthcare products directly or indirectly, through reimbursement, payment, pricing, coverage limitations, or compulsory licensing. Budgetary pressures in the United States and in other countries may also heighten the scope and severity of pricing pressures on our products for the foreseeable future.
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We expect debate to continue during the next several years at all government levels worldwide over the marketing, availability, method of delivery, and payment for healthcare products and services. We believe that future legislation and regulation in the markets we serve could affect access to healthcare products and services, increase rebates, reduce prices or the rate of price increases for healthcare products and services, change healthcare delivery systems, create new fees and obligations, or require additional reporting and disclosure. It is not possible to predict the extent to which we or the healthcare industry in general might be affected by the matters discussed above.
Since we market our products worldwide, certain products of a local nature and variations of product lines must also meet other local regulatory requirements. Certain additional risks are inherent in conducting business outside the United States, including price and currency exchange controls, changes in currency exchange rates, limitations on participation in local enterprises, expropriation, nationalization, and other governmental action.
Demand for many of our existing and new medical products is, and will continue to be, affected by the extent to which government healthcare programs and private health insurers reimburse our customers for patients medical expenses in the countries where we do business. Statutory and regulatory requirements for Medicaid, Medicare, and other government healthcare programs govern provider reimbursement levels. From time to time, legislative changes are made to government healthcare programs that impact our business, and the federal and/or state governments may continue to enact measures in the future aimed at containing or reducing reimbursement levels for medical expenses paid for in whole or in part with government funds. We cannot predict the nature of such measures or their impact on our business, results of operations, financial condition and cash flows. Any reduction in the amount of reimbursements received by our customers could harm our business by reducing their selection of our products and the prices they are willing to pay.
Employee and Labor Relations
In our worldwide operations, we had approximately 12,000 employees as of December 31, 2014. We believe that we have good relations with our employees.
Environmental, Health and Safety Matters
Our operations are subject to federal, state, provincial and local laws, regulations and ordinances relating to various environmental, health and safety matters. Our operations are in compliance with, or we are taking actions designed to ensure compliance with, these laws, regulations and ordinances. However, the nature of our operations exposes us to the risk of claims concerning non-compliance with environmental, health and safety laws or standards, and there can be no assurance that material costs or liabilities will not be incurred in connection with those claims. We are not currently named as a party in any judicial or administrative proceeding relating to environmental, health and safety matters.
While we have incurred in the past several years, and will continue to incur, capital and operating expenditures in order to comply with environmental, health and safety laws, regulations and ordinances, we believe that our future cost of compliance with environmental, health and safety laws, regulations and ordinances, and our exposure to liability for environmental, health and safety claims will not have a material adverse effect on our business, results of operations, financial condition or cash flows. However, future events, such as changes in existing laws and regulations, or contamination of sites owned, operated or used for waste disposal by us (including currently unknown contamination and contamination caused by prior owners and operators of such sites or other waste generators) may give rise to additional costs which could have a material adverse effect on our financial condition, results of operations or liquidity.
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Properties
We own or lease operating facilities located throughout the world that handle manufacturing production, assembly, research, quality assurance testing, distribution and packaging of our products. We believe our facilities are suitable and adequate for our present operations. We have entered into a commercial lease related to our principal executive offices, located in Alpharetta, Georgia. The locations of our principal production facilities owned or leased by us around the world are as follows:
Segment |
Location |
Country |
Owned/Leased |
|||
S&IP |
Tambol Prik | Thailand | Owned | |||
S&IP |
Lexington, North Carolina | USA | Owned | |||
S&IP |
Acuña | Mexico | Owned | |||
S&IP |
Nogales | Mexico | Leased | |||
S&IP |
San Pedro Sula | Honduras | Leased | |||
Medical Devices |
Nogales | Mexico | Owned | |||
Medical Devices |
Tucson, Arizona | USA | Leased | |||
Medical Devices |
Magdalena | Mexico | Leased | |||
Medical Devices |
Nogales | Mexico | Leased | |||
Medical Devices |
Tijuana | Mexico | Leased | |||
Medical Devices |
Weinheim | Germany | Leased |
Available Information
We make financial information, news releases and other information available on our corporate website at www.halyardhealth.com . Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our corporate website as soon as reasonably practicable after we file these reports and amendments with, or furnish them to, the SEC. The information contained on or connected to our website is not incorporated by reference into this prospectus and should not be considered part of this or any other report filed with the SEC. Stockholders may also contact Stockholder Services, 5405 Windward Parkway, Suite 100 South, Alpharetta, Georgia 30004 or call (678) 425-9273 to obtain a hard copy of these reports without charge.
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Our Executive Officers
The names and ages of our executive officers as of March 13, 2015, together with certain biographical information, are as follows:
Name |
Position |
|
Robert E. Abernathy | Chairman of the Board and Chief Executive Officer | |
Rhonda D. Gibby | Senior Vice President and Chief Human Resources Officer | |
Christopher G. Isenberg | Senior Vice President - Global Supply Chain and Procurement | |
Christopher M. Lowery | Senior Vice President and Chief Operating Officer | |
Warren J. Machan | Senior Vice President - Business Strategy | |
Steven E. Voskuil | Senior Vice President and Chief Financial Officer | |
John W. Wesley | Senior Vice President, General Counsel and Chief Ethics and Compliance Officer |
Robert E. Abernathy , age 60, is the Chairman of our Board of Directors and our Chief Executive Officer. Prior to the Spin-off, he served as President Global Health Care since June 2014. Prior to that he served as an Executive Vice President of Kimberly-Clark from November 2013 to June 2014 and prior to that served as Group President - Europe, Global Nonwovens, and Continuous Improvement & Sustainability from 2012 to November 2013. He had overall responsibility for Kimberly-Clarks Health Care business from 1997 to early 2004. His past responsibilities at Kimberly-Clark have also included overseeing its businesses in Asia, Latin America, Eastern Europe, the Middle East and Africa, as well as operations and major project management in North America. He was appointed Vice President - North American Diaper Operations in 1992; Managing Director of Kimberly-Clark Australia Pty. Limited in 1994; Group President - Developing and Emerging Markets in 2004; and Group President - North Atlantic Consumer Products in 2008. Mr. Abernathy currently serves as a director of RadioShack Corporation. Mr. Abernathy has been selected to serve as the Chairman of our Board of Directors due to his leadership experience as an executive vice president of Kimberly-Clark, knowledge of and experience in the healthcare industry, international experience and governance and public company board experience.
Rhonda D. Gibby , age 46, is our Senior Vice President and Chief Human Resources Officer. Prior to the Spin-off, she had been serving as Kimberly-Clarks Vice President - Human Resources for its global business-to-business units (K-C Professional and Kimberly-Clarks Health Care business) as well as the leader of Kimberly-Clarks global labor relations since 2010. Prior to that, Ms. Gibby served as Kimberly-Clarks Global Vice President of Talent Management from 2008 to 2010. Prior to joining Kimberly-Clark in 2005, Ms. Gibby held leadership roles in operations, sales and human resources in a variety of industries and employers, including most recently at Covidien, a global healthcare products company.
Christopher G. Isenberg , age 47, is our Senior Vice President - Global Supply Chain and Procurement. Prior to the Spin-off, he had been with Kimberly-Clark for over 25 years, serving most recently as Kimberly-Clarks Vice President of Global Health Care Manufacturing and Supply Chain since July 2012. Before assuming this role, Mr. Isenberg served as Senior Manufacturing Director for K-C Professional, beginning in January 2011. From October 2007 until January 2011, Mr. Isenberg served as Plant Manager at Kimberly-Clarks Everett, Washington Pulp and Tissue Mill. Prior to that, he served in various manufacturing operations, marketing and other roles for Kimberly-Clarks Family Care business.
Christopher M. Lowery , age 50, is our Senior Vice President and Chief Operating Officer, and in that role has responsibility for leading worldwide sales, marketing, research and development, quality, regulatory and clinical affairs. Prior to the Spin-off, he had been serving as Kimberly-Clarks Vice President - Global Health Care Sales and Marketing since July 2013. Prior to this role he served as Vice President, Global Medical Devices. Mr. Lowery joined Kimberly-Clark in 2010 bringing 15 years of healthcare industry experience. Before joining Kimberly-Clark, he held several senior marketing and sales roles at Covidien, a global healthcare products company.
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Warren J. Machan , age 49, is our Senior Vice President - Business Strategy. Prior to the Spin-off, he had been serving as Kimberly-Clarks Senior Director of Strategy - Global Health Care since January 2012 and before that served as Senior Director of Finance for Kimberly-Clarks Health Care business from 2008 to 2012. Mr. Machan served as Director of Finance and Strategic Planning for the Kimberly-Clark International business from 2004 to 2008. He joined Kimberly-Clark in 1987 and, while spending the majority of time in Kimberly-Clarks Health Care business, he has also held roles in sales, marketing and finance for the K-C Professional, Personal Care and Family Care businesses.
Steven E. Voskuil , age 46, is our Senior Vice President and Chief Financial Officer. Prior to the Spin-off, he had been serving as Vice President - Finance for Kimberly-Clark International since September 2011 and previously served as Kimberly-Clarks Vice President and Treasurer from January 2008 to September 2011. He joined Kimberly-Clark in 1991 in Finance and has held a variety of roles in business analysis, strategic analysis and treasury for Kimberly-Clarks businesses worldwide. Mr. Voskuil also served as the executive sponsor for talent development for the companys Global Finance organization.
John W. Wesley , age 56, is our Senior Vice President, General Counsel and Chief Ethics and Compliance Officer. Prior to the Spin-off, he had been serving as Kimberly-Clarks Vice President, Deputy General Counsel and Corporate Secretary since 2009. He joined Kimberly-Clark in May 2000 as Senior Counsel, Corporate Affairs and has held a variety of positions, overseeing corporate transactions and corporate governance matters. Prior to joining Kimberly-Clark, he was a partner at the Dallas law firm of Carrington, Coleman, Sloman & Blumenthal, L.L.P., where he specialized in corporate, securities, corporate finance, mergers and acquisitions and general, commercial and business law.
Our Directors
Our Board of Directors is divided into three classes, as required by our Certificate of Incorporation, with one class of directors elected each year for a three-year term. The Board of Directors currently consists of eight Directors. Three of the directors have terms that expire at next years Annual Meeting (Class of 2016), three have terms that expire at the 2017 Annual Meeting (Class of 2017), and two have terms that expire at the 2018 Annual Meeting (Class of 2018).
The names, ages and director class of our directors as of March 13, 2015, together with certain biographical information, are as follows:
Name |
Position |
Director Class |
||
John P. Byrnes | Director | Class of 2016 | ||
Maria Sainz | Director | Class of 2016 | ||
Dr. Julie Shimer | Director | Class of 2016 | ||
Robert E. Abernathy | Chairman of the Board and Chief Executive Officer | Class of 2017 | ||
Ronald W. Dollens | Lead Director | Class of 2017 | ||
Heidi K. Fields | Director | Class of 2017 | ||
Gary D. Blackford | Director | Class of 2018 | ||
Patrick J. OLeary | Director | Class of 2018 |
John P. Byrnes , age 56, was elected to our Board in October 2014. Mr. Byrnes has served as the Chairman of the Board of Lincare Holdings, Inc. (Lincare), a provider of home respiratory care, infusion therapy and medical equipment, since March 2000 and as a director of Lincare since May 1997. Mr. Byrnes was the Chief Executive Officer of Lincare from 1997 until 2012. Mr. Byrnes also served as Lincares President from June 1996 until April 2003. Prior to becoming Lincares President, Mr. Byrnes served in a number of capacities at Lincare over a ten-year period, including serving as Chief Operating Officer throughout 1996. Mr. Byrnes was a director of Kinetic Concepts, Inc. from January 2003 until February 2011 and of U.S. Renal Care, Inc. from August 2005 until 2012. Mr. Byrnes has been selected to serve as a director of our Board of Directors due to his
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leadership experience as a chief executive, knowledge of, and experience in, the healthcare industry, international experience and governance and public company board experience.
Maria Sainz , age 49, was elected to our Board effective February 1, 2015. Ms. Sainz has served as the President and CEO of Cardiokinetix, a medical device company pioneering a catheter-based treatment for heart failure, since May 2012. She was the President and CEO of Concentric Medical, Inc., a developer of minimally invasive products for the treatment of acute ischemic stroke, from April 2008 until May 2012. In October 2011, Concentric Medical was acquired by Stryker Corporation, a medical technology company, where she was named General Manager of the business unit of Stryker Neurovascular. From 2006 to 2008, Ms. Sainz led integration activities following the acquisition of Guidant Corporation by Boston Scientific. From February 2003 through July 2006, Ms. Sainz served as President of the Cardiac Surgery division of Guidant Corporation. From January 2001 through February 2003, Ms. Sainz served as Vice President, Global Marketing for the Vascular Intervention division of Guidant Corporation. From late 1998 through early 2001, Ms. Sainz served as Vice President of the Intermedics Cardiac Rhythm Management business of Guidant Corporation in Europe. Ms. Sainz has been selected to serve as a director of our Board of Directors due to her leadership experience as a chief executive, knowledge of, and experience in, the healthcare industry and international experience.
Dr. Julie Shimer , age 62, was elected to our Board in October 2014. Dr. Shimer is the Chairman of the Compensation Committee. She is currently a private investor and has 30 years of product development experience, including many years with major communications companies. From March 2007 to April 2012 she served as Chief Executive Officer of Welch Allyn, Inc., a manufacturer of frontline medical products and solutions, having served on the board of directors beginning in July 2002. Previously, Dr. Shimer was President and Chief Executive Officer of Vocera Communications, Inc., a provider of wireless communications systems, also serving on the board of directors. She also has served as general manager at 3Com Corporation and Motorola and has been a product development leader at Motorola and AT&T Bell Laboratories. Since March 2007, Dr. Shimer has been a director of Netgear, Inc., a home and small business network solutions provider, and since July 2013 she has served as a director of EarthLink Holdings Corp., a leading managed network and cloud services provider. She also has served as the Chairwoman of Empire State Development Corp., the State of New Yorks economic development organization. Dr. Shimer has been selected to serve as a director of our Board of Directors due to her leadership experience as a chief executive, knowledge of, and experience in, the healthcare industry, international experience and governance and public company board experience.
Robert E. Abernathy , age 60, has been the Chairman of our Board of Directors and our Chief Executive Officer since our spin-off from Kimberly-Clark on October 31, 2014. He served as President Global Health Care of Kimberly-Clark from June 2014 until our spin-off from Kimberly-Clark on October 31, 2014. Prior to that he served as an Executive Vice President of Kimberly-Clark from November 2013 to June 2014 and prior to that served as Kimberly-Clarks Group President Europe, Global Nonwovens, and Continuous Improvement & Sustainability from 2012 to November 2013. He had overall responsibility for Kimberly-Clarks Health Care business from 1997 to early 2004. His past responsibilities at Kimberly-Clark have also included overseeing its businesses in Asia, Latin America, Eastern Europe, the Middle East and Africa, as well as operations and major project management in North America. He was appointed Vice President North American Diaper Operations in 1992; Managing Director of Kimberly-Clark Australia Pty. Limited in 1994; Group President Developing and Emerging Markets in 2004; and Group President North Atlantic Consumer Products in 2008. Mr. Abernathy currently serves as a director of RadioShack Corporation. Mr. Abernathy was selected to serve as the Chairman of our Board of Directors due to his leadership experience as our Chief Executive Officer and as an executive vice president of Kimberly-Clark, knowledge of, and experience in, the healthcare industry, international experience and governance and public company board experience.
Ronald W. Dollens , age 68, was elected to our Board in October 2014. Mr. Dollens is the Lead Director of our Board of Directors, and, as such, serves as the Chairman of the Executive Committee. He is also the Chairman of the Governance Committee. Mr. Dollens retired as the President and Chief Executive Office of Guidant Corporation, a global producer of cardiovascular therapeutic devices and related products, in 2005 where
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he had served since its spin-off from Eli Lilly & Company in 1994. Prior to that time, he held various management positions at Eli Lilly & Company from 1972 until 1994. From 2000 until 2011, he served on the Board of Directors of Kinetic Concepts, Inc., a publicly-traded global medical technology company devoted to the discovery, development, manufacturing and marketing of innovative, high-technology therapies and products, and served as Chairman from 2005 until 2011. Mr. Dollens has also served on the Board of Directors of Abiomed, Inc. from 2006 until October 2010, and Beckman Coulter, Inc. from 1999 until April 2005. Mr. Dollens has been selected to serve as the Lead Director of our Board of Directors due to his leadership experience as chief executive, knowledge of, and experience in, the healthcare industry, international experience and governance and public company board experience.
Heidi K. Fields , age 60, was elected to our Board in October 2014. Ms. Fields is the Chairman of the Audit Committee. Ms. Fields retired as the Executive Vice President and Chief Financial Officer of Blue Shield of California, a not-for-profit health plan provider, where she had served since 2003. Prior to that time, she served as the Executive Vice President and Chief Financial Officer of Gap, Inc., a multinational clothing and accessories retailer, from 1999 until 2003. Ms. Fields currently serves on the Board of Directors of Agilent Technologies, Inc. (NYSE: A) and on the Board of Directors of Financial Engines, Inc. (NASDAQ: FNGN). Ms. Fields has been selected to serve as a member of our Board of Directors due to her executive leadership experience as a chief financial officer, financial literacy and experience in finance and accounting, knowledge of, and experience in, the healthcare industry, international experience and governance and public company board experience.
Gary D. Blackford , age 57, was elected to our Board in October 2014. Mr. Blackford was the Chairman of the Board and Chief Executive Officer of Universal Hospital Services, Inc. (UHS), a leading, nationwide provider of medical technology outsourcing and services to the health care industry, from 2002 until February 6, 2015. Mr. Blackford was the Chief Executive Officer of Curative Health Services, Inc., a specialty pharmacy and health services company, from 2001 to 2002. He was also the Chief Executive Officer of ShopforSchool, Inc., from 1999 to 2001. Mr. Blackford has been a director of Wright Medical Group, Inc. (WMGI), since 2008. Mr. Blackford has been selected to serve as a director of our Board of Directors due to his executive leadership experience as a chief executive officer, financial literacy and experience in finance and accounting, international experience, and governance and public company board experience.
Patrick J. OLeary , age 57, was elected to our Board in October 2014. Mr. OLeary served as Executive Vice President and Chief Financial Officer of SPX Corporation, a global industrial and technological services and products company, from December 2004 until August 2012, when he retired. Prior to that time, he served as Chief Financial Officer and Treasurer of SPX Corporation from October 1996 to December 2004. Mr. OLeary has been a director of PulteGroup, Inc. (NYSE: PHM), since 2005. Mr. OLeary has been selected to serve as a director of our Board of Directors due to his executive leadership experience as a chief financial officer, financial literacy and experience in finance and accounting, international experience, and governance and public company board experience.
Director Independence
We believe our independent board helps ensure good corporate governance and strong internal controls.
Our Corporate Governance Policies, as adopted by the Board, provide independence standards consistent with the rules and regulations of the SEC and the listing standards of the New York Stock Exchange (NYSE). Our independence standards can be found in Section 17 of our Corporate Governance Policies.
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The Board has determined that all directors and nominees, except for Robert E. Abernathy, are independent directors and meet the independence standards in our Corporate Governance Policies. In making these determinations, the Board considered the following:
| We sold $375,000 of healthcare products to Lincare Holdings, Inc. in 2014, where Mr. Byrnes was Chairman of the Board. |
The NYSE listing standards and our Corporate Governance Policies establish certain levels at which transactions are considered to have the potential to affect a directors independence. The transaction listed above falls below those levels.
Board Committees
The standing committees of the Board include the Audit Committee, Compensation Committee, Governance Committee, and Executive Committee. In compliance with applicable NYSE corporate governance listing standards, the Board has adopted Charters for all Committees except the Executive Committee.
Our Committee Charters are available in the Investors section of our website at www.halyardhealth.com.
As set forth in our Corporate Governance Policies, the Audit, Compensation, and Governance Committees all have the authority to retain independent advisors and consultants, with all costs paid by Halyard Health.
Committees of our Board of Directors
The standing committees of the Board include the Audit Committee, Compensation Committee, Governance Committee, and Executive Committee. In compliance with applicable NYSE corporate governance listing standards, the Board has adopted Charters for all Committees except the Executive Committee.
Our Committee Charters are available in the Investors section of our website at www.halyardhealth.com.
As set forth in our Corporate Governance Policies, the Audit, Compensation, and Governance Committees all have the authority to retain independent advisors and consultants, with all costs paid by Halyard Health.
Audit Committee
Chairman: Heidi Fields
Other members: Gary Blackford and Patrick OLeary
The Board has determined that Ms. Fields is an audit committee financial expert under SEC rules and regulations. In addition, all Audit Committee members satisfy the NYSEs financial literacy requirements and qualify as independent directors under our Corporate Governance Policies. See Corporate Governance Director Independence for additional information on independent directors.
No member of the Audit Committee serves on the audit committees of more than three public companies. Under our Audit Committee Charter and NYSE corporate governance listing standards, if a member were to serve on more than three such committees, the Board would then determine whether this situation impairs the members ability to serve effectively on our Audit Committee, and we would post information about this determination on the Investors section of our website at www.halyardhealth.com.
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Prior to our spin-off from Kimberly-Clark on October 31, 2014, the members of the Committee participated in an orientation meeting designed to provide background on our businesses and financial controls and related matters. Following the spin-off from Kimberly-Clark, the Committee met twice in 2014.
The Committees principal functions, as specified in its Charter, include:
| Overseeing: |
| the quality and integrity of our financial statements |
| our compliance programs together with our Governance Committee |
| our hedging strategies and policies |
| the independence, qualification and performance of our independent auditors |
| the performance of our internal auditors |
| Selecting and engaging our independent auditors, subject to stockholder ratification |
| Pre-approving all audit and non-audit services that our independent auditors provide |
| Reviewing the scope of audits and audit findings, including any comments or recommendations of our independent auditors |
| Establishing policies for our internal audit programs |
| Overseeing our risk management program and receiving periodic reports from management on risk assessments, the risk management process, and issues related to the risks of managing our business |
Compensation Committee
Chairman: Julie Shimer
Other members: John Byrnes and Maria Sainz. Ms. Sainz was appointed to the Compensation Committee effective February 1, 2015. Ronald Dollens served on the Committee from November 1, 2014 through February 1, 2015.
Each member of this Committee is an independent director. Prior to our spin-off from Kimberly-Clark on October 31, 2014, the members of the Committee participated in an orientation session designed to provide background on our executive compensation programs and related matters. Following our spin-off from Kimberly-Clark, the Committee met twice in 2014.
The Committees principal functions, as specified in its Charter, include:
| Establishing and administering the policies governing annual compensation and long-term compensation, including stock option awards, restricted stock awards and restricted share unit awards, such that the policies are designed to align compensation with our overall business strategy and performance |
| Setting, after an evaluation of his overall performance, the compensation level of the Chief Executive Officer |
| Determining, in consultation with the Chief Executive Officer, compensation levels and performance targets for our executive officers |
| Setting annual targets and certifying awards for corporate performance under our corporate incentive compensation plans |
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| Overseeing: |
| leadership development for senior management and future senior management candidates |
| a periodic review of our long-term and emergency succession planning for the Chief Executive Officer and other key officer positions, in conjunction with our Board |
| key organizational effectiveness and engagement policies |
| Annually reviewing our compensation policies and practices for the purpose of mitigating risks arising from these policies and practices that could reasonably have a material adverse effect |
Roles of the Committee and the CEO in Compensation Decisions
Each year, the Committee reviews and sets the compensation of our executive officers, including our Chief Executive Officer. The Committees Charter does not permit the Committee to delegate to anyone the authority to establish any compensation policies or programs for the executive officers. With respect to officers that are not executive officers (our non-executive officers), our Chief Executive Officer has the authority to establish compensation programs and, subject to certain limits, to approve equity grants. However, only the Committee may make equity grants to our executive officers.
Our Chief Executive Officer makes a recommendation to the Committee each year on the appropriate target annual compensation for each of the other executive officers. The Committee makes the final determination of the target annual compensation for each executive officer, including our Chief Executive Officer. While our Chief Executive Officer and Chief Human Resources Officer typically each attend Committee meetings, none of the other executive officers is present during the portion of the Committee meetings when compensation for executive officers is set. In addition, our Chief Executive Officer is not present during the portion of the Committee meetings when his compensation is set.
For additional information on the Committees processes and procedures for determining executive compensation, and for a detailed discussion of our compensation policies, see Compensation Discussion and Analysis.
Use of Compensation Consultants
The Committees Charter authorizes the Committee to retain advisors, including compensation consultants, to assist it in its work. The Committee believes that compensation consultants can provide important market information and perspectives that can help it determine compensation programs that best meet the objectives of our compensation policies. In selecting a consultant, the Committee evaluates the independence of the firm as a whole and of the individual advisors who will be working with the Committee.
The Committee retains an independent executive compensation consultant who, according to the Committees written policy, provides services solely to the Committee and not to Halyard Health. The Committees consultant has no other business relationship with Halyard Health and receives no payments from Halyard Health other than fees for services to the Committee. The consultant reports directly to the Committee and the Committee may replace the consultant or hire additional consultants at any time. The Committee has selected Meridian Compensation Partners, LLC as its independent consultant.
In 2014, the scope of activities for the Committees independent compensation consultant included:
| Conducting a review of the executive compensation peer group |
| Reviewing and commenting on Halyards executive compensation programs established by Kimberly-Clark prior to the spin-off |
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| Attending Committee meetings |
| Periodically consulting with the Chairman of the Committee |
Committee Assessment of Consultant Conflicts of Interest.
The Committee has reviewed whether the work provided by Meridian Compensation Partners raises any conflict of interest. Factors considered by the Committee include: (1) whether other services are provided to Halyard Health by the consultant; (2) what percentage of the consultants total revenue is made up of fees from Halyard Health; (3) policies or procedures of the consultant that are designed to prevent a conflict of interest; (4) any business or personal relationships between individual consultants involved in the engagement and Committee members; (5) any shares of Halyard Health stock owned by individual consultants involved in the engagement; and (6) any business or personal relationships between our executive officers and the consulting firm or the individual consultants involved in the engagement. Based on its review, the Committee does not believe that the compensation consultants that performed services to the Committee in 2014 have a conflict of interest with respect to the work performed for the Committee.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during 2014 were Dr. Shimer and Messrs. Byrnes and Dollens. None of the members of the Compensation Committee was, during 2014, a current or former officer or employee of Halyard Health or Kimberly-Clark or has any relationship requiring disclosure under Item 404 of Regulation S-K. During 2014, none of our executive officers served as a member of the board of directors or compensation committee of any entity that had one or more executive officers serving as a member of our Board of Directors or Compensation Committee.
Governance Committee
Chairman: Ron Dollens
Other Members: Gary Blackford, John Byrnes, Heidi Fields, Patrick OLeary, Julie Shimer, and Maria Sainz. Ms. Sainz joined the Committee on February 1, 2015 upon her election to the Board.
Each member of this Committee is an independent director. Prior to the spin-off from Kimberly-Clark on October 31, 2014, the members of the Committee attended an orientation session designed to provide them with background on our governance policies and practices and related matters. Following the spin-off, the Committee met once in 2014.
The Committees principal functions, as specified in its Charter, include the following:
| Overseeing the screening and recruitment of prospective Board members and making recommendations to the Board of Directors regarding specific director nominees, as well as overseeing the process for Board nominations |
| Overseeing corporate governance matters, including developing and recommending to the Board changes to our Corporate Governance Policies |
| Overseeing, with the Audit Committee, certain of our compliance activities |
| Advising the Board on: |
| Board organization, membership, function, performance and compensation |
| committee structure and membership |
| policies and positions regarding significant stockholder relations issues |
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| Reviewing director independence standards and making recommendations to the Board with respect to the determination of director independence |
| Monitoring and recommending improvements to the Boards practices and procedures |
| Reviewing stockholder proposals and considering how to respond to them |
The Committee, in accordance with its Charter and our Certificate of Incorporation, has established criteria and processes for director nominations, including those proposed by stockholders.
Executive Committee
Chairman: Ron Dollens (Lead Independent Director)
Other Members: Robert Abernathy, Heidi Fields, and Julie Shimer
The Committee did not meet in 2014.
The Committees principal function is to exercise, when necessary between Board meetings, the Boards powers to direct our business and affairs. Accordingly, the Committee has no regular scheduled meetings and it is expected that the Committee will meet each year infrequently or not at all.
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COMPENSATION DISCUSSION AND ANALYSIS
Following our spin-off from Kimberly-Clark, we became an independent, publicly-traded company as of October 31, 2014 and our common stock began trading on the New York Stock Exchange on November 3, 2014. Prior to the spin-off, we were part of Kimberly-Clark and Kimberly-Clarks management and/or its Management Development and Compensation Committee (the Kimberly-Clark Committee) were responsible for all compensation decisions relating to our named executive officers based on their roles at Kimberly-Clark. Our Compensation Committee (the Halyard Committee) is responsible for all compensation decisions relating to our named executive officers in 2015 and thereafter. This Compensation Discussion and Analysis (CD&A) is intended to provide investors with an understanding of the compensation policies and decisions regarding 2014 compensation for our named executive officers.
For 2014, our named executive officers are:
Named Executive Officer |
Title |
|
Robert E. Abernathy | Chairman of the Board and Chief Executive Officer | |
Steven E. Voskuil | Senior Vice President and Chief Financial Officer | |
Rhonda D. Gibby | Senior Vice President and Chief Human Resources Officer | |
Christopher M. Lowery | Senior Vice President and Chief Operating Officer | |
John W. Wesley | Senior Vice President, General Counsel and Chief Ethics and Compliance Officer |
This CD&A is organized as follows:
Compensation Executive Summary | 73 | |
Executive Compensation Objectives and Policies | 74 | |
Components of our Executive Compensation Programs | 76 | |
Setting Annual Compensation | 77 | |
Executive Compensation in 2014 | 80 | |
Benefits and Other Compensation | 89 | |
Executive Compensation for 2015 | 90 | |
Additional Information About Our Compensation Practices | 92 |
Compensation Executive Summary
This executive summary provides a brief overview of our key accomplishments in 2014 and our key compensation principles and practices.
2014 Highlights
A substantial portion of 2014 was devoted to preparing for the spin-off from Kimberly-Clark and to begin operating as a separate independent publicly-traded company, while continuing to stay focused on our business and delivering results. Some key highlights from the year include:
| Successfully recruiting a new board of directors that is composed of all independent directors other than our chief executive officer |
| Establishing the corporate governance structure for Halyard as a New York Stock Exchange listed company |
| Establishing the compensation philosophies of Halyard which focus on paying for performance, promoting long-term success, ensuring stockholder alignment, and acquiring quality talent |
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| Supporting Kimberly-Clarks key financial and strategic goals prior to the spin |
| Achieving our key financial goals following the spin |
Performance-Based Compensation
Pay-for-performance is a key objective of our compensation programs and was a key objective of Kimberly-Clarks compensation program while we were a part of that company. Consistent with that objective, performance-based compensation constituted a significant portion of our named executive officers direct annual compensation targets for 2014. Also, to further align the financial interests of our executives with those of our stockholders, a majority of our executives target direct annual compensation for 2014 was equity-based.
Compensation Design Principles and Governance Practices
The design principles for our executive compensation programs are intended to protect and promote the interests of our stockholders. Below we summarize certain practices we have implemented to drive performance and those we have not implemented because we do not believe they would serve our stockholders long-term interests:
What We Do | What We Dont Do | |||||
ü |
Seek to pay for performance | x | Maintain employment contracts | |||
ü |
Perform an annual compensation risk assessment | x | Provide excise tax gross-up on change-in-control agreements or on perquisites (other than on certain relocation benefits) | |||
ü |
Utilize an independent compensation consultant | x | Allow repricing of underwater options without stockholder approval | |||
ü |
Require that change-in-control agreements contain a double trigger | x | Allow current payment of dividends or dividend equivalents on unearned long-term incentives | |||
ü |
Maintain share ownership guidelines and restrict pledging | x | Provide more than minimal perquisites | |||
ü |
Benchmark our compensation practices to ensure executive compensation is consistent with market | x | Allow executive officers to engage in hedging transactions | |||
ü |
Short and long-term incentive payments are subject to caps |
Committee Consideration of Stockholder Advisory Votes on Compensation
At the Companys Annual Meeting of Stockholders on April 30, 2015, the stockholders voted to have the Company hold a vote every year to approve the compensation for the Companys named executive officers on a non-binding, advisory basis. The Halyard Committee will consider the results of that vote and determine whether to make any changes in light of the results.
Executive Compensation Objectives and Policies
The Halyard Committee is responsible for establishing and administering our policies governing the compensation of our executive officers. The Halyard Committee will review our compensation philosophy annually, including determining whether this philosophy supports our business objectives and is consistent with the Committees charter.
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Our executive compensation policies are designed to achieve the following objectives:
Objective | Description | Related Policies | ||
Pay for Performance | Support a performance-oriented environment that rewards achievement of our financial and non-financial goals. | The majority of pay varies with the levels at which annual and long-term performance goals are achieved. Performance goals are aligned with our strategies for sustained growth and profitability. | ||
Focus on Long-Term Success |
Reward executives for long-term strategic management and stockholder value enhancement. | A significant component of annual target compensation is in the form of performance-based restricted share units. The number of shares actually received on payout of these units depends on our performance over a three-year period. | ||
Stockholder Alignment | Align the financial interest of our executives with those of our stockholders. | Equity-based awards make up the largest part of annual target compensation. Our executive officers also receive stock options, which vest over time and have value only if our stock value rises after the option grants are made. We also have other policies that link our executives interests with those of our stockholders, including target stock ownership guidelines. | ||
Quality of Talent | Attract and retain highly-skilled executives whose abilities are considered essential to our long-term success as a global company. | The Halyard Committee reviews peer group data to ensure our executive compensation program remains competitive so we can continue to attract and retain this talent. |
These compensation objectives and policies seek to align the compensation of our executive officers with the objectives of our strategic business plan and goals. Our strategic business plans are designed to make Halyard Health a stronger and more competitive company and to increase our total return to stockholders by:
| investing in innovation and growth initiatives |
| managing our businesses to balance growth, margin and cash flow |
| delivering sustainable margin improvement |
| providing disciplined capital management to improve return on invested capital and return cash to shareholders when and as determined to be appropriate |
The compensation policies and objectives adopted by Halyard are substantially the same as those previously adopted by Kimberly-Clark.
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Components of Our Executive Compensation Program
The table below gives an overview of the compensation components used in our executive officer compensation program and matches each with one or more of the objectives described above.
Component | Objectives | Purpose |
Target Competitive
Position |
|||
Base Salary | Quality Of Talent |
Provide Annual Cash Income Based On:
Level Of Responsibility, Performance And Experience
Comparison To Market Pay Information |
Compared To Median Of Peer Group
Actual Base Salary Will Vary Based On The Individuals Performance And Experience In The Position |
|||
Annual Cash Incentive | Pay-For-Performance Quality Of Talent |
Motivate And Reward Achievement Of The Following Annual Performance Goals:
Corporate Key Financial Goals
Other Corporate Financial And Strategic Performance Goals |
Target Compared To Median Of Peer Group
Actual Payout Will Vary Based On Actual Corporate And Business Unit Or Staff Function Performance |
|||
Long-Term Equity Incentive |
Stockholder Alignment Focus On Long-Term Success Pay-For-Performance Quality Of Talent |
Provide An Incentive To Deliver Stockholder Value And To Achieve Our Long-Term Objectives, Through Awards Of:
Performance-Based Restricted Share Units
Stock Option Grants
Time-Vested Restricted Share Units May Be Granted From Time To Time For Recruiting, Retention Or Other Purposes |
Target Compared To Median Of Peer Group
Actual Payout Of Performance-Based Restricted Share Units Will Vary Based On Actual Corporate Performance
Actual Payout Will Also Vary Based On Actual Stock Price Performance |
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Component | Objectives | Purpose |
Target Competitive
Position |
|||
Retirement Benefits | Quality Of Talent | Provide Competitive Retirement Plan Benefits Through 401(K) Plan And Other Defined Contribution Plans |
Benefits Comparable To Those Of Peer Group |
|||
Perquisites | Quality Of Talent | Provide Minimal Market-Based Additional Benefits |
Determined By The Halyard Committee |
|||
Post-Termination Compensation (Severance And Change Of Control) |
Quality Of Talent |
Encourage Attraction And Retention Of Executives Critical To Our Long-Term Success And Competitiveness:
Severance Pay Plan, Which Provides Eligible Employees, Including Executives, With Payments And Benefits In The Event Of Certain Involuntary Terminations
Executive Severance Plan, Which Provides Eligible Employees, Including Executives, Payments In The Event Of A Qualified Separation Of Service Following A Change Of Control |
Determined By The Halyard Committee |
Setting Annual Compensation
This section describes the processes followed in setting 2014 target annual compensation for our named executive officers. Prior to the spin-off, the Kimberly-Clark Committee set the 2014 annual compensation targets for Messrs. Abernathy and Wesley and Kimberly-Clark management established the 2014 annual compensation targets for Messrs. Voskuil and Lowery and Ms. Gibby. Kimberly-Clark also established the annual target compensation for the named executive officers following the spin subject to review and approval by the Halyard Committee.
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Focus on Direct Annual Compensation
In setting 2014 compensation for our executive officers, including our Chief Executive Officer, the Kimberly-Clark Committee and management focused on direct annual compensation, which consists of annual cash compensation (base salary and annual cash incentive) and long-term equity incentive compensation (performance-based restricted share units and stock options). The Kimberly-Clark Committee and management considered annual cash and long-term equity incentive compensation both separately and as a package to help ensure that the executive compensation objectives are met.
Benchmarking Executive Compensation Peer Group
To ensure that our executive compensation program is reasonable and competitive in the marketplace, our program is compared to programs at other companies. In setting compensation for our named executive officers prior to the spin-off, the Kimberly-Clark Committee and management used the Kimberly-Clark compensation peer group. In setting the initial compensation for our named executive officers following the spin-off, Kimberly-Clark used the following peer group for Halyard executive compensation:
2014 Executive Compensation Peer Group
CONMED Corporation |
Edwards Lifesciences Corporation | ResMed Inc. | ||
The Cooper Companies, Inc. |
Haemonetics Corporation | STERIS Corporation | ||
C.R. Bard, Inc. |
Hill-Rom Holdings, Inc. | Teleflex Incorporated | ||
DENTSPLY International Inc. |
Invacare Corporation |
West Pharmaceutical Services,
Inc. |
The peer group is intended to consist of companies with whom we compete for talent. We believe that we generally compete for talent with healthcare and medical device companies with annual revenues ranging from approximately one-half to two times our annual revenues.
For purposes of setting executive compensation for 2015, the Halyard Committee added the following seven companies to the peer group: Varian Medical Systems, Inc.; Hologic, Inc.; Sirona Dental Systems, Inc.; NuVasive, Inc.; Align Technology, Inc.; Integra Lifesciences Holding Corporation; and Greatbatch, Inc. The Halyard Committee, with the advice of the independent compensation consultant, determined that adding these companies to the peer group resulted in a more appropriate sized peer group than what was established by Kimberly-Clark for the initial 2014 compensation decisions.
The Halyard Committee (working with its independent compensation consultant), will review the executive compensation peer group annually to ensure that it continues to serve as an appropriate comparison for our compensation program.
Process for Setting Direct Annual Compensation Targets
In setting the direct annual compensation of our executive officers, both market data provided by the independent compensation consultant and information on the performance of each executive officer for prior years is evaluated. To remain competitive in the marketplace for executive talent, the target levels for the executive officers compensation components, including our Chief Executive Officer, are compared to the median of the peer group.
To reinforce a pay-for-performance culture, targets for individual executive officers may be set above or below this median depending on the individuals performance in prior years and experience in the position, as well as any applicable retention concerns. The Halyard Committee believes that comparing target levels to the
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median, setting targets as described above, and providing incentive compensation opportunities that will enable executives to earn above-target compensation if they deliver above-target performance on their performance goals, are consistent with the objectives of our compensation policies. In particular, the Halyard Committee believes that this approach enables us to attract and retain skilled and talented executives to guide and lead our businesses and supports a pay-for-performance culture.
When setting annual compensation for our executive officers, the Halyard Committee considers each compensation component (base salary, annual cash incentive and long-term equity incentive), but its decision regarding a particular component does not necessarily impact its decision about other components.
In setting compensation for executive officers that join us from other companies, the Halyard Committee will evaluate both market data for the position to be filled and the candidates compensation history. The Halyard Committee recognizes that in order to successfully recruit a candidate to leave his or her current position and to join the Company, the candidates compensation package may have to exceed his or her current compensation, which could result in a package above the median of our peer group.
CEO Direct Annual Compensation
Mr. Abernathys direct annual compensation is determined in the same manner as the direct annual compensation of the other named executive officers. Mr. Abernathys and the other named executive officers 2014 direct annual target compensation was below the median of direct annual compensation of chief executive officers and comparable executive officers of companies included in the peer group. Kimberly-Clark established the below median targets because Mr. Abernathy and the other named executive officers were new to their roles at Halyard and each will be paid more than their compensation at Kimberly-Clark prior to the spin-off.
The difference between Mr. Abernathys compensation and that of the other named executive officers reflects the fact that Mr. Abernathys responsibilities for management and oversight of a global enterprise are significantly greater than those of the other executive officers. As a result, the market pay level for Mr. Abernathy is appropriately higher than the market pay for our other executive officer positions.
Direct Annual Compensation Targets for 2014
Consistent with the focus on direct annual compensation, Kimberly-Clark established pre-spin 2014 direct annual compensation targets for our named executive offices based on their roles and responsibility at Kimberly-Clark prior to the spin-off. Kimberly-Clark also established post-spin 2014 direct annual compensation targets for our named executive officers based on their new roles and responsibilities following the spin-off. The 2014 direct annual compensation targets established by Kimberly-Clark for each of our named executive officers were:
Name |
Pre-spin 2014
Direct Annual Compensation Target ($) |
Post-spin 2014
Direct Annual Compensation Target ($) |
||||||
Robert E. Abernathy |
3,343,000 | 4,650,000 | ||||||
Steven E. Voskuil |
1,029,542 | 1,481,000 | ||||||
Rhonda D. Gibby |
533,216 | 815,000 | ||||||
Christopher M. Lowery |
749,000 | 1,683,750 | ||||||
John W. Wesley |
762,500 | 1,000,000 |
These 2014 direct annual compensation target amounts differ from the amounts set forth in the Summary Compensation Table in the following ways:
| Prior to the spin-off, each of our named executive officers had different roles at Kimberly-Clark and had different and lower annual targets. |
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| Base salaries are adjusted each year on April 1, and the named executive officers base salary was adjusted again on November 1 following the spin-off, while the Summary Compensation Table includes salaries for the entire calendar year. See Executive Compensation in 2014 Base Salary. |
| Annual cash incentive compensation is included at the target level, while the Summary Compensation Table reflects the actual amount earned for 2014. |
| Stock Awards and Option Awards in the Summary Compensation Table include the grant date fair value of 2014 awards under the Kimberly-Clark Equity Participation Plan which were forfeited at the time of the spin-off, as well as the grant date fair value of awards under the Halyard Equity Participation Plan intended to replace the value of those forfeited 2014 wards, while the direct annual target compensation above includes only one such grant. |
| Stock Awards and Option Awards in the Summary Compensation Table include the grant date fair value of awards under the Halyard Equity Participation Plan which were intended to replace the value of unvested equity awards granted under the Kimberly-Clark Equity Participation Plan prior to 2014 that were forfeited at the time of the spin-off, while the direct annual target compensation above does not include the prior year equity awards. |
| In setting direct annual compensation targets, increases in pension or deferred compensation earnings or other compensation are not included, while those amounts are required to be included in the Summary Compensation Table. |
Executive Compensation in 2014
To help achieve the objectives discussed above, our executive compensation program for 2014 consists of fixed and performance-based components, as well as short-term and long-term components.
Base Salary
To attract and retain high caliber executives, we pay our executives an annual fixed salary that we believe to be competitive in the marketplace.
Salary ranges and individual salaries for executive officers are reviewed annually, and salary adjustments generally are effective on April 1 of each year. In determining individual salaries, salary levels for similar positions at our peer group companies are considered, as well as the executives performance and experience in his or her position. This performance evaluation is based on how the executive performs during the year against results-based objectives established at the beginning of the year. In general, an experienced executive who is performing at a satisfactory level will receive a base salary at or around the median of our peer group companies. However, executives may be paid above or below the median depending on their experience and performance. From time to time, if warranted, executives and other employees may receive additional salary increases because of promotions, changes in duties and responsibilities, retention concerns, or market conditions.
The base salaries for our named executive officers prior to the spin-off were based on their roles and responsibilities at Kimberly-Clark. Following the spin-off, the base salaries of our named executive officers were increased to reflect their new roles and responsibilities at the Company. The following table shows the 2014 base salaries in effect for each named executive officer both prior to and after the spin-off:
Name |
2014 Pre-spin Base Salary
as of January 1 ($) |
2014 Pre-spin Base Salary
as of April 1 ($) |
2014 Post-spin Base Salary
as of November 1 ($) |
|||||||||
Robert E. Abernathy |
780,000 | 780,000 | 825,000 | |||||||||
Steven E. Voskuil |
351,858 | 357,769 | 430,000 | |||||||||
Rhonda D. Gibby |
240,860 | 250,494 | 310,000 | |||||||||
Christopher M. Lowery |
300,000 | 306,000 | 475,000 | |||||||||
John W. Wesley |
310,000 | 315,000 | 375,000 |
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Annual Cash Incentive Program
Consistent with our pay-for-performance compensation objective, our executive compensation program includes an annual cash incentive program to motivate and reward executives in achieving annual performance objectives.
2014 Targets
The target payment amount for annual cash incentives is a percentage of the executives base salary. The range of possible payouts is expressed as a percentage of the target payment amount. These ranges are set based on competitive factors. Each of the named executive officers participated in Kimberly-Clarks annual cash incentive program prior to the spin-off (January 1 through October 31, 2014) and in Halyards annual cash incentive program following the spin-off (November 1 through December 31, 2014), and the target payment amounts are prorated for the applicable portion of the year. The following table sets forth the target payment amounts and range of possible payouts for both the pre-spin and post-spin periods in 2014:
TARGET PAYMENT AMOUNTS AND RANGE OF POSSIBLE PAYOUTS
FOR 2014 ANNUAL CASH INCENTIVE PROGRAM
Pre-spin Period | Post-spin Period | |||||||
Target Payment Amount |
Range of Potential
Payout |
Target Payment Amount |
Range of Potential
Payout |
|||||
Robert E. Abernathy |
85% of base salary | 0%-200% of pro-rated target payment amount | 100% of base salary | 0% -100% of pro-rated target payment amount | ||||
Steven E. Voskuil |
55% of base salary | 0%-200% of pro-rated target payment amount | 70% of base salary | 0% -100% of pro-rated target payment amount | ||||
Rhonda D. Gibby |
45% of base salary | 0%-200% of pro-rated target payment amount | 50% of base salary | 0% -100% of pro-rated target payment amount | ||||
Christopher M. Lowery |
50% of base salary | 0%-200% of pro-rated target payment amount | 85% of base salary | 0% -100% of pro-rated target payment amount | ||||
John W. Wesley |
50% of base salary | 0%-200% of pro-rated target payment amount | 60% of base salary | 0% -100% of pro-rated target payment amount |
2014 Performance Goals, Performance Assessments and Payouts
Payment amounts under the annual cash incentive program are dependent on performance measured against goals established at the beginning of the year for the pre-spin program and at the beginning of November 2014, for the post-spin program. These performance goals are derived from Kimberly-Clarks or our financial and strategic goals, as the case may be.
Pre-Spin-Off (Kimberly-Clark Program)
As shown in the table below, three different performance goals were established for the pre-spin period of 2014. Each performance goal was weighted for each executive. The weightings chosen were intended to strike an appropriate balance between aligning each executives individual objectives with Kimberly-Clarks overall corporate objectives and holding the executive accountable for performance in the executives particular area of responsibility.
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KIMBERLY CLARK ANNUAL CASH INCENTIVE PROGRAM
2014 PERFORMANCE GOALS AND WEIGHTS
Robert E.
Abernathy |
Steven E.
Voskuil |
Rhonda D.
Gibby |
Christopher
M. Lowery |
John W.
Wesley |
||||||||||||||||||
Element 1: |
Corporate key financial and strategic performance goals | 50 | % | 30 | % | 30 | % | 30 | % | 30 | % | |||||||||||
Element 2: |
Business unit key financial goals | 35 | % | 49 | % | 49 | % | 49 | % | 49 | % | |||||||||||
Element 3: |
Additional business unit financial and strategic performance goals | 15 | % | 21 | % | 21 | % | 21 | % | 21 | % |
For the pre-spin period, the Kimberly-Clark Committee determined the extent to which each goal was met in 2014 and the resulting payout. Below we describe the three elements of performance, explain how the Kimberly-Clark Committee assessed the performance of each element, and show the payouts that were determined in each case.
ELEMENT 1: CORPORATE KEY FINANCIAL AND STRATEGIC PERFORMANCE GOALS
For 2014, the Kimberly-Clark Committee chose the following as corporate key financial goals for the Kimberly-Clark annual cash incentive program:
2014 Goal |
Explanation |
Reason for Use as a Performance
Measure |
||
Adjusted Net Sales |
Net sales for 2014 (1) |
A key indicator of overall
growth |
||
Adjusted EPS |
Consists of diluted net income per share that was then adjusted to eliminate the effect of items or events that the Kimberly-Clark Committee determined in its discretion should be excluded for compensation purposes (1)(2) |
A key indicator of overall
performance |
||
Adjusted Operating Profit Return on Sales (OPROS) |
After adjusted net sales and adjusted EPS are determined as described above, a multiplier based on adjusted OPROS was applied to the calculation result to determine the final payout percentage (1)(3) |
A measure of margin efficiency
and a helpful method of tracking cost structure performance |
(1) | For purposes of the annual incentive program, the Kimberly-Clark Committee added the amounts below to the calculation of net sales, earnings per share and OPROS to neutralize the impact of the Halyard Health spin-off on October 31, 2014 on these full-year performance metrics. |
Adjusted Net Sales |
$1.59 billion | |
Adjusted EPS |
$0.08 | |
Adjusted OPROS |
40 bps |
The adjustments represent the estimated net sales, earnings per share and OPROS that the health care business would have contributed to Kimberly-Clark in November and December had the spin-off not occurred. Each adjustment represents, (a) for January through October, the actual results of the healthcare business (which Kimberly-Clark reported as discontinued operations in its 2014 Annual Report on
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Form 10-K), and (b) for November and December, the difference between Kimberly-Clarks actual results and pro-forma results determined by multiplying its actual year-to-date performance for January through October, expressed as a percentage of target, by the target performance level attributable to November and December.
(2) | In addition to the adjustments for the lost business due to the Halyard Health spin-off, in 2014 the following adjustments were made by the Kimberly-Clark Committee to diluted net income per share to determine adjusted EPS: |
Kimberly-Clark Diluted Net Income Per Share Adjustment for: |
$ | 4.04 | ||
Add Charges related to exchange rate change in Venezuela |
1.22 | |||
Add Charges related to costs of Halyard Health spin-off |
0.37 | |||
Add Charges related to 2014 organizational restructuring |
0.25 | |||
Add Charges related to regulatory dispute in Middle East |
0.05 | |||
Add Charges related to Kimberly-Clark European strategic changes |
0.08 | |||
Kimberly-Clark Adjusted EPS |
$ | 6.01 |
As described above in footnote 1, an additional $0.08 was added to Kimberly-Clarks 2014 EPS for the Halyard Health spin-off, resulting in Kimberly-Clark 2014 adjusted EPS of 6.09.
(3) | For purposes of determining annual cash incentive amounts, Kimberly-Clark calculated adjusted OPROS using its reported financial results, adjusted for the same items described above in determining adjusted EPS. |
At the beginning of 2014, the Kimberly-Clark Committee also established additional corporate financial and strategic performance goals that are intended to challenge its executives to exceed long-term objectives. These additional performance goals related to Quality of Earnings, Brand Equity and Market Performance, Innovation and Diversity and Inclusion.
At the end of the year, the Kimberly-Clark Committee determined a payout percentage based on its assessment of the degree to which the key financial and strategic performance goals were achieved. To determine the payout percentage for Element 1, the Kimberly-Clark Committee followed the following process:
First, it determined an initial payout percentage based on how Kimberly-Clark performed against the adjusted net sales and adjusted EPS goals. For 2014, the Kimberly-Clark Committee set these goals and the corresponding initial payout percentages at the following levels:
Range of Performance Levels | ||||||||||||
Measure (each weighted 50% |
Threshold | Target | Maximum | |||||||||
Kimberly-Clark Adjusted Net Sales (billions) |
$ | 19.95 | $ | 21.45 | $ | 22.95 | ||||||
Kimberly-Clark Adjusted EPS |
$ | 5.65 | $ | 6.10 | $ | 6.55 | ||||||
Initial Payout Percentage |
0 | % | 100 | % | 200 | % |
Second, the Kimberly-Clark Committee applied a multiplier to this initial payout percentage. The multiplier is based on how Kimberly-Clark performed against its adjusted OPROS goals. Depending on the level of basis point improvement in adjusted OPROS, the multiplier may either decrease or increase the initial payout percentage (but the amount of the final payout percentage cannot exceed a 200 percent cap).
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For 2014, the Kimberly-Clark Committee set the following ranges for this adjusted OPROS multiplier:
Range of Performance Levels | ||||||||||||
Threshold | Target | Maximum | ||||||||||
Adjusted OPROS (bps improvement) |
0 bps | 50 bps | 100 bps | |||||||||
Adjusted OPROS Multiplier Applied to Initial Payout Percentage |
0.8 x | 1.0 x | 1.2 x |
Third, the Kimberly-Clark Committee assessed the performance of the additional financial and strategic performance goals. The Kimberly-Clark Committee did not use a formula to assess the performance of these goals but instead took a holistic approach and considered performance of all the goals collectively. Although it does review each goal separately, the key consideration for the Kimberly-Clark Committee is how it views Kimberly-Clarks performance for the year in all of these categories, taken as a whole.
Actual results and actual payout percentages for Element 1 . For 2014, the Kimberly-Clark Committee determined that Kimberly-Clarks adjusted net sales were $21.31 billion and its adjusted EPS were $6.09. Based on these results, the Kimberly-Clark Committee determined the initial payout percentage to be 94 percent. To this percentage, Kimberly-Clark then applied an adjusted OPROS multiplier of 1.12, which was based on the actual 2014 improvement of 80 bps. The Committee also determined that additional Quality of Earnings, Brand Equity and Market Performance, Innovation and Diversity and Inclusion objectives for 2014 were met or exceeded. After taking into account performance on all of these goals under Element 1, the Kimberly-Clark Committee determined that the payout percentage for achieving the corporate key financial goals and the additional financial and strategic performance goals should be 105 percent of target.
ELEMENT 2: BUSINESS UNIT KEY FINANCIAL GOALS
For 2014, the following healthcare business unit key financial goals for the Kimberly-Clark annual cash incentive program were chosen:
2014 Goal | Explanation |
Reason for Use as a Performance
Measure |
||
Health Care Net Sales | Net sales for 2014 | A key indicator of overall growth | ||
Health Care Operating Profit | Healthcare operating profit for 2014 | A key indicator of performance | ||
Health Care Cash Conversion Cycle | Improvement in cash conversion cycle | A measure of operational efficiency |
The goals and ranges of potential payouts were established at the beginning of 2014. The table below shows those goals and ranges, which have been prorated for the pre-spin period (January 1 through October 31, 2014):
Range of Performance Levels | ||||||||||||
Measure (each weighted 50%) | Threshold | Target | Maximum | |||||||||
Health Care Net Sales (millions) |
$ | 1,218.5 | $ | 1,328.5 | $ | 1,438.5 | ||||||
Health Care Operating Profit |
$ | 197.9 | $ | 222.9 | $ | 247.9 | ||||||
Health Care Cash Conversion Cycle (days) |
123.5 | 118.5 | 113.5 | |||||||||
Initial Payout Percentage |
0 | % | 100 | % | 200 | % |
Actual results and payout percentage for Element 2. For 2014, the pre-spin Health Care Net Sales were $1,327.5 million, Operating Profit was $227.2, and the cash conversion cycle was 121.5 days. As a result, Kimberly-Clark determined that the payout percentage for achieving the healthcare business unit key financial goals should be 97 percent of target. In assessing this Element 2, Kimberly-Clark made an allowance for the
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negative impact on the cash conversion cycle primarily related to building inventory to ensure minimal customer disruptions resulting from the spin-off from Kimberly-Clark and from the outsourcing of certain glove production following the restructuring of a manufacturing facility in Thailand. The allowance increased the payout percentage for Element 2 from 93 percent to 97 percent of target. Because Mr. Abernathy was an executive officer of Kimberly-Clark pre-spin, and because Kimberly-Clark has a policy of not permitting its executive officers to benefit from such allowances, Mr. Abernathys business unit payout percentage is the unadjusted 93 percent.
ELEMENT 3: ADDITIONAL BUSINESS UNIT FINANCIAL AND STRATEGIC PERFORMANCE GOALS
In addition to the performance goals established by the Kimberly-Clark Committee, the Kimberly-Clark CEO established additional individual business unit financial and strategic performance goals that were intended to challenge the executives to exceed the objectives for that business unit. For 2014, the Health Care units additional financial and strategic performance goals related to targeted growth, innovation, and cost reduction initiatives as well as successfully separating from Kimberly-Clark while delivering 2014 business results.
Actual results and payout percentages for Element 3. The additional business unit financial and strategic performance goals for 2014, and Kimberly-Clarks assessment of 2014 performance against those goals, are as follows:
Additional Business Unit Financial and Strategic Performance Goals for 2014 |
Below Goal |
Final Result
Goal |
Above Goal |
|||
Achieve target level sales in Sterilization Wrap in North America from new innovation categories |
ü | |||||
Improve innovation process |
ü | |||||
Achieve target levels of organic sales growth for Pain Platforms |
ü | |||||
Create a stand-alone healthcare company while delivering 2014 business results |
ü | |||||
Achieve a target level of cost savings |
ü |
Based on the assessed performance of the additional business unit financial and strategic performance goals Kimberly-Clark determined that the payout percentage for achieving these performance goals should be 120 percent of target.
Post-Spin-Off (Halyard Program)
Subsequent to the spin-off, our named executive officers became subject to our Executive Officer Achievement Award Plan, which is our annual cash incentive plan. Because of the relatively short period following the spin-off, the Halyard Committee, with the advice and counsel of the independent compensation consultant, established a single performance goal for the last two months of 2014. That goal was based on target net sales for the final two months of 2014. The Halyard Committee also determined that the potential range of payouts for the last two months of 2014 would be zero if the goal was not reached and 100% if the goal was reached or exceeded.
The Halyard Committee determined that the actual net sales for the final two months of 2014 exceed the target and that the payout percentage for each of our named executive officers for that period would be 100%.
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Annual Cash Incentive Payouts for 2014
The following tables show the payout opportunities and the actual payouts of annual cash incentives for 2014 for each of our named executive officers for both the pre-spin and post-spin periods. The annual incentive payout amounts have been pro-rated for the applicable periods. Payouts were based on the payout percentages for each element, weighted for each executive as shown above.
Pre-spin (Kimberly-Clark program)
Annual
Incentive Target |
Annual
Incentive Maximum |
2014 Annual
Incentive Payout |
||||||||||||||||||||||
Name |
% of Base Salary |
Prorated Amount($) |
% of Target |
Amount($) |
% of Target |
Amount($) | ||||||||||||||||||
Robert E. Abernathy |
85 | % | 552,500 | 200 | % | 1,105,000 | 103 | % | 571,016 | |||||||||||||||
Steven E. Voskuil |
55 | % | 163,978 | 200 | % | 327,956 | 104 | % | 170,911 | |||||||||||||||
Rhonda D. Gibby |
45 | % | 93,935 | 200 | % | 187,870 | 104 | % | 97,909 | |||||||||||||||
Christopher M. Lowery |
50 | % | 127,500 | 200 | % | 255,000 | 104 | % | 132,893 | |||||||||||||||
John W. Wesley |
50 | % | 131,250 | 200 | % | 262,500 | 104 | % | 136,802 |
Post spin (Halyard program)
Annual Incentive Target |
Annual Incentive Maximum |
2014 Annual Incentive Payout |
||||||||||||||||||||||
Name |
% of Base Salary |
Prorated Amount($) |
% of Target |
Amount($) |
% of Target |
Amount($) | ||||||||||||||||||
Robert E. Abernathy |
100 | % | 137,500 | 100 | % | 137,500 | 100 | % | 137,500 | |||||||||||||||
Steven E. Voskuil |
70 | % | 50,167 | 100 | % | 50,167 | 100 | % | 50,167 | |||||||||||||||
Rhonda D. Gibby |
50 | % | 25,833 | 100 | % | 25,833 | 100 | % | 25,833 | |||||||||||||||
Christopher M. Lowery |
85 | % | 67,292 | 100 | % | 67,292 | 100 | % | 67,292 | |||||||||||||||
John W. Wesley |
60 | % | 37,500 | 100 | % | 37,500 | 100 | % | 37,500 |
Long-Term Equity Incentive Compensation
Our executive officers receive annual long-term equity incentive grants as part of their overall compensation package. These awards are consistent with the objectives of aligning our senior leaders interests with the financial interests of our stockholders, focusing on our long-term success, supporting our performance-oriented environment and offering competitive compensation packages.
Information regarding long-term equity incentive awards granted to our named executive officers can be found under Summary Compensation, Grants of Plan-Based Awards, and Discussion of Summary Compensation and Plan-Based Awards Tables.
2014 Grants
Pre-spin grants
In determining the 2014 long-term equity incentive award amounts for our named executive officers the following factors were considered by Kimberly-Clark, among others: the specific responsibilities and performance of the executive, business performance, retention needs, stock price performance and other market factors. Because these awards are part of the annual compensation program that compares direct annual compensation to the median of the peer group comparison, grants from prior years were not considered when setting 2014 targets or granting awards.
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To determine target values, each executives direct annual compensation was compared to the median of the peer group, and then individual performance and the other factors listed above, as applicable, were considered. Target grant values were approved by the Kimberly-Clark Committee in June 2014 and were divided into two types:
| Performance-based restricted share units (75 percent of the target grant value). For valuation purposes, each unit was assigned the same value as one share of Kimberly-Clark common stock on the date of grant. |
| Stock options (25 percent of the target grant value). For valuation purposes, one option had the same value as 10 percent of the price of one share of Kimberly-Clark common stock on the date of grant of the stock option. |
The Kimberly-Clark Committee believed this allocation between performance-based restricted share units (PRSUs) and stock options supports the pay-for-performance and stockholder alignment objectives of its executive compensation program. In June 2014, the following long-term equity incentive awards were granted to our named executive officers:
Name |
Target Grant Value of Awards ($) |
Target PRSUs Awarded (#) |
Stock Options Awarded (#) |
|||||||||
Robert E. Abernathy |
1,900,000 | 12,598 | 41,995 | |||||||||
Steven E. Voskuil |
475,000 | 3,150 | 10,499 | |||||||||
Rhonda D. Gibby |
170,000 | 1,127 | 3,757 | |||||||||
Christopher M. Lowery |
290,000 | 1,923 | 6,410 | |||||||||
John W. Wesley |
290,000 | 1,923 | 6,410 |
Post-spin grants
The PRSUs awarded by Kimberly-Clark in June 2014 were forfeited on October 31, 2014 when our named executive officers ceased to be employed by Kimberly-Clark. The stock options awarded by Kimberly-Clark in June 2014 and unvested Kimberly-Clark stock options and performance-based restricted share units granted in prior years were also forfeited on October 31, 2014 by Messrs. Voskuil and Lowery and Ms. Gibby. Because Messrs. Abernathy and Wesley were both over the age of 55 on October 31, 2014, under the terms of the Kimberly-Clark equity participation plan all option awards and performance-based restricted share units became vested upon their separation from Kimberly-Clark. Under the terms of the Employee Matters Agreement we entered into with Kimberly-Clark in connection with the spin-off, we were obligated to issue to our employees (including the named executive officers) replacement equity grants in an amount equal to the approximate intrinsic value of the Kimberly-Clark equity grants that were forfeited as a result of the spin-off. Kimberly-Clark stock options that were forfeited as a result of the spin-off were replaced with Halyard stock options with substantially the same terms and conditions as the forfeited options except that the number of options and the exercise prices were adjusted to preserve the intrinsic value of the options as of the spin-off. Kimberly-Clark PRSUs that were forfeited as a result of the spin-off were replaced with Halyard time-based restricted share units (Time-based RSUs) using the target level of the PRSUs for purposes of determining the intrinsic value of those forfeited units as of the spin-off. Time-based RSUs were used to replace the Kimberly-Clark PRSUs because of the difficulty in establishing comparable replacement performance objectives for Halyard immediately following the spin-off.
The Halyard Committee approved the following replacement equity awards for our named executive officers in November 2014
Name |
Intrinsic Value of Awards ($) |
Time-based RSUs
(#) |
Stock Options Awarded (#) |
|||||||||
Robert E. Abernathy |
1,450,880 | 38,302 | | |||||||||
Steven E. Voskuil |
1,030,280 | 20,493 | 66,249 |
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Name |
Intrinsic Value of Awards ($) |
Time-based RSUs
(#) |
Stock Options Awarded (#) |
|||||||||
Rhonda D. Gibby |
420,011 | 8,309 | 26,934 | |||||||||
Christopher M. Lowery |
518,601 | 10,735 | 34,889 | |||||||||
John W. Wesley |
221,446 | 5,846 | |
In addition, under the terms of agreements entered into pre-spin with certain of our executive officers, we were obligated to make equity awards to those individuals with a value equal to the difference between the target level of long term equity awards for their new positions at Halyard as of the spin-off less the value of the 2014 long term equity awards granted by Kimberly-Clark in June 2014. The Halyard Committee approved the following top-up equity awards for our named executive officers in November 2014:
Name |
Intrinsic Value of Awards
($) |
Time-based RSUs
Awarded (#) |
Stock Options Awarded
(#) |
|||||||||
Robert E. Abernathy |
1,157,000 | 21,779 | 21,999 | |||||||||
Steven E. Voskuil |
316,000 | 5,940 | 6,000 | |||||||||
Rhonda D. Gibby |
189,000 | 3,564 | 3,600 | |||||||||
Christopher M. Lowery |
746,000 | 14,058 | 14,200 | |||||||||
John W. Wesley |
116,000 | 2,178 | 2,200 |
For valuation purposes, each time-based RSU granted in November 2014 was assigned a value equal to the variable weighted average price of one share of Halyard Health common stock for the first five trading days following the spin-off (November 3 7, 2014) (the 5-Day VWAP Stock Price), and each stock option was assigned a value equal to 33 percent of the 5-Day VWAP Stock Price.
Payout of 20112013 Performance-Based Restricted Share Units
In February 2014, the Kimberly-Clark Committee evaluated the results of the three-year performance period for the Kimberly-Clark performance-based restricted share units that were granted in 2011. The performance objectives for these 2011 awards were based on Kimberly-Clarks average annual adjusted net sales growth and average adjusted ROIC for the period January 1, 2011 through December 31, 2013, each weighted equally.
Goals (Each weighted 50%) | Performance Levels | |||||||||||||||||||||||
Kimberly-Clark Annual adjusted net sales growth |
1.00 | % | 2.25 | % | 3.50 | % | 4.75 | % | 6.00 | % | 2.9 | % | ||||||||||||
Kimberly-Clark Adjusted ROIC* |
14.80 | % | 15.30 | % | 15.80 | % | 16.30 | % | 16.80 | % | 16.0 | % | ||||||||||||
Potential Payout (as a percentage of target) |
0 | % | 50 | % | 100 | % | 150 | % | 200 | % | Actual |
* | For purposes of calculating Kimberly-Clark average adjusted Return on Invested Capital (ROIC), the impacts on Kimberly-Clark of a charge related to the adoption of highly inflationary accounting in Venezuela and charges related to Kimberly-Clarks European and the pulp and tissue restructurings were excluded from the ROIC calculation. |
Based on this review, the Kimberly-Clark Committee determined that Kimberly-Clark achieved the performance goal for adjusted ROIC but did not achieve the performance goal for adjusted net sales. As a result, the payout percentage for the share units was 97 percent of target. The following table includes information about the opportunities and payouts (including reinvested dividends) regarding these grants to our named executive officers:
Share Amount |
20112013 Performance-Based Restricted Share Unit Award (Paid in February 2014) |
|||||||||||||||||||
Name | Target | Maximum |
% of Target |
Amount of Shares(#) |
Value of Shares on Date Received($) |
|||||||||||||||
Robert E. Abernathy |
23,029 | 46,058 | 97 | % | 22,338 | 2,462,541 | ||||||||||||||
Steven E. Voskuil |
7,036 | 14,072 | 97 | % | 6,825 | 752,388 |
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Share Amount |
20112013 Performance-Based Restricted Share Unit Award (Paid in February 2014) |
|||||||||||||||||||
Name | Target | Maximum |
% of Target |
Amount of Shares(#) |
Value of Shares on Date Received($) |
|||||||||||||||
Rhonda D. Gibby |
2,059 | 4,118 | 97 | % | 1,997 | 218,152 | ||||||||||||||
Christopher M. Lowery |
2,059 | 4,118 | 97 | % | 1,997 | 218,152 | ||||||||||||||
John W. Wesley |
3,518 | 7,036 | 97 | % | 3,413 | 376,249 |
The shares underlying these performance-based restricted share unit awards were distributed to our named executive officers in 2014 and are included in the Option Exercises and Stock Vested in 2014 table.
Retention and Relocation Awards
Following the announcement of its plans to spin-off its healthcare division, Kimberly-Clark entered into retention agreements with our named executive officers other than Mr. Abernathy. These retention awards became payable once the spin-off occurred on October 31, 2014. The following retention awards were paid to the following named executive officers in November 2014:
Name |
Cash Retention Payment
($) |
|||
Steven E. Voskuil |
150,000 | |||
Rhonda D. Gibby |
100,000 | |||
Christopher M. Lowery |
150,000 | |||
John W. Wesley |
150,000 |
Mr. Lowery also received in 2014 a relocation bonus of $100,000 pursuant to an agreement entered into with Kimberly-Clark in 2013. The relocation bonus was payable if Mr. Lowery relocated to the Atlanta, Georgia area by the end of 2014. Mr. Lowery met the conditions for receipt of this bonus and Kimberly-Clark paid it to him prior to the spin-off. The relocation bonus was in lieu of his participation in Kimberly-Clarks Executive Relocation Program.
Benefits and Other Compensation
Retirement Benefits
Our named executive officers previously received contributions from Kimberly-Clark under the Kimberly-Clark Corporation 401(k) and Profit Sharing Plan (the K-C 401(k) Profit Sharing Plan) and the Kimberly-Clark Supplemental Retirement 401(k) and Profit Sharing Plan (the K-C Supplemental 401(k) Plan), and Messrs. Abernathy and Voskuil participate in Kimberly-Clarks frozen defined benefit pension plans. Effective upon the spin-off, our named executive officers began receiving contributions from us under the Halyard Health, Inc. 401(k) Plan (the Halyard 401(k) Plan) and the Halyard Health, Inc. Supplemental Retirement 401(k) Plan (the Halyard Supplemental 401(k) Plan). Halyard does not have a defined benefit pension plan in the United States, and none of our named executive officers participate in any Halyard defined benefit pension plans.
The Halyard 401(k) Plan and Halyard Supplemental 401(k) Plan are consistent with those maintained by our peer group companies and are therefore necessary to remain competitive with them for recruiting and retaining executive talent. The Halyard Committee believes that these retirement benefits are important parts of our compensation program. For more information, see Nonqualified Deferred Compensation Overview of Qualified and Non-Qualified Plans and Pension Benefits.
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Other Compensation
We believe the perquisites provided to our executive officers are below the median of those provided by our peer group. In addition, Halyard does not provide tax reimbursement or gross-ups for perquisites offered to executive officers, except for certain relocation benefits.
Prior to the spin-off from Kimberly-Clark, the following perquisites were available to certain of our executive officers: personal financial planning services under Kimberly-Clarks Executive Financial Counseling Program; executive health screening services provided by independent health care providers; and personal use of Kimberly-Clarks corporate aircraft under limited circumstances as permitted by Kimberly-Clarks policies. None of these perquisites were made available to the Halyard executive officers post-spin.
Post-Termination Benefits
We maintain two severance plans that cover our executive officers: the Severance Pay Plan and the Executive Severance Plan. An executive officer may not receive severance payments under more than one severance plan. Benefits under these plans are payable only if the executives employment terminates under the conditions specified in the applicable plan. We believe that our severance plans are consistent with those maintained by our peer group companies and that they are therefore important for attracting and retaining executives who are critical to our long-term success and competitiveness. For more information about these severance plans and their terms, see Potential Payments on Termination or Change of Control Severance Benefits.
Severance Pay Plan
Our Severance Pay Plan provides severance benefits to most of our U.S. hourly and salaried employees, including our named executive officers, who are involuntarily terminated under the circumstances described in the plan. The objective of this plan is to facilitate the employees transition to his or her next position, and it is not intended to serve as a reward for the employees past service.
Executive Severance Plan
Our Executive Severance Plan provides severance benefits to eligible employees, including our named executive officers, in the event of a qualified termination of employment (as defined in the plan) in connection with a change of control. For an eligible employee to receive a payment under this plan, two things must occur: there must be a change of control of Halyard Health, and the employee must have been involuntarily terminated without cause or have resigned for good reason (as defined in the plan) within two years of the change of control (often referred to as a double trigger). The objective of this plan is to encourage the executive officers to stay with the company in the event of a change of control transaction to ensure a smooth transition. Each of our named executive officers has entered into an agreement under the plan that expires on October 31, 2017.
Executive Compensation for 2015
2015 Base Salary
In February 2015, the Halyard Committee approved the following base salaries for our named executive officers, effective April 1, 2015:
Name |
2015 Base Salary($) | |||
Robert E. Abernathy |
837,375 | |||
Steve E. Voskuil |
436,450 | |||
Rhonda D. Gibby |
314,650 | |||
Christopher M. Lowery |
482,125 | |||
John W. Wesley |
393,750 |
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2015 Annual Cash Incentive Targets
In February 2015, the Halyard Committee also established objectives for 2015 annual cash incentives, which will be payable in 2016. The target payment amounts and range of possible payouts for 2015 are as follows:
Target Payment Amount |
Possible Payout |
|||
Robert E. Abernathy | 100% of base salary |
0% -200% of target payment amount |
||
Steven E. Voskuil | 70% of base salary |
0% -200% of target payment amount |
||
Rhonda D. Gibby | 50% of base salary |
0% -200% of target payment amount |
||
Christopher M. Lowery | 85% of base salary |
0% -200% of target payment amount |
||
John W. Wesley | 60% of base salary |
0% -200% of target payment amount |
The Halyard Committee sets the appropriate split among the different elements of performance that make up our performance goals. The following are the 2015 performance goals and relative weights for our named executive officers:
ANNUAL CASH INCENTIVE PROGRAM
2015 PERFORMANCE GOALS AND WEIGHTS
Robert E. Abernathy |
Steven E.
Voskuil |
Rhonda D.
Gibby |
Christopher M.
Lower |
John W.
Wesley |
||||||||||||||||
Element 1: Corporate key financial goals |
80 | % | 80 | % | 80 | % | 80 | % | 80 | % | ||||||||||
Element 2: Other corporate financial and strategic performance goals |
20 | % | 20 | % | 20 | % | 20 | % | 20 | % |
The corporate key financial goals for 2015 are designed to encourage a continued focus on executing our long-term business plan objectives and include achieving adjusted net sales, adjusted earnings per share and cash conversion cycle goals.
The Halyard Committee also established other corporate financial and non-financial goals for 2015. These goals, intended to further align compensation with achieving our global business plans and strategies, include (1) efficiently completing the separation from Kimberly-Clark, (2) growth through targeted innovations, and (3) reducing the cost and complexity of the global enterprise.
2015 Long-Term Equity Compensation Incentive Awards
Effective March 5, 2015, the Halyard Committee approved long-term incentive compensation awards for the named executive officers consisting of awards of performance-based restricted share units with a value equal to 60 percent of the target grant value for long-term equity incentive compensation, with the balance of the value to be granted in stock options. The performance objectives for the performance-based restricted share unit awards granted in 2015 are based on average annual adjusted net sales growth and average adjusted earnings before interest, taxes, depreciation and amortization improvement for the period January 1, 2015 through December 31, 2017. The actual number of shares to be received by our named executive officers will range from zero to 200 percent of the target levels established by the Halyard Committee for each executive, depending on the degree to which the performance objectives are met.
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Performance-Based Restricted Share Units Granted in 2015
Name |
Target Amount of Shares(#) |
Maximum Amount of Shares(#) |
||||||
Robert E. Abernathy |
39,587 | 79,174 | ||||||
Steven E. Voskuil |
9,897 | 19,794 | ||||||
Rhonda D. Gibby |
4,618 | 9,236 | ||||||
Christopher M. Lowery |
11,216 | 22,432 | ||||||
John W. Wesley |
5,278 | 10,556 |
The Halyard Committee also approved the dollar amount of stock options to be granted to our named executive officers in May 2015, along with our annual stock option grants to other employees. The number of options they will receive will be based on the fair market value of our stock on the date of grant.
Name |
Value of Stock Options to be Granted($) |
|||
Robert E. Abernathy |
1,200,000 | |||
Steven E. Voskuil |
300,000 | |||
Rhonda D. Gibby |
140,000 | |||
Christopher M. Lowery |
340,000 | |||
John W. Wesley |
160,000 |
Grow to Greatness (G2G) Grants
Effective March 5, 2015, the Halyard Committee, with the advice of its independent compensation consultant, also approved a special one-time grant of stock options to approximately 200 leaders within Halyard, including our named executive officers. These grants are intended to further align the Halyard leadership teams interest with stockholders and incent them to focus on our long-term success. The stock options vest over five years, with 33 percent vesting on March 5 of each of 2017, 2018 and 2019. The dollar value of these options, and the number of options actually received on March 5, 2015 by our named executive officers is as follows:
Name |
Value of Stock Options to be Granted($) |
Number of Options Granted |
||||||
Robert E. Abernathy |
1,500,000 | 85,616 | ||||||
Steven E. Voskuil |
375,000 | 21,404 | ||||||
Rhonda D. Gibby |
175,000 | 9,989 | ||||||
Christopher M. Lowery |
425,000 | 24,258 | ||||||
John W. Wesley |
200,000 | 11,416 |
Additional Information About Our Compensation Practices
As a matter of sound governance, we follow certain practices with respect to our compensation program. We regularly review and evaluate our compensation practices in light of regulatory developments, market standards and other considerations.
Use of Independent Compensation Consultant
The Halyard Committee engaged Meridian Compensation Partners LLC (Meridian) as its independent consultant to assist it in determining the appropriate executive officer compensation under our compensation policies described above. Consistent with the Halyard Committees policy in which its independent consultant may provide services only to the Committee, Meridian had no other business relationship with Kimberly-Clark or Halyard and received no payments from us other than fees and expenses for services to the Committee. See Corporate GovernanceCompensation Committee for information about the use of compensation consultants.
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Role of the Chief Executive Officer in Compensation Decisions
Our Chief Executive Officer makes a recommendation to the Halyard Committee each year on the appropriate target annual compensation for each of the other executive officers. The Halyard Committee makes the final determination of the target annual compensation for each executive officer, including our Chief Executive Officer. While our Chief Executive Officer and Chief Human Resources Officer typically attend Halyard Committee meetings, none of the other executive officers is present during the portion of the Halyard Committees meetings when compensation for executive officers is set. In addition, our Chief Executive Officer is not present during the portion of the Halyard Committees meetings when his compensation is set.
Adjustment of Financial Measures for Annual and Long-Term Equity Incentives
Financial measures for the annual and long-term equity incentive programs are developed based on expectations about our planned activities and reasonable assumptions about the performance of our key business drivers for the applicable period. From time to time, however, discrete items or events may arise that were not contemplated by these plans or assumptions. These could include accounting and tax law changes, tax credits from items not within the ordinary course of our business operations, restructuring and write-off charges, significant acquisitions or dispositions, and significant gains or losses from litigation settlements.
Under the Halyard Committees exception guidelines regarding our annual and long-term equity incentive program measures, the Halyard Committee may adjust in the future the calculation of financial measures for these incentive programs to eliminate the effect of the types of items or events described above. In making these adjustments, the Halyard Committees policy is to seek to neutralize the impact of the unexpected or unplanned items or events, whether positive or negative, in order to provide consistent and equitable incentive payments that the Halyard Committee believes are reflective of our performance. In considering whether to make a particular adjustment under its guidelines, the Halyard Committee will review whether the item or event was one for which management was responsible and accountable, treatment of similar items in prior periods, the extent of the items or events impact on the financial measure, and the items or events characteristics relative to normal and customary business practices. Generally, the Halyard Committee will apply an adjustment to all compensation that is subject to that financial measure.
Pricing and Timing of Stock Option Grants and Timing of Performance-Based Equity Grants
Our policies and our Equity Participation Plan require stock options to be granted at no less than the closing price of our common stock on the date of grant, except for the options granted to replace Kimberly-Clark stock options forfeited as a result of the spin-off (which were priced to preserve the intrinsic value of the forfeited Kimberly-Clark options), and the other options granted following the spin-off which used a five day variable weighted price. Stock option grants to our executive officers are generally made annually at a meeting of the Halyard Committee that is scheduled at least one year in advance, and the grants are effective on the date of this meeting. However, if the meeting occurs during a period when we do not permit insiders to trade Halyard common stock (a Blackout Period), the stock option grants will not be effective until the first business day following the end of the Blackout Period. Our Blackout Periods end at 11:59 p.m. on the day we issue our quarterly earnings press releases. Our executives are not permitted to choose the grant date for their individual stock option grants.
The Chairman of the Board and Chief Executive Officer has been delegated the limited authority to approve equity grants, including stock options, to employees for recruiting and special employee recognition and retention purposes. These grants may not exceed 100,000 shares in calendar year 2015. The Chairman of the Board and Chief Executive Officer is not permitted to make any grants to any of our executive officers.
Annual stock option grants to non-executive officers are effective on the same date as the annual stock option grants to our executive officers. Recruiting, special recognition and retention stock-based awards are made on a pre-determined date following our quarterly earnings release.
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The Halyard Committee awards performance-based restricted share units to executive officers at its February meetings. We believe this practice is consistent with award practices at other public companies of comparable size. Our executives are not permitted to choose the grant date for their individual restricted share unit awards.
Policy on Incentive Compensation Clawback
As described in detail above, a significant percentage of our executive officer compensation is incentive-based. The determination of the extent to which the incentive objectives are achieved is based in part on the Halyard Committees discretion and in part on our published financial results. The Halyard Committee has the right to reassess its determination of the performance awards if the financial statements on which it relied are restated. The Halyard Committee has the right to direct management to seek to recover from any executive officer any amounts determined to have been inappropriately received by the individual executive officer. In addition, under Halyards Equity Participation Plan, the Halyard Committee may require awards with performance goals under the Plan to be subject to any policy we may adopt relating to the recovery of that award to the extent it is determined that performance goals relating to the awards were not actually achieved. Further, the Sarbanes-Oxley Act of 2002 mandates that the chief executive officer and the chief financial officer reimburse us for any bonus or other incentive-based or equity-based compensation paid to them in a year following the issuance of financial statements that are later required to be restated as a result of misconduct. The Halyard Committee intends to review and revise the incentive compensation clawback policy once the SEC issues final regulations on clawbacks under the Dodd-Frank legislation enacted in 2010.
Stock Ownership Guidelines
We strongly believe that the financial interests of our executives should be aligned with those of our stockholders. Accordingly, the Committee has established the following stock ownership guidelines for our executive officers:
Target Stock Ownership Amounts
Position |
Ownership Level |
|
Chief Executive Officer |
Five times annual base salary | |
Other named executive officers |
Two times annual base salary |
Failure to attain these targeted stock ownership levels within five years from date of hire for, or appointment to, an eligible position can result in the reduction of part or all of the executives annual cash incentive (with a corresponding grant of time-vested restricted share units or restricted stock in that amount), or a reduction in future long-term equity incentive awards, either of which may continue until the ownership guideline is achieved. In determining whether our stock ownership guidelines have been met, any restricted stock and time-vested restricted share units held are counted as owned, but performance-based restricted share units are excluded until they vest. Executive officer stock ownership levels will be reviewed annually for compliance with these guidelines. The first annual review will take place at the end of 2015.
Other Policies Relating to Transactions in Halyard Securities
We require all executive officers to pre-clear transactions involving our common stock (and other securities related to our common stock) with our Legal Department.
We do not permit our executive officers to engage in transactions that hedge an executive officers economic risk of owning shares of our common stock.
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Committee Exercise of Discretion to Reduce Annual Cash Incentive Payment
In establishing performance goals and target levels under the annual cash incentive program, the Committee is exercising its discretion to limit the amount of the incentive payments, consistent with our pay-for-performance objective. In the absence of this exercise of discretion, each of the executive officers would be entitled to an award equal to two percent of our earnings before unusual items; however, the Committee has exercised its discretion to limit the amount of the incentive payments each year of the program, and this potential maximum award has never been paid to any of the executive officers.
Corporate Tax Deduction for Executive Compensation
The United States income tax laws generally limit the deductibility of compensation paid to the chief executive officer and each of the three highest-paid executive officers (not including the chief financial officer) to $1,000,000 per annum. However, an exception exists for performance-based compensation that meets certain regulatory requirements. Several classes of our executive compensation, including option awards and portions of our long-term equity grants to executive officers, are designed to meet the requirements for deductibility. Other classes of our executive compensation, including portions of the long-term equity grants described above, may be subject to the $1,000,000 deductibility limit.
Although deductibility of compensation is preferred, tax deductibility is not a primary objective of our compensation programs. In the Halyard Committees view, meeting the compensation objectives set forth above is more important than the benefit of being able to deduct the compensation for tax purposes.
Analysis of Compensation-Related Risks
The Halyard Committee, with the assistance of its independent consultant, has reviewed an assessment of our compensation programs for our employees, including our executive officers, to analyze the risks arising from our compensation systems.
Based on this assessment, the Halyard Committee believes that the design of our compensation programs, including our executive compensation program, does not encourage our executives or employees to take excessive risks and that the risks arising from these programs are not reasonably likely to have a material adverse effect on the Company.
Several factors contributed to the Halyard Committees conclusion, including:
| The Halyard Committee believes the Company maintains a values-driven, ethics-based culture supported by a strong tone at the top. |
| The performance targets for annual cash incentive programs are selected to ensure that they are reasonably attainable in a manner consistent with the Companys business plans without encouraging executives or employees to take inappropriate risks. |
| An analysis by the Halyard Committees consultant indicated that our compensation programs are consistent with those of our peer group. In addition, the analysis noted that target levels for direct annual compensation are compared to the median of our peer group. |
| The Halyard Committee believes the allocation among the components of direct annual compensation provides an appropriate balance between annual and long-term incentives and between fixed and performance-based compensation. |
| Annual cash incentives and long-term performance-based restricted share unit awards under our executive compensation program are capped at a reasonable percent of the target award, and all other material non-executive cash incentive programs are capped at reasonable levels, which the Halyard Committee believes protects against disproportionately large incentives. |
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| The Halyard Committee believes the performance measures and the multi-year vesting features of the long-term equity incentive compensation component encourage participants to seek sustainable growth and value creation. |
| The Halyard Committee believes inclusion of share-based compensation through the long-term equity incentive compensation component encourages appropriate decision-making that is aligned with the long-term interests of stockholders. |
| Our stock ownership guidelines further align the interests of management and stockholders. |
COMPENSATION TABLES
Summary Compensation Table
The following table contains information concerning compensation awarded to, earned by, or paid to the Halyard named executive officers by Kimberly-Clark for the years 2012 and 2013, and by Kimberly-Clark and Halyard for the year 2014. Position titles refer to each Halyard named executive officers title at Halyard Health effective October 31, 2014. Additional information regarding the items reflected in each column follows the table.
Name and Principal Position |
Year |
Salary
($) |
Bonus ($) |
Stock
Awards ($) |
Option
Awards ($) |
Non-Equity
Plan
Compensation
|
Change in
Pension Value and Nonqualified Deferred Compensation Earnings ($) |
All Other
Compensation
|
Total ($) | |||||||||||||||||||||||||||
Robert E. Abernathy |
2014 | 787,500 | | 3,700,828 | 508,375 | 708,516 | 1,024,198 | 161,189 | 6,890,606 | |||||||||||||||||||||||||||
Chairman of the |
2013 | 780,000 | | 1,424,997 | 328,807 | 850,533 | | 120,106 | 3,504,443 | |||||||||||||||||||||||||||
Board and Chief Executive Officer |
2012 | 777,501 | | 1,425,001 | 157,245 | 777,029 | 1,177,038 | 94,016 | 4,407,830 | |||||||||||||||||||||||||||
Steven E. Voskuil |
2014 | 367,496 | 150,000 | 1,357,579 | 808,736 | 221,078 | 46,809 | 44,577 | 2,996,275 | |||||||||||||||||||||||||||
Senior Vice President and |
2013 | 349,775 | | 299,954 | 69,219 | 230,681 | | 53,516 | 1,003,145 | |||||||||||||||||||||||||||
Chief Financial Officer |
2012 | 338,896 | | 345,026 | 38,071 | 240,687 | 50,308 | 35,790 | 1,048,778 | |||||||||||||||||||||||||||
Rhonda D. Gibby |
2014 | 258,004 | 100,000 | 577,224 | 335,264 | 123,742 | | 25,409 | 1,419,643 | |||||||||||||||||||||||||||
Senior Vice President and |
2013 | 237,993 | | 149,977 | 34,613 | 116,301 | | 33,803 | 572,687 | |||||||||||||||||||||||||||
Chief Human Resources Officer |
2012 | 228,265 | | 131,240 | 14,482 | 95,304 | | 30,410 | 499,701 | |||||||||||||||||||||||||||
Christopher M. Lowery |
2014 | 332,667 | 250,000 | 1,156,670 | 535,857 | 200,185 | | 32,815 | 2,508,193 | |||||||||||||||||||||||||||
Senior Vice President and |
2013 | 290,037 | | 142,540 | 32,883 | 107,865 | | 51,361 | 624,686 | |||||||||||||||||||||||||||
Chief Operating Officer |
2012 | 278,992 | | 142,472 | 15,724 | 126,608 | | 42,934 | 606,730 | |||||||||||||||||||||||||||
John W. Wesley |
2014 | 323,750 | 150,000 | 521,460 | 66,157 | 174,302 | | 162,313 | 1,397,981 | |||||||||||||||||||||||||||
Senior Vice President, |
2013 | 308,750 | | 206,232 | 47,590 | 208,630 | | 47,356 | 818,558 | |||||||||||||||||||||||||||
General Counsel and Chief Ethics and Compliance Officer |
2012 | 303,751 | | 206,281 | 22,760 | 190,162 | | 31,116 | 754,070 |
Salary. The amounts in this column represent base salary earned during the year.
Bonus. The amounts in this column represent the retention and relocation payments described in Compensation Discussion and Analysis Executive Compensation in 2014 Retention and Relocation Awards.
Stock Awards and Option Award s . The amounts in these columns reflect the grant date fair value, computed in accordance with ASC Topic 718, of restricted share unit awards and stock options, respectively, granted under Kimberly-Clarks 2001 Equity Participation Plan (the Kimberly-Clark 2001 Plan), as amended by the Kimberly-Clark 2011 Plan (collectively, the Kimberly-Clark Equity Plans) in the years indicated, and under the Halyard Health Equity Participation Plan for 2014. See Note 13 to our audited consolidated and
96
combined financial statements included elsewhere in this prospectus for the assumptions used in valuing and expensing these restricted share units and stock option awards in accordance with ASC Topic 718.
As described in Compensation Discussion and Analysis, at the time of the spin-off, the named executive officers forfeited a number of unvested performance-based restricted share units and stock option awards previously granted by Kimberly-Clark. Because the SEC rules require the Summary Compensation Table to reflect the grant date value of all of the awards granted to the named executive officers by Kimberly-Clark and Halyard, the 2014 values in the stock award and option awards columns (and as a result, the total compensation column) of the Summary Compensation Table above are higher than they normally would have been. For example, the full grant date values of the awards made by Kimberly-Clark in June 2014 are included in the 2014 numbers, even with respect to the awards that were forfeited in connection with the spin-off, and the full grant date value of the replacement awards made by Halyard are also included in the 2014 numbers even though those awards replace equity awards granted by Kimberly-Clark in 2012, 2013 and 2014. In order to reflect a more normal value for the 2014 stock and option awards, in the table below we have taken the amounts in the Summary Compensation Table and subtracted both (i) the grant date fair value of the forfeited June 2014 Kimberly-Clark awards that were replaced by new Halyard awards and (ii) the grant date value of Halyard replacement awards that relate to pre-2014 Kimberly-Clark awards that were forfeited:
Name |
2014 Stock
Awards from Summary Compensation Table ($) |
2014
Stock Awards Forfeited at Time of Spin- off ($) |
Replacement
Awards for pre-2014 unvested Stock Awards ($) |
Normalized
2014 Stock Awards ($) |
2014 Option
Awards from Summary Compensation Table ($) |
2014
Option Awards Forfeited at Time of Spin- off ($) |
Replacement
Awards for pre-2014 unvested Option Awards ($) |
Normalized
2014 Option Awards ($) |
||||||||||||||||||||||||
Robert E. Abernathy |
3,700,828 | 1,424,960 | | 2,275,868 | 508,375 | | | 508,375 | ||||||||||||||||||||||||
Steven E. Voskuil |
1,357,579 | 356,297 | 413,498 | 587,784 | 808,736 | 72,758 | 373,880 | 362,098 | ||||||||||||||||||||||||
Rhonda D. Gibby |
577,224 | 127,475 | 184,968 | 264,781 | 335,264 | 26,036 | 165,430 | 143,798 | ||||||||||||||||||||||||
Christopher M. Lowery |
1,156,670 | 217,511 | 185,195 | 753,964 | 535,857 | 44,421 | 166,481 | 324,955 | ||||||||||||||||||||||||
John W. Wesley |
521,460 | 217,511 | | 303,949 | 66,157 | | | 66,157 |
For Kimberly-Clark awards that are subject to performance conditions, the value is based on the probable outcome of the conditions at grant date. This value, as well as the value of the awards at the grant date assuming the highest level of performance conditions will be achieved and using the grant date stock price, is set forth below:
Name | Year |
Stock Awards at
Grant Date Value ($) |
Stock Awards at Highest Level of
Performance Conditions ($) |
|||||||||
Robert E. Abernathy |
2014 | 1,424,960 | 2,849,920 | |||||||||
2013 | 1,424,997 | 2,849,994 | ||||||||||
2012 | 1,425,001 | 2,850,002 | ||||||||||
Steven E. Voskuil |
2014 | 356,297 | 712,594 | |||||||||
2013 | 299,954 | 599,908 | ||||||||||
2012 | 345,026 | 690,052 | ||||||||||
Rhonda D. Gibby |
2014 | 127,475 | 254,950 | |||||||||
2013 | 149,977 | 299,954 | ||||||||||
2012 | 131,240 | 262,480 | ||||||||||
Christopher M. Lowery |
2014 | 217,511 | 435,022 | |||||||||
2013 | 142,540 | 285,080 | ||||||||||
2012 | 142,472 | 284,944 | ||||||||||
John W. Wesley |
2014 | 217,511 | 435,022 | |||||||||
2013 | 206,232 | 412,464 | ||||||||||
2012 | 206,281 | 412,562 |
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As noted above, the performance awards granted by Kimberly-Clark in 2014 to all of the named executive officers, and to Messrs. Voskuil and Lowery and Ms. Gibby in 2012 and 2013, were forfeited upon the spin-off from Kimberly-Clark on October 31, 2014.
Non-Equity Incentive Plan Compensation. The amounts in this column are the annual cash incentive payments described above in Compensation Discussion and Analysis. These amounts were earned during the years indicated and were paid to the Halyard named executive officers in February of the following year.
Change In Pension Value and Nonqualified Deferred Compensation Earnings. The amounts in this column reflect the aggregate change during the year in actuarial present value of accumulated benefits under all Kimberly-Clark defined benefit and actuarial plans (including supplemental pension plans). With respect to the supplemental pension plans, amounts have been calculated to reflect an approximate 30-year Treasury bond rate to determine the amount of the earlier retirement age lump sum benefit in a manner consistent with Kimberly-Clarks financial statements. A description of the assumptions used in determining the amounts and additional information about these plans are provided in Pension Benefits below.
For 2013, the aggregate value of pension benefits for Messrs. Abernathy and Voskuil decreased by $519,759 and $32,442, respectively. Because these amounts decreased, they have been excluded from the table above under the SECs regulations. Messrs. Lowery and Wesley and Ms. Gibby are not participants in Kimberly-Clarks pension plans.
Mr. Abernathy has compensation from before 2005 that he elected to defer pursuant to the Kimberly-Clark Deferred Compensation Plan then in effect. Each of the Halyard named executive officers participated in the Kimberly-Clark Supplemental 401(k) Plan and Halyard Health Supplemental 401(k) Plan, each a non-qualified defined contribution plan. Earnings on each of these plans are not included in the Summary Compensation Table because the earnings were not above-market or preferential. See Nonqualified Deferred Compensation below for a discussion of these plans and each named executive officers earnings under these plans in 2014.
All Other Compensation . All other compensation consists of the following:
Name |
Year |
Perquisites
($)(1) |
Defined
Contribution Plan Amounts ($)(2) |
Tax Gross-
Up ($)(3) |
Total
($)(4) |
|||||||||||||||
Robert E. Abernathy |
2014 | 34,242 | 113,287 | 13,660 | 161,189 | |||||||||||||||
2013 | 8,000 | 112,106 | | 120,106 | ||||||||||||||||
2012 | 10,492 | 83,524 | | 94,016 | ||||||||||||||||
Steven E. Voskuil |
2014 | 3,413 | 41,164 | | 44,577 | |||||||||||||||
2013 | | 53,516 | | 53,516 | ||||||||||||||||
2012 | | 35,790 | | 35,790 | ||||||||||||||||
Rhonda D. Gibby |
2014 | | 25,409 | | 25,409 | |||||||||||||||
2013 | | 33,803 | | 33,803 | ||||||||||||||||
2012 | | 30,410 | | 30,410 | ||||||||||||||||
Christopher M. Lowery |
2014 | | 30,045 | 2,770 | 32,815 | |||||||||||||||
2013 | | 35,171 | 16,190 | 51,361 | ||||||||||||||||
2012 | 1,866 | 29,977 | 11,091 | 42,934 | ||||||||||||||||
John W. Wesley |
2014 | 107,915 | 36,641 | 17,757 | 162,313 | |||||||||||||||
2013 | 3,629 | 43,727 | | 47,356 | ||||||||||||||||
2012 | | 31,116 | | 31,116 |
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(1) | Perquisites . Perquisites for the Halyard named executive officers in 2014 included the following: |
Name |
Executive
Relocation Programs ($)(a) |
Executive
Financial Counseling Programs ($)(b) |
Executive Health
Screening Programs ($)(c) |
Total ($) | ||||||||||||
Robert E. Abernathy |
29,312 | 4,930 | | 34,242 | ||||||||||||
Steven E. Voskuil |
| | 3,413 | 3,413 | ||||||||||||
Rhonda D. Gibby |
| | | | ||||||||||||
Christopher M. Lowery |
| | | | ||||||||||||
John W. Wesley |
107,915 | | | 107,915 |
(a) | For Messrs. Abernathy and Wesley, includes reimbursement for moving expenses in connection with their relocation to the Atlanta area to assume their new roles with Halyard. |
(b) | Represents costs incurred by Kimberly-Clark under its Executive Financial Counseling Program in 2014 on behalf of Mr.Abernathy. |
(c) | Represents costs incurred by Kimberly-Clark under its Executive Health Screening Program in 2014 on behalf of Mr.Voskuil. |
(2) | Defined Contribution Plan Amounts. Matching contributions were made under the Kimberly-Clark 401(k) Profit Sharing Plan and accrued under the Kimberly-Clark Supplemental 401(k) Plan in 2014, 2013, and 2012, and under the Halyard Health 401(k) Plan and Supplemental 401(k) Plan in 2014, for each of the Halyard named executive officers. A profit-sharing contribution was also made under the Kimberly-Clark 401(k) Profit Sharing Plan and the Kimberly-Clark Supplemental 401(k) Plan in February 2015, 2014 and 2013 with respect to Kimberly-Clarks performance in 2014, 2013 and 2012, respectively, for the Halyard named executive officers as follows: |
Name |
Performance Year | Profit Sharing Contribution ($) | ||||||
Robert E. Abernathy |
2014 | 45,016 | ||||||
2013 | 49,825 | |||||||
2012 | 37,122 | |||||||
Steven E. Voskuil |
2014 | 15,820 | ||||||
2013 | 18,895 | |||||||
2012 | 16,030 | |||||||
Rhonda D. Gibby |
2014 | 9,679 | ||||||
2013 | 10,665 | |||||||
2012 | 10,405 | |||||||
Christopher M. Lowery |
2014 | 10,841 | ||||||
2013 | 13,333 | |||||||
2012 | 13,323 | |||||||
John W. Wesley |
2014 | 14,096 | ||||||
2013 | 15,965 | |||||||
2012 | 13,829 |
See Nonqualified Deferred Compensation below for a discussion of these plans. The profit sharing contribution varies depending on Kimberly-Clarks performance for the applicable year, contributing to fluctuations from year to year in the amounts in the All Other Compensation column of the Summary Compensation Table. Halyard does not have a profit sharing plan.
(3) | Tax Gross-Ups. The amounts shown for Mr. Lowery reflect tax reimbursement for the value of sales incentive trips that were attributed to Mr. Lowerys income. The amounts shown for Messrs. Abernathy and Wesley reflect tax reimbursement for income attributed to them in 2014 under the Kimberly-Clark Executive Relocation Program in connection with their relocating to the Atlanta, Georgia area to assume their new roles with Halyard. |
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(4) | Certain Dividends . The Halyard named executive officers also received cash dividend equivalents in 2012 on certain of the Kimberly-Clark restricted share units held by them at the same rate and on the same dates as dividends were paid to Kimberly-Clarks stockholders. Because the value of the right to receive dividend equivalents was factored into the grant date fair value of the restricted share unit awards, the cash dividend equivalents received by the Halyard named executive officers were not included in the Summary Compensation Table. Dividend equivalents are no longer paid on Kimberly-Clark unvested performance-based and time-vested restricted share units granted to the Halyard named executive officers beginning February 2009; instead, dividend equivalents on these units are accumulated and will be paid in additional shares after the restricted share units vest, based on the actual number of shares that vest. |
Grants of Plan-Based Awards
The following table sets forth Kimberly-Clark and Halyard Health plan-based awards granted to the Halyard named executive officers during 2014 on a grant-by-grant basis.
Grants of Plan-Based Awards in 2014
Estimated Future Payouts
Under Non-Equity Incentive Plan Awards (1) |
Estimated Future Payouts
Under Equity Incentive Plan Awards (2) |
|||||||||||||||||||||||||||||||||||||||||||||
Name |
Grant Type |
Grant
Date (3) |
Threshold
($) |
Target
($) |
Maximum
($) |
Threshold
(#) |
Target
(#) |
Maximum
(#) |
All Other
Stock Awards Number of Shares of Stock or Units (#) (4) |
All Other
Option Awards Number of Securities Underlying Options (#) (5) |
Exercise
or Base Price of Option Awards ($/$H) |
Grant Date
Fair Value of Stock and Option Awards ($) (6) |
||||||||||||||||||||||||||||||||||
Robert E. Abernathy |
Pre-spin annual cash incentive award | | 552,500 | 1,105,000 | ||||||||||||||||||||||||||||||||||||||||||
Post-spin annual cash incentive award | | 137,500 | 137,500 | |||||||||||||||||||||||||||||||||||||||||||
Performance-based RSUs (KMB) | 6/19/2014 | | 12,598 | 25,196 | 1,424,960 | |||||||||||||||||||||||||||||||||||||||||
Time-vested stock option (KMB) | 6/19/2014 | 41,995 | 113.11 | 291,025 | ||||||||||||||||||||||||||||||||||||||||||
Time-based RSUs (HYH) | 11/7/2014 | 60,081 | 2,275,868 | |||||||||||||||||||||||||||||||||||||||||||
Time-vested stock option (HYH) | 11/7/2014 | 21,999 | 37.88 | 217,350 | ||||||||||||||||||||||||||||||||||||||||||
Steven E. Voskuil |
Pre-spin annual cash incentive award | | 163,978 | 327,956 | ||||||||||||||||||||||||||||||||||||||||||
Post-spin annual cash incentive award | | 50,167 | 50,167 | |||||||||||||||||||||||||||||||||||||||||||
Performance-based RSUs (KMB) | 6/19/2014 | | 3,150 | 6,300 | 356,297 | |||||||||||||||||||||||||||||||||||||||||
Time-vested stock option (KMB) | 6/19/2014 | 10,499 | 113.11 | 72,758 | ||||||||||||||||||||||||||||||||||||||||||
Time-based RSUs (HYH) | 11/7/2014 | 26,433 | 1,001,282 | |||||||||||||||||||||||||||||||||||||||||||
Time-vested stock option (HYH) | 11/7/2014 | 6,000 | 37.88 | 735,618 |
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Estimated Future Payouts
Under Non-Equity Incentive Plan Awards (1) |
Estimated Future Payouts
Under Equity Incentive Plan Awards (2) |
|||||||||||||||||||||||||||||||||||||||||||||
Name |
Grant Type |
Grant
Date (3) |
Threshold
($) |
Target
($) |
Maximum
($) |
Threshold
(#) |
Target
(#) |
Maximum
(#) |
All Other
Stock Awards Number of Shares of Stock or Units (#) (4) |
All Other
Option Awards Number of Securities Underlying Options (#) (5) |
Exercise
or Base Price of Option Awards ($/$H) |
Grant Date
Fair Value of Stock and Option Awards ($) (6) |
||||||||||||||||||||||||||||||||||
Rhonda D. Gibby |
Pre-spin annual cash incentive award | | 93,935 | 187,870 | ||||||||||||||||||||||||||||||||||||||||||
Post-spin annual cash incentive award | 25,833 | 25,833 | ||||||||||||||||||||||||||||||||||||||||||||
Performance-based RSUs (KMB) | 6/19/2014 | | 1,127 | 2,254 | 127,475 | |||||||||||||||||||||||||||||||||||||||||
Time-vested stock option (KMB) | 6/19/2014 | 3,757 | 113.11 | 26,036 | ||||||||||||||||||||||||||||||||||||||||||
Time-based RSUs (HYH) | 11/7/2014 | 11,873 | 449,749 | |||||||||||||||||||||||||||||||||||||||||||
Time-vested stock option (HYH) | 11/7/2014 | 3,600 | 37.88 | 309,228 | ||||||||||||||||||||||||||||||||||||||||||
Christopher M. Lowery |
Pre-spin annual cash incentive award | | 127,500 | 255,000 | ||||||||||||||||||||||||||||||||||||||||||
Post-spin annual cash incentive award | | 67,292 | 67,292 | |||||||||||||||||||||||||||||||||||||||||||
Performance-based RSUs (KMB) | 6/19/2014 | | 1,923 | 3,846 | 217,511 | |||||||||||||||||||||||||||||||||||||||||
Time-vested stock option (KMB) | 6/19/2014 | 6,410 | 113.11 | 44,421 | ||||||||||||||||||||||||||||||||||||||||||
Time-based RSUs (HYH) | 11/7/2014 | 24,793 | 939,159 | |||||||||||||||||||||||||||||||||||||||||||
Time-vested stock option (HYH) | 11/7/2014 | 14,200 | 37.88 | 491,436 | ||||||||||||||||||||||||||||||||||||||||||
John W. Wesley |
Pre-spin annual cash incentive award | | 131,250 | 262,500 | ||||||||||||||||||||||||||||||||||||||||||
Post-spin annual cash incentive award | | 37,500 | 37,500 | |||||||||||||||||||||||||||||||||||||||||||
Performance-based RSUs (KMB) | 6/19/2014 | | 1,923 | 3,846 | 217,511 | |||||||||||||||||||||||||||||||||||||||||
Time-vested stock option (KMB) | 6/19/2014 | 6,410 | 113.11 | 44,421 | ||||||||||||||||||||||||||||||||||||||||||
Time-based RSUs (HYH) | 11/7/2014 | 8,024 | 303,949 | |||||||||||||||||||||||||||||||||||||||||||
Time-vested stock option (HYH) | 11/7/2014 | 2,200 | 37.88 | 21,736 |
(1) |
Represents the potential annual performance-based incentive cash payments each Halyard named executive officer could earn in 2014. These awards were granted under Kimberly-Clarks Executive Officer Achievement Award Program and Halyard Health Executive Officer Achievement Award Program, which are the annual cash incentive programs for Kimberly-Clark and Halyard Health executive officers, or Kimberly-Clarks Management Achievement Award Program, which is the annual cash incentive program for its non-executive officers. Actual amounts earned in 2014 were based on the 2014 objectives established by the Kimberly-Clark Management Development and Compensation Committee at its February 20, 2013 |
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meeting, for the 2014 period through October 31, 2014, and by the Halyard Health Compensation Committee for the period of November 1, 2014 through December 31, 2014. See Compensation Discussion and Analysis. At the time of the grant, the incentive payment could range from the threshold amount to the maximum amount depending on the extent to which the 2014 objectives were met. The target and maximum amounts have been pro-rated for the portion of the year covered by each plan. The actual amounts paid in 2015 based on the 2014 objectives are set forth in the Summary Compensation Table under the column entitled Non-Equity Incentive Plan Compensation. |
(2) | Performance-based restricted share units granted to the Halyard named executive officers under the Kimberly-Clark Equity Participation Plan. All of the Kimberly-Clark performance-based restricted share units were forfeited at the time of the spin-off and were replaced with time-based restricted share units granted to Halyard named executive officers under the Halyard Equity Participation Plan. |
(3) | The grant date for each award is the same date that the Kimberly-Clark Management Development and Compensation Committee or the Halyard Compensation Committee took action to grant the awards. |
(4) | Time-vested restricted share units granted under the Halyard Equity Participation Plan to the named executive officers on November 7, 2014. A portion of these awards represents replacement of unvested Kimberly-Clark equity awards that were forfeited by the executive officer as a result of the spin-off. The remaining portion of these awards represents top-up equity awards as required by the terms of offer letters entered into by Kimberly-Clark with the executive officers in early 2014. See Compensation Discussion and Analysis for additional information on the replacement and top-up awards. |
(5) | Time-vested stock options granted to the Halyard named executive officers under the Kimberly-Clark Equity Participation Plan on June 19, 2014 and the Halyard Equity Participation Plan on November 7, 2014. The time-vested stock options granted to Messrs. Lowery and Voskuil and Ms. Gibby on June 19, 2014, were forfeited at the time of the spin-off and were replaced with Halyard time-vested stock options on November 7, 2014. |
(6) | Grant date fair value is determined in accordance with ASC Topic 718. See Note 13 to our audited consolidated and combined financial statements included elsewhere in this prospectus for the assumptions used in valuing and expensing these restricted share units and stock option awards in accordance with ASC Topic 718. |
Discussion of Summary Compensation and Plan-based Awards Tables
Kimberly-Clarks and Halyards executive compensation policies and practices, pursuant to which the compensation set forth in the Summary Compensation Table and the Grants of Plan-Based Awards in 2014 table was paid or awarded, are described under Compensation Discussion and Analysis above.
Each of Messrs. Voskuil, Lowery and Wesley and Ms. Gibby entered into a letter agreement with Kimberly-Clark that establishes his or her total compensation as of the distribution date and addresses other compensation items following the distribution date. See Compensation Discussion and Analysis.
Mr. Abernathy previously entered into an agreement with Kimberly-Clark under Kimberly-Clarks Executive Severance Plan. See Potential Payments on Termination or Change of Control.
In June 2014, each named executive officer received grants of stock options and performance-based restricted share units (PRSUs) under the Kimberly-Clark 2011 Plan. The PRSUs awarded by Kimberly-Clark in June 2014 were forfeited on October 31, 2014 when our named executive officers ceased to be employed by Kimberly-Clark. The stock options awarded by Kimberly-Clark in June 2014 and unvested Kimberly-Clark stock options granted in prior years were also forfeited on October 31, 2014 by Messrs. Voskuil and Lowery and Ms. Gibby. Because Messrs. Abernathy and Wesley were both over the age of 55 on October 31, 2014, under the terms of the Kimberly-Clark equity participation plan all option awards became vested upon their separation from Kimberly-Clark. Under the terms of the Employee Matters Agreement we entered into with Kimberly-Clark in connection with the spin-off, we were obligated to issue to our employees (including the named executive officers) replacement equity grants in an amount equal to the approximate intrinsic value of the Kimberly-Clark
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equity grants that were forfeited as a result of the spin-off. Kimberly-Clark stock options that were forfeited as a result of the spin-off were replaced with Halyard stock options with substantially the same terms and conditions as the forfeited options except that the number of options and the exercise prices were adjusted to preserve the intrinsic value of the options as of the spin-off. Kimberly-Clark PRSUs that were forfeited as a result of the spin-off were replaced with Halyard time-based restricted share units (Time-based RSUs) using the target level of the PRSUs for purposes of determining the intrinsic value of those forfeited units as of the spin-off.
In addition, under the terms of agreements entered into pre-spin with Messrs. Lowery, Voskuil and Wesley, we were obligated to make equity awards to those individuals with a value equal to the difference between the target level of long term equity awards for their new positions at the Company as of the spin-off less the value of the 2014 long term equity awards granted by Kimberly-Clark in June 2014. These awards were made to these individuals and to the other named executive officers by granting time-vested restricted share units and time-vested stock options to those officers on November 7, 2014. See Compensation Discussion and Analysis for additional information on these top-up awards.
The Halyard time-based RSUs granted in 2014 to replace the Kimberly-Clark PRSUs that were forfeited vest in full on April 30, 2017. The top-up Halyard RSUs granted in 2014 will vest in full on November 7, 2017. The top-up time-vested options granted in 2014 will vest 30 percent on November 7, 2015, 30 percent on November 7, 2016, and 40 percent on November 7, 2017.
Outstanding Equity Awards
The following table sets forth information concerning outstanding Halyard Health equity awards for the Halyard named executive officers as of December 31, 2014. Option awards were granted to replace Kimberly-Clark options that terminated as a result of the spin-off and those replacement options have terms equal to the remaining terms of the Kimberly-Clark options being replaced. Additionally, options were also granted to the named executive officers on November 7, 2014 which have ten-year terms, ending on the option expiration date set forth in the table. Stock awards were granted as indicated in the footnotes to the table.
Outstanding Equity Awards as of December 31, 2014 (1)
Option Awards | Stock Awards | |||||||||||||||||||||||||||
Name |
Grant Date |
Number of
Securities Underlying Unexercised Options(#) Exercisable |
Number of
Securities Underlying Unexercised Options(#) Unexercisable |
Option
Exercise Price($) |
Option
Expiration Date |
Number
of Shares or Units of Stock That Have Not Vested(#) |
Market
Value of Shares or Units of Stock That Have Not Vested($) |
|||||||||||||||||||||
Robert E. Abernathy |
11/7/2014 | | 21,999 | 37.88 | 11/7/2024 | |||||||||||||||||||||||
11/7/2014 | 38,302 | 1,741,592 | ||||||||||||||||||||||||||
11/7/2014 | 21,779 | 990,291 | ||||||||||||||||||||||||||
Steven E. Voskuil |
11/7/2014(A) | | 14,135 | 26.04 | 5/2/2022 | |||||||||||||||||||||||
11/7/2014(B) | | 20,443 | 34.24 | 5/1/2023 | ||||||||||||||||||||||||
11/7/2014(C) | | 31,671 | 37.50 | 6/19/2024 | ||||||||||||||||||||||||
11/7/2014 | | 6,000 | 37.88 | 11/7/2024 | ||||||||||||||||||||||||
11/7/2014 | 4,793 | 217,938 | ||||||||||||||||||||||||||
11/7/2014 | 6,123 | 278,413 | ||||||||||||||||||||||||||
11/7/2014 | 9,577 | 435,466 | ||||||||||||||||||||||||||
11/7/2014 | 5,940 | 270,092 |
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Option Awards | Stock Awards | |||||||||||||||||||||||||||
Name |
Grant Date |
Number of
Securities Underlying Unexercised Options(#) Exercisable |
Number of
Securities Underlying Unexercised Options(#) Unexercisable |
Option
Exercise Price($) |
Option
Expiration Date |
Number
of Shares or Units of Stock That Have Not Vested(#) |
Market
Value of Shares or Units of Stock That Have Not Vested($) |
|||||||||||||||||||||
Rhonda D. Gibby |
11/7/2014(A) | | 5,378 | 26.04 | 5/2/2022 | |||||||||||||||||||||||
11/7/2014(B) | | 10,223 | 34.24 | 5/1/2023 | ||||||||||||||||||||||||
11/7/2014(C) | | 11,333 | 37.50 | 6/19/2024 | ||||||||||||||||||||||||
11/7/2014 | | 3,600 | 37.88 | 11/7/2024 | ||||||||||||||||||||||||
11/7/2014 | 1,822 | 82,846 | ||||||||||||||||||||||||||
11/7/2014 | 3,061 | 139,184 | ||||||||||||||||||||||||||
11/7/2014 | 3,426 | 155,780 | ||||||||||||||||||||||||||
11/7/2014 | 3,564 | 162,055 | ||||||||||||||||||||||||||
Christopher M. Lowery |
11/7/2014(A) | | 5,840 | 26.04 | 5/2/2022 | |||||||||||||||||||||||
11/7/2014(B) | | 9,713 | 34.24 | 5/1/2023 | ||||||||||||||||||||||||
11/7/2014(C) | | 19,336 | 37.50 | 6/19/2024 | ||||||||||||||||||||||||
11/7/2014 | | 14,200 | 37.88 | 11/7/2024 | ||||||||||||||||||||||||
11/7/2014 | 1,978 | 89,940 | ||||||||||||||||||||||||||
11/7/2014 | 2,911 | 132,363 | ||||||||||||||||||||||||||
11/7/2014 | 5,846 | 265,819 | ||||||||||||||||||||||||||
11/7/2014 | 14,058 | 639,217 | ||||||||||||||||||||||||||
John W. Wesley |
11/7/2014 | | 2,200 | 37.88 | 11/7/2024 | |||||||||||||||||||||||
11/7/2014 | 5,846 | 265,818 | ||||||||||||||||||||||||||
11/7/2014 | 2,178 | 99,034 | ||||||||||||||||||||||||||
11/7/2014 |
(1) | The amounts shown reflect outstanding equity awards granted under the Halyard Equity Participation Plan. Awards listed above were all granted on November 7, 2014 following the spin-off from Kimberly-Clark. As of December 31, 2014, Messrs. Abernathy and Wesley also held vested and unvested equity awards, and Messrs. Voskuil and Lowery and Ms. Gibby also held vested equity awards, under the Kimberly-Clark Equity Plans. |
(2) | Stock options granted under the Halyard Equity Participation Plan become exercisable in three annual installments of 30 percent, 30 percent and 40 percent, beginning on the first anniversary of the grant date. Option awards with a letter (A), (B) or (C) following the grant date were replacement options awarded to replace unvested Kimberly-Clark stock options which were forfeited as a result of the spin-off. The vesting schedule of those replacement options are the same as the forfeited Kimberly-Clark options, as follows: |
Original Grant Year | 1 st 30 percent vest | 2 nd 30 percent vest | Final 40 percent vest | |||||||||||||
(A) |
2012 | Vested in 2013 | Vested in 2014 | 5/2/2015 | ||||||||||||
(B) |
2013 | Vested in 2014 | 5/1/2015 | 5/1/2016 | ||||||||||||
(C) |
2014 | 4/30/215 | 4/30/2015 | 4/30/2017 |
All options become exercisable for three years upon death or total and permanent disability and for the earlier of five years or the remaining term of the options, upon retirement of the officer. In addition, options generally become exercisable upon a termination of employment following a change of control, and options granted to the Halyard named executive officers are subject to Halyards Executive Severance Plan. See Potential Payments on Termination or Change of Control below. The options may be transferred by the officers to family members or certain entities in which family members have interests.
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(3) | The Halyard Equity Participation Plan provides that the option price per share shall be no less than the closing price per share of Halyards common stock at grant date except for replacement options which have a grant price intended to preserve the intrinsic value of the forfeited Kimberly-Clark option being replaced. |
(4) | Time vested restricted share units granted under the Halyard Equity Participation Plan. These awards replaced unvested Kimberly-Clark performance-based restricted share units that were forfeited as a result of the spin-off. |
(5) | The values shown in this column are based on the closing price of our common stock on December 31, 2014 of $45.47 per share. |
Option Exercises and Stock Vested
The following table sets forth information concerning Kimberly-Clark stock options exercised and stock awards vested during 2014 for the Halyard named executive officers. None of the Halyard stock options and stock awards granted in 2014 vested prior to December 31, 2014 and, accordingly, no Halyard stock options were exercised during the year.
Option Exercises and Stock Vested in 2014 (1)
Options Awards | Stock Awards | |||||||||||||||
Name |
Number of
Shares Acquired on Exercise (#) |
Value
Realized on Exercise ($) |
Number of
Shares Acquired on Vesting (#) |
Value
Realized on Vesting ($) |
||||||||||||
Robert E. Abernathy |
| | 22,338 | 2,462,541 | ||||||||||||
Steven E. Voskuil |
13,208 | 450,458 | 6,825 | 752,388 | ||||||||||||
Rhonda D. Gibby |
17,914 | 773,082 | 1,997 | 218,152 | ||||||||||||
Christopher M. Lowery |
6,468 | 229,920 | 1,997 | 218,152 | ||||||||||||
John W. Wesley |
8,663 | 376,575 | 3,413 | 376,249 |
(1) | The amounts in this table reflect Kimberly-Clark stock options that were exercised or Kimberly-Clark performance-based restricted share units that vested during the year. No Halyard stock options or stock awards vested during the year. |
(2) | The dollar amount reflects the total pre-tax value realized by the Halyard named executive officers (number of shares exercised times the difference between the fair market value on the exercise date and the exercise price) upon exercising Kimberly-Clark vested options during the year. It is not the grant date fair value disclosed in other locations in this information statement. Value from these option exercises was only realized to the extent Kimberly-Clarks stock price increased relative to the stock price at grant (the exercise price). |
(3) | The dollar amount reflects the total pre-tax value received by the Halyard named executive officers upon the vesting of Kimberly-Clark time-vested restricted share units or performance-based restricted share units (number of shares vested times the closing price of Kimberly-Clarks common stock on the vesting date), including cash paid in lieu of fractional shares. It is not the grant date fair value disclosed in other locations in this information statement. |
Pension Benefits
Halyard does not offer a pension plan in the United States, and none of the Halyard executive officers participate in a Halyard pension plan. The following table sets forth information as of December 31, 2014 concerning potential payments to the Halyard named executive officers under Kimberly-Clarks pension plan and supplemental pension plans. Information about these plans follows the table.
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2014 Pension Benefits
Name |
Plan Name |
Number of Years
Credited Service (#) |
Present Value of
Accumulated Benefits ($) |
Payments During
Last Fiscal Year ($) |
||||||||||
Robert E. Abernathy (2) |
Kimberly-Clark Pension Plan | 28 | 1,359,611 | 13,394 | ||||||||||
Kimberly-Clark Supplemental Pension Plans | 28 | 3,582,277 | 3,176,268 | |||||||||||
Steven E. Voskuil |
Kimberly-Clark Pension Plan | 6 | 150,875 | | ||||||||||
Kimberly-Clark Supplemental Pension Plans | 6 | 51,830 | |
(1) | Because Ms. Gibby and Messrs. Lowery and Wesley joined Kimberly-Clark after January 1, 1997, they are not eligible to participate in Kimberly-Clarks defined benefit pension plans. Halyard Health does have a defined benefit pension plan in which the named executive officers participate. |
(2) | Mr. Abernathys separation from Kimberly-Clark as a result of the spin-off was in effect an early retirement for purposes of the Kimberly-Clark pension plans and for a portion of the Kimberly-Clark supplemental pension plans. As a result, Mr. Abernathy began receiving monthly payments under the Kimberly-Clark pension plan. He also received a partial distribution of the amount accrued on his behalf under the Kimberly-Clark supplemental pension plans prior to 2005. He is eligible to receive the balance of his early retirement benefits under the Kimberly-Clark supplemental pension plans upon his separation from Halyard Health. |
(3) | Mr. Abernathy had 32.7 years of actual service at Kimberly-Clark at the time of the spin-off. Beginning in 2010, the number of years of credited service was frozen at the amounts set forth in the table, as a result of Kimberly-Clarks ceasing to accrue compensation and benefit service under the plans. Mr. Voskuil has 23 years of actual service at Kimberly-Clark. In 1997, he elected to participate in Kimberly-Clarks defined contribution plans instead of accruing additional years of service under our defined benefit pension plans. This election reduced his benefits under Kimberly-Clarks defined benefit pension plans, in accordance with the terms of those plans. |
Employees who joined Kimberly-Clark prior to January 1, 1997 are eligible to participate in its pension plans, which provide benefits based on years of service as of December 31, 2009 and pay (annual cash compensation), integrated with social security benefits. Kimberly-Clarks pension plans are comprised of the Kimberly-Clark Pension Plan and the Supplemental Benefit Plans. Kimberly-Clark stopped accruing compensation and benefit service for participants under Kimberly-Clarks pension plans for most of its U.S. employees, including the Halyard named executive officers, for plan years after 2009. These changes do not affect benefits earned by participants prior to January 1, 2010.
The estimated actuarial present value of the retirement benefits accrued through December 31, 2014 appears in the 2014 Pension Benefits table. For purposes of determining the present value of accumulated benefits, the potential earlier retirement ages as described above have been used rather than the normal retirement age under the plans, which is 65. Present values for the qualified plan are based on RP2000 mortality projected with generational improvements and for the supplemental plans were calculated using the 2014 417(e) mortality table. With respect to the supplemental pension plans, the amount of the earlier retirement age lump sum benefit was determined using an approximate 30-year Treasury Bond rate of 2.60%, consistent with the methodology used for purposes of Kimberly-Clarks consolidated financial statements; any actual lump sum benefit would be calculated using the 30-year Treasury Bond rate in effect as of the beginning of the month prior to termination. Present value amounts were determined based on the financial accounting discount rate for U.S. pension plans of 4.10% as of December 31, 2014.
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The actuarial increase in 2014 of the projected retirement benefits can be found in the Summary Compensation Table under the heading Change in Pension Value and Nonqualified Deferred Compensation Earnings (all amounts reported under that heading represent actuarial increases in Kimberly-Clarks pension plans). Other than the payment to Mr. Abernathy described above, no payments were made to the Halyard named executive officers under Kimberly-Clarks pension plans during 2014.
Nonqualified Deferred Compensation
The following table sets forth information concerning Halyard nonqualified defined contribution plan and deferred compensation plans for the Halyard named executive officers during 2014.
2014 Nonqualified Deferred Compensation
Name |
Plan |
Company
Contributions in 2014 ($) (1) |
Aggregate
Earnings in 2014 ($) (2) |
Aggregate
Balance at December 31, 2014 ($) (3) |
||||||||||
Robert E. Abernathy (2) |
Supplemental 401(k) Plan |
95,087 | 41,135 | 532,019 | ||||||||||
Kimberly-Clark |
Deferred Compensation Plan | | 1,339 | 20,982 | ||||||||||
Steven E. Voskuil |
Supplemental 401(k) Plan |
22,964 | 8,859 | 141,388 | ||||||||||
Rhonda D. Gibby |
Supplemental 401(k) Plan | 7,485 | 2,375 | 49,925 | ||||||||||
Christopher M. Lowery |
Supplemental 401(k) Plan |
18,626 | 1,795 | 50,980 | ||||||||||
John W. Wesley |
Supplemental 401(k) Plan |
18,442 | 17,091 | 263,155 |
(1) | Contributions consist of amounts accrued by Kimberly-Clark under the Kimberly-Clark Supplemental 401(k) Plan, including the profit-sharing contribution in February 2015 with respect to Kimberly-Clarks performance in 2014, and amounts accrued by Halyard under the Halyard Supplemental 401(k) Plan. These amounts are included in the Summary Compensation Table and represent a portion of the Defined Contribution Plan Payments included in All Other Compensation. The named executive officers aggregate balances under the Kimberly-Clark Supplemental 401(k) Plan were transferred to the Halyard Supplemental 401(k) Plan at the time of the spin-off from Kimberly-Clark. |
(2) | The amounts in this column show the changes in the aggregate account balance for the Halyard named executive officers during 2014 that are not attributable to company contributions. Aggregate earnings are not included in the Summary Compensation Table because the earnings are not above-market or preferential. |
(3) | Balance for the Halyard Supplemental 401(k) Plan includes the profit-sharing contribution accrued in February 2015 with respect to Kimberly-Clarks performance in 2014, which was prorated. Balance for the Kimberly-Clark Supplemental 401(k) Plan also includes the following accruals by Kimberly-Clark under the Kimberly-Clark Supplemental 401(k) Plan in 2013 and 2012 that are reported in the Summary Compensation Table as a portion of All Other Compensation for those years: |
Name |
Year | Approved Amount ($) | ||||||
Robert E. Abernathy (2) |
2013 | 93,746 | ||||||
2012 | 65,524 | |||||||
Steven E. Voskuil |
2013 | 34,888 | ||||||
2012 | 18,068 |
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Name |
Year | Approved Amount ($) | ||||||
Rhonda D. Gibby |
2013 | 8,143 | ||||||
2012 | 5,410 | |||||||
Christopher M. Lowery |
2013 | 16,811 | ||||||
2012 | 11,977 | |||||||
John W. Wesley |
2013 | 25,367 | ||||||
2012 | 13,116 |
In addition to amounts shown in the table that reflect participation in the Kimberly-Clark and Halyard Supplemental 401(k) Plans, amounts shown for Mr. Abernathy represent compensation deferred in prior years under the Kimberly-Clark Deferred Compensation Plan and accumulated earnings. Effective in 2005, no further amounts may be deferred under this plan. Mr. Abernathy is the only Halyard named executive officer who participates in the Kimberly-Clark Deferred Compensation Plan. Participants in the Kimberly-Clark Deferred Compensation Plan may elect to have deferrals credited with yields equal to those earned on any of a subset of funds available in the Kimberly-Clark 401(k) Profit Sharing Plan. Generally, benefits are payable under the Kimberly-Clark Deferred Compensation Plan in accordance with the participants election in a lump sum or in quarterly installments over a period between two and 20 years. If a participant ceases employment (other than as a result of a total and permanent disability or death or on or after age 55 with five or more years of service), the account balance is paid in a lump sum.
Overview of Qualified and Non-Qualified Plans. The following is an overview of Halyards qualified and non-qualified plans that it offered to the Halyard named executive officers as of December 31, 2014.
Halyard 401(k) Plan |
Halyard Supplemental 401(k) Plan |
|||
Purpose | To assist employees in saving for retirement | To provide benefits to the extent necessary to fulfill the intent of the Halyard 401(k) Plan without regard to the limitations imposed by the Code on qualified defined contribution plans | ||
Eligible participants | Most employees | Salaried employees impacted by limitations imposed by the Code on the Halyard 401(k) Plan | ||
Is the plan qualified under the Code? | Yes | No | ||
Can employees make contributions? | Yes | No | ||
Does Halyard make contributions or match employee contributions? | Halyard matches 100% of employee contributions, to a yearly maximum of 6% of eligible compensation. | Halyard provides credit to the extent Halyards contributions to the Halyard 401(k) Plan are limited by the Code | ||
When do account balances vest? | Account balances under these plans generally vest once the participant completes at least two years of service | Same | ||
How are account balances invested? | Account balances are invested in certain designated investment options selected by the participant | Account balances are credited with earnings and losses as if such account balances were invested in certain designated investment options selected by the participant |
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Halyard 401(k) Plan |
Halyard Supplemental 401(k) Plan |
|||
When are account balances distributed? | Distributions of the participants vested account balance are only available after termination of employment. Loans, hardship and certain other withdrawals are allowed prior to termination of employment for certain vested amounts under the Halyard 401(k) Plan | Distributions of the participants vested account balance are payable after termination of employment. |
The Halyard Supplemental 401(k) Plan is not funded and represents a general obligation of Halyard.
Potential Payments on Termination or Change of Control
The Halyard named executive officers are eligible to receive certain benefits in the event of termination of employment, including following a change of control of Halyard. This section describes various termination scenarios as well as the payments and benefits payable under those scenarios.
Severance Benefits
Halyard maintains two severance plans that cover its executive officers, depending on the circumstances that result in their termination. Those plans include the Executive Severance Plan, which is applicable when an executive officer is terminated following a change of control, and the Severance Pay Plan, which is applicable in the event of certain other involuntary terminations. An executive officer may not receive severance payments under more than one of the plans described below.
Executive Severance Plan. Halyards Board of Directors determines the eligibility criteria for participation in the Executive Severance Plan. Halyard has entered into an agreement under this plan with each of Halyards named executive officers. The agreements provide that, in the event of a Qualified Termination of Employment (as described below), the executive officers will each receive a cash payment in an amount equal to the sum of:
Two times the sum of annual base salary and the average annual incentive award for the three prior fiscal years,
| The value of any forfeited restricted stock, time-vested restricted share units, and stock option awards, based on the closing price of Halyards common stock at the date of the executive officers separation from service. |
| The number of performance-based restricted share units that are forfeited multiplied by the average performance-based restricted share unit payment for the prior three years, |
| The value of the employer match each executive officer would have received if he or she had remained employed an additional two years under the Halyard Health 401(k) Plan and Halyard Health Supplemental 401(k) Plan, and |
| Two years of COBRA premiums for medical and dental coverage. |
A Qualified Termination of Employment is a separation of service within two years following a change of control of Halyard (as defined in the plan) either involuntarily without cause or by the participant with good reason. In addition, any involuntary separation of service without cause within one year before a change of control will also be determined to be a Qualified Termination of Employment if it is in connection with, or in anticipation of, a change of control.
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The current agreements with each executive officer expire on October 31, 2017, unless extended by the Halyard Compensation Committee.
The agreements with the executive officers reflect that they are not entitled to a tax gross-up if they incur an excise tax due to the application of Section 280G of the Code. Instead, payments and benefits payable to an executive officer will be reduced to the extent doing so would result in his or her retaining a larger after-tax amount, taking into account the income, excise and other taxes imposed on the payments and benefits.
The agreements with the executive officers provide that he or she will retain in confidence any confidential information known to him or her concerning Halyard and Halyards business so long as such information is not publicly disclosed.
Severance Pay Plan. Halyards Severance Pay Plan generally provides eligible employees (including the Halyard named executive officers) severance payments and benefits in the event of certain involuntary terminations. Benefits under the Severance Pay Plan depend on the participants employee classification.
Under the Severance Pay Plan, if an executive officers employment were involuntarily terminated, he or she would receive:
| Two times the sum of annual base salary and the average annual incentive award for the three prior fiscal years if the Chief Executive Officer, and one and one-half times the sum of annual base salary and the average annual incentive award for the three prior fiscal years if an executive officer other than the Chief Executive Officer, |
| If the termination occurs after March 31, the pro-rated current year annual incentive award based on actual performance, |
| Six months of COBRA premiums for medical coverage, and |
| Six months of outplacement services and three months of participation in Halyards employee assistance program. |
Severance pay under the Severance Pay Plan will not be paid to any participant who is terminated for cause (as defined under the plan), is terminated during a period in which the participant is not actively at work for more than 25 weeks (except to the extent otherwise required by law), voluntarily quits or retires, dies or is offered a comparable position (as defined under the plan).
A Halyard named executive officer must execute a full and final release of claims against Halyard within a specified period of time following termination to receive severance benefits under Halyards severance pay plans. Under the Severance Pay Plan, if the release has been timely executed, severance benefits are payable as a lump sum cash payment no later than 60 days following the participants termination date. Any current year annual incentive award that is payable under the Severance Pay Plan will be paid at the same time as it was payable under the Executive Officer Achievement Award Program or the Management Achievement Award Program, as applicable, but no later than 60 days following the calendar year of the separation from service.
Retirement, Death and Disability
Retirement . In the event of retirement (separation from service on or after age 55), the Halyard named executive officers are entitled to receive:
| Their account balances under the Halyard 401(k) Plan and the Halyard Supplemental 401(k) Plan, |
| Accelerated vesting of unvested stock options, and the options will be exercisable until the earlier of five years or the remaining term of the options, |
110
| For units outstanding more than six months after the date of grant, performance-based restricted share units will be payable based on attainment of the performance goal at the end of the restricted period, and |
| Annual incentive award payment under the Executive Officer Achievement Award Program or the Management Achievement Award Program, as applicable, as determined by the Halyard Compensation Committee in its discretion. |
Death . In the event of death while an active employee, the following benefits are payable:
| Their account balance under the Halyard 401(k) plan and the Halyard Supplemental 401(k) Plan, |
| Accelerated vesting of unvested stock options, and the options will be exercisable until the earlier of three years or the remaining term of the options, |
| Time-vested restricted share units will be vested pro rata, based on the number of full months of employment during the restricted period prior to the participants termination of employment, payable within 90 days following the end of the restricted period, |
| For units outstanding more than six months after the date of grant, performance-based restricted share units will be vested pro rata, based on attainment of the performance goal at the end of the restricted period, payable within 70 days following the end of the restricted period, |
| Annual incentive award payment under the Executive Officer Achievement Award Program or the Management Achievement Award Program, as applicable, as determined by the Halyard Compensation Committee in its discretion, and |
| Payment of benefits under Halyards group life insurance plan (which is available to all salaried employees in the United States) equal to two times the participants annual pay, up to $1 million (plus any additional coverage of three, four, five or six times the participants annual pay, in increments of up to $1 million each, purchased by the participant at group rates). Halyard provided and employee-purchased benefits cannot exceed $6 million. |
Disability . In the event of a separation of service due to a total and permanent disability, as defined in the applicable plan, the Halyard named executive officers are entitled to receive:
| Accelerated vesting of unvested stock options, and the options will be exercisable until the earlier of three years or the remaining term of the options, |
| Time-vested restricted share units will be vested pro rata, based on the number of full months of employment during the restricted period prior to the participants termination of employment, payable within 90 days following the end of the restricted period, |
| For units outstanding more than six months after the date of grant, performance-based restricted share units will be vested pro rata, based on attainment of the performance goal at the end of the restricted period, payable within 70 days following the end of the restricted period, |
| Annual incentive award payment under the Executive Officer Achievement Award Program or the Management Achievement Award Program, as applicable, as determined by the Halyards Compensation Committee in its discretion, |
| Continuing coverage under Halyards group life insurance plan (available to all U.S. salaried employees), with no requirement to make monthly contributions toward coverage during disability, and |
| Payment of benefits under Halyards Long-Term Disability Plan (available to all U.S. salaried employees). Long-term disability under the plan would provide income protection of monthly base pay, ranging from a minimum monthly benefit of $50 to a maximum monthly benefit of $20,000. Benefits are reduced by the amount of any other Halyard or government-provided income benefits received (but will not be lower than the minimum monthly benefit). |
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Potential Payments on Termination or Change of Control Table
The following table presents the approximate value of (1) the severance benefits for the named executive officers under the Executive Severance Plan had a Qualified Termination of Employment under that plan occurred on December 31, 2014; (2) the severance benefits for the Halyard named executive officers under the Severance Pay Plan if an involuntary termination had occurred on December 31, 2014; (3) the benefits that would have been payable on the death of the Halyard named executive officers on December 31, 2014; (4) the benefits that would have been payable on the total and permanent disability of the Halyard named executive officers on December 31, 2014; and (5) the potential payments to Messrs. Abernathy and Wesley if they had retired on December 31, 2014. If applicable, amounts in the table were calculated using the closing price of Halyards common stock on December 31, 2014 of $45.47 per share.
Because none of the Halyard named executive officers, other than Messrs. Abernathy and Wesley, was eligible to retire as of December 31, 2014 potential payments assuming retirement on that date are not included for the other named executive officers.
The amounts presented in the following table are in addition to amounts each Halyard named executive officer earned or accrued prior to termination, such as previously vested benefits under Halyards qualified and non-qualified plans, previously vested options, restricted stock and restricted share units and accrued salary and vacation. For information about these previously earned and accrued amounts, see the Summary Compensation Table, Outstanding Equity Awards, Option Exercises and Stock Vested, Pension Benefits and Nonqualified Deferred Compensation.
Name |
Cash Payment
($) |
Equity with
Accelerated Vesting ($) |
Additional
Retirement Benefits ($) |
Continued
Benefits and Other Amounts ($) |
Total ($) | |||||||||||||||
Robert E. Abernathy |
||||||||||||||||||||
Qualified Termination of Employment (1) |
3,698,591 | 2,898,855 | 179,404 | (2) | 26,587 | (3) | 6,803,437 | |||||||||||||
Involuntary termination (4) |
3,698,591 | | | 12,128 | (5) | 3,710,719 | ||||||||||||||
Death (6) |
2,268,516 | (7) | 581,501 | | | 2,850,017 | ||||||||||||||
Disability |
708,516 | (7) | 581,501 | | | (8) | 1,290,017 | |||||||||||||
Retirement |
708,516 | 166,972 | | | (9) | 875,488 | ||||||||||||||
Steven E. Voskuil |
||||||||||||||||||||
Qualified Termination of Employment (1) |
1,503,355 | 2,004,284 | 76,937 | (2) | 37,654 | (3) | 3,622,230 | |||||||||||||
Involuntary termination (4) |
1,182,786 | | | 14,635 | (5) | 1,197,421 | ||||||||||||||
Death (6) |
1,074,778 | (7) | 1,241,256 | | | 2,316,034 | ||||||||||||||
Disability |
221,078 | (7) | 1,241,256 | | | (8) | 1,462,334 | |||||||||||||
Rhonda D. Gibby |
||||||||||||||||||||
Qualified Termination of Employment (1) |
949,397 | 876,884 | 49,539 | (2) | 21,318 | (3) | 1,897,138 | |||||||||||||
Involuntary termination (4) |
742,983 | | | 11,329 | (5) | 754,312 | ||||||||||||||
Death (6) |
783,342 | (7) | 520,935 | | | 1,304,277 | ||||||||||||||
Disability |
123,742 | (7) | 520,935 | | | (8) | 644,677 | |||||||||||||
Christopher M. Lowery |
||||||||||||||||||||
Qualified Termination of Employment (1) |
1,398,072 | 1,611,882 | 71,873 | (2) | 33,153 | (3) | 3,114,980 | |||||||||||||
Involuntary termination (4) |
1,098,600 | | | 13,510 | (5) | 1,112,110 | ||||||||||||||
Death (6) |
744,485 | (7) | 708,677 | | | 1,483,162 | ||||||||||||||
Disability |
200,185 | (7) | 708,677 | | | (8) | 908,862 | |||||||||||||
John W. Wesley |
||||||||||||||||||||
Qualified Termination of Employment (1) |
1,275,775 | 381,549 | 66,088 | (2) | 37,654 | (3) | 1,761,066 | |||||||||||||
Involuntary termination (4) |
1,000,407 | | | 14,635 | (5) | 1,015,042 | ||||||||||||||
Death (6) |
1,378,302 | (7) | 78,520 | | | 1,456,822 | ||||||||||||||
Disability |
174,302 | (7) | 78,520 | | | (8) | 252,822 | |||||||||||||
Retirement |
174,302 | 16,698 | | | (9) | 191,000 |
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(1) | Represents amounts payable under the Halyard Health Executive Severance Plan. |
(2) | Includes the value of two additional years of employer contributions under the Halyard 401(k) Plan and the Halyard Supplemental 401(k) Plan, pursuant to the terms of the Executive Severance Plan. |
(3) | Includes an amount equal to 24 months of COBRA medical and dental coverage. |
(4) | Benefits payable under the Halyard Health Severance Pay Plan. For Messrs. Abernathy and Wesley, does not include accelerated equity vesting that occurred when they became retirement eligible at age 55. See the benefits payable for Messrs. Abernathy and Wesley for retirement for the amount of this accelerated equity vesting. |
(5) | Equals six months of COBRA medical coverage and outplacement services. |
(6) | Balances in each executives accounts under the Halyard 401(k) Plan and the Halyard Supplemental 401(k) Plan are excluded because the payout of those balances upon death is a benefit available to all U.S. salaried employees. |
(7) | For death, includes the payment of benefits under Halyards group life insurance plan (which is available to all U.S. salaried employees). For death and disability, assumes the Halyard Compensation Committee would approve full payment under the Executive Officer Achievement Award Program or the Management Achievement Award Program, as applicable, for 2014; actual amount that would be paid is determined by the Halyard Compensation Committee in its discretion. |
(8) | The cost of continued coverage under Halyard Healths group life insurance plans has been excluded from the table because the benefit is available to all U.S. salaried employees and does not discriminate in scope, terms or operation in favor of our named executive officers. Also does not include benefits payable under Halyard Long-Term Disability Plan (which is available to all U.S. salaried employees), the value of which would be dependent on the life span of the Halyard named executive officer and the value of any Halyard or government-provided income benefits received. |
(9) | The cost of continued coverage under Halyard Healths group life insurance plans has been excluded from the table because the benefit is available to all U.S. salaried employees and does not discriminate in scope, terms or operation in favor of our named executive officers. |
DIRECTOR COMPENSATION
Directors who are not officers or employees of Halyard Health or any of our subsidiaries, affiliates or equity companies are Outside Directors for compensation purposes and are compensated for their services under our Outside Directors Compensation Plan. All independent directors currently on our Board are Outside Directors and are compensated under this Plan.
Our objectives for Outside Director compensation are:
| to attract qualified candidates for Board service |
| to remain competitive with the median compensation paid to outside directors of comparable companies |
| to keep pace with changes in practices in director compensation |
| to reinforce our practice of encouraging stock ownership by our directors |
In 2014, our Outside Director compensation was established based on the median non-management director compensation for our peers.
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The table below shows how we structure Outside Director compensation:
Board Members |
Cash retainer: $70,000 annually, paid in four quarterly payments at the beginning of each quarter.
Restricted share units: Annual grant with a value of $140,000, awarded and valued on the first business day of the year |
|
Audit and Compensation Committee Chairs |
Additional cash compensation of $15,000, paid in four quarterly payments at the beginning of each quarter |
|
Lead Director |
Additional cash compensation of $20,000, paid in four quarterly payments at the beginning of each quarter |
New Outside Directors receive a pro-rated annual retainer and grant of restricted share units based on the month when they joined the Board.
We also reimburse Outside Directors for expenses incurred in attending Board or committee meetings.
Restricted share units are not shares of our common stock. Rather, restricted share units represent the right to receive a pre-determined number of shares of our common stock within 90 days following a restricted period that begins on the date of grant and expires on the date the Outside Director retires from or otherwise terminates service on the Board. In this way, they align the directors interests with the interests of our stockholders. Outside Directors may not dispose of the units or use them in a pledge or similar transaction. Outside Directors also receive additional restricted share units equivalent in value to the dividends, if any, that would have been paid to them if the restricted share units granted to them were shares of our common stock.
2014 Outside Director Compensation
The following table shows the compensation paid to each Outside Director for his or her service in 2014:
Name |
Fees Earned
or Paid in Cash($) |
Stock
Awards($) (1)(2) |
Total($) | |||||||||
Gary D. Blackford |
17,500 | 35,000 | 52,500 | |||||||||
John P. Byrnes |
17,500 | 35,000 | 52,500 | |||||||||
Ronald W. Dollens |
22,500 | 35,000 | 57,500 | |||||||||
Heidi K. Fields |
21,250 | 35,000 | 56,250 | |||||||||
Patrick OLeary |
17,500 | 35,000 | 52,500 | |||||||||
Dr. Julie Shimer |
21,250 | 35,000 | 56,250 | |||||||||
Maria Sainz (3) |
| | |
(1) | Amounts shown reflect the grant date fair value of those grants, determined in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 Stock Compensation (ASC Topic 718) for restricted share unit awards granted pursuant to our 2014 Outside Directors Compensation Plan. See Note 13 to our audited consolidated and combined financial statements included elsewhere in this prospectus for the assumptions used in valuing these restricted share units. |
(2) | Restricted share unit awards were granted on November 7, 2014. Each director received 924 restricted share units, representing a pro-rated portion of the annual grant target. |
(3) | Maria Sainz joined the Board on February 1, 2015 and therefore did not participate in our Outside Director Compensation program in 2014. |
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Other than the cash retainer and grants of restricted share units previously described, no Outside Director received any compensation or perquisites from Kimberly-Clark or Halyard Health for services as a director in 2014.
A director who is not an Outside Director does not receive any compensation for services as a member of the Board or any committee, but is reimbursed for expenses incurred as a result of the services.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Policies and Procedures for Review, Approval or Ratification of Related Person Transactions. The Board has adopted written procedures for reviewing any transactions between the company and certain related persons that involve amounts above certain thresholds. The SEC requires that our proxy statement disclose these related person transactions. A related person is defined under the SECs rules and includes our directors, executive officers and five percent stockholders.
The Boards procedures provide that:
| The Governance Committee is best suited to review, approve and ratify related person transactions involving any director, nominee for director, any five percent stockholder, or any of their immediate family members or related firms. |
| The Audit Committee is best suited to review, approve and ratify related person transactions involving executive officers (or their immediate family members or related firms), other than any executive officer that is also a Board member. |
| Either Committee may, in its sole discretion, refer its consideration of related person transactions to the full Board. |
Each director, director nominee and executive officer is required to promptly provide written notification of any material interest that he or she (or an immediate family member) has or will have in a transaction with Halyard Health. Based on a review of the transaction, a determination will be made as to whether the transaction constitutes a related person transaction under the SECs rules. As appropriate, the Governance Committee or the Audit Committee will then review the terms and substance of the transaction to determine whether to ratify or approve the related person transaction.
In determining whether the transaction is consistent with Halyard Healths best interest, the Governance Committee or the Audit Committee may consider any factors deemed relevant or appropriate, including:
| Whether the transaction is on terms comparable to those that could be obtained in arms-length dealings with an unrelated third party; |
| Whether the transaction constitutes a conflict of interest under our Code of Conduct, the nature, size or degree of any conflict, and whether mitigation of the conflict is feasible; |
| The impact of the transaction on a directors independence; and |
| Whether steps have been taken to ensure fairness to Halyard Health. |
2014 Related Person Transactions. There were no related party transactions in 2014.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the number of shares of our common stock beneficially owned (except as noted in the footnotes below) as of June 30, 2015, by each director, by each named executive officer, and by all directors and executive officers as a group. The percentage of beneficial ownership is based on 46,605,790 shares of common stock outstanding as of June 30, 2015.
Name |
Number of Shares (1)(2)(3)(4)(5) | Percent of Class | ||||||
Robert E. Abernathy |
109,630 | * | ||||||
Gary D. Blackford |
3,951 | * | ||||||
John P. Byrnes |
3,979 | * | ||||||
Ronald W. Dollens |
3,951 | * | ||||||
Heidi K. Fields |
3,956 | * | ||||||
Rhonda D. Gibby |
29,635 | * | ||||||
Christopher M. Lowery |
51,596 | * | ||||||
Patrick J. OLeary |
4,001 | * | ||||||
Maria Sainz |
3,143 | * | ||||||
Dr. Julie Shimer |
3,951 | * | ||||||
Steven E. Voskuil |
70,023 | * | ||||||
John W. Wesley |
14,457 | * | ||||||
All directors, nominees and executive officers as a group (14 persons) |
343,439 | * |
* | Each director, named executive officer and the directors and executive officers as a group owns less than one percent of the outstanding shares of our common stock. |
(1) | Except as otherwise noted, the directors, named executive officers, and the directors and executive officers as a group, have sole voting and investment power with respect to the shares listed. |
(2) | A portion of the shares owned by certain executive officers and directors may be held in margin accounts at brokerage firms. Under the terms of the margin account agreements, stocks and other assets held in these accounts may be pledged to secure margin obligations. As of the date of this proxy statement, none of the executive officers or directors has any outstanding margin obligations under any of these accounts. |
(3) | Share amounts include unvested restricted share units granted to the following named executive officers under the Halyard Health Equity Participation Plan as indicated below. Amounts representing performance-based restricted share units (PRSUs) in the table below represent target levels for the awards. |
Name |
Time Vested
Restricted Share Units (#) |
Performance
Based Restricted Share Units (#) |
||||||
Robert E. Abernathy |
60,081 | 39,587 | ||||||
Steven E. Voskuil |
21,640 | 10,277 | ||||||
Rhonda D. Gibby |
10,051 | 4,618 | ||||||
Christopher M. Lowery |
22,815 | 13,195 | ||||||
John W. Wesley |
8,024 | 5,278 |
(4) | For each director who is not an officer or employee of Halyard Health, share amounts include restricted share units granted under our Outside Directors Compensation Plan. These awards are restricted and may not be transferred or sold until the Outside Director retires from or otherwise terminates service on the Board. |
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(5) | Includes the following shares which could be acquired within 60 days of June 30, 2015 by the exercise of stock options: |
Name |
Number of Shares | |||
Robert E. Abernathy |
| |||
Steven E. Voskuil |
32,397 | |||
Rhonda D. Gibby |
13,158 | |||
Christopher M. Lowery |
15,802 | |||
John W. Wesley |
| |||
All directors, nominees and executive officers as a group (14 persons) |
79,114 |
Our Corporate Governance Policies provide that, within five years of joining the Board, all Outside Directors should own an amount of our common stock or restricted share units at least equal in value to five times the annual Board cash compensation. For the purpose of these stock ownership guidelines, a director is deemed to own beneficially-owned shares, as well as restricted share units (whether or not any applicable restrictions have lapsed).
The following table sets forth the information regarding persons or groups known to us to be beneficial owners of more than five percent of our common stock.
Name and Address of Beneficial Owner |
Number of Shares of
Common Stock Beneficially Owned |
Percentage of
Common Stock Outstanding |
||||||
Blackrock, Inc. (1) 55 East 52 nd Street New York, NY 10022 |
3,878,903 | 8.3 | ||||||
R. Rowe Price Associates, Inc. (2) 100 E. Pratt Street Baltimore, MD 21202 |
3,189,935 | 6.8 | ||||||
The Vanguard Group (3) 100 Vanguard Way Malvern, PA 19355 |
2,859.903 | 6.1 | ||||||
Greenlight Capital, Inc. (4) DME Advisors, LP DME Capital Management, LP DME Advisors GP, LLC David Einhorn 140 East 45 th Street, 45 th Floor New York, NY 10017 |
2,353,181 | 5.1 |
(1) | The address, number and percentage of shares of our common stock beneficially owned by Blackrock, Inc. are based on the Schedule 13G filed by Blackrock, Inc. with the SEC on February 6, 2015. According to the filing, Blackrock, Inc. had sole voting power with respect to 3,210,440 shares, sole dispositive power with respect to 3,878,084 shares, and did not have shared voting or dispositive power as to any shares. |
(2) | The address, number and percentage of shares of our common stock beneficially owned by T. Rowe Price Associates, Inc. (Price Associates) are based on the Schedule 13G filed by Price Associates with the SEC on February 12, 2015. According to the filing, Price Associates had sole voting power with respect to 804,300 shares, sole dispositive power with respect to 3,189,935 shares, and did not have shared voting or dispositive power as to any shares. |
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(3) | The address, number and percentage of shares of our common stock beneficially owned by The Vanguard Group are based on the Schedule 13G filed by The Vanguard Group with the SEC on February 11, 2015. According to the filing, The Vanguard Group had sole voting power with respect to 30,496 shares, sole dispositive power with respect to 2,832,407 shares, shared dispositive power with respect to 27,496 shares and did not have shared voting power as to any shares. |
(4) | The address, number and percentage of shares of our common stock beneficially owned by Greenlight Capital, Inc., DME Advisors, LP, DME Capital Management, LP, DME Advisors GP, LLC, and David Einhorn are based on the Schedule 13G filed by such entities and person with the SEC on February 13, 2015. According to the filing: (A) Greenlight Capital, Inc. had sole voting power with respect to no shares, sole dispositive power with respect to no shares, shared dispositive power with respect to 1,412,481 shares, and shared voting power with respect to 1,412,481; (B) DME Advisors, LP had sole voting power with respect to no shares, sole dispositive power with respect to no shares, shared dispositive power with respect to 320,000 shares, and shared voting power with respect to 320,000; (C) DME Capital Management, LP had sole voting power with respect to no shares, sole dispositive power with respect to no shares, shared dispositive power with respect to 620,700 shares, and shared voting power with respect to 620,700; (D) DME Advisors GP, LLC had sole voting power with respect to no shares, sole dispositive power with respect to no shares, shared dispositive power with respect to 940,700 shares, and shared voting power with respect to 940,700; and (E) David Einhorn had sole voting power with respect to no shares, sole dispositive power with respect to no shares, shared dispositive power with respect to 2,353,181 shares, and shared voting power with respect to 2,353,181. |
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Purpose of the Exchange Offer
The purpose of the exchange offer is to provide the holders of old notes, which have not been registered under the Securities Act, an opportunity to exchange their old notes for new notes that have been registered under the Securities Act. The terms of the new notes are substantially identical to the terms of the old notes, except that the new notes will be registered under the Securities Act and will not be subject to the transfer restrictions and registration rights relating to the old notes.
Participation in the exchange offer is voluntary. We are not making any recommendation to holders of old notes as to whether to tender or refrain from tendering all or any portion of the old notes pursuant to the exchange offer. In addition, we have not authorized anyone to make any such recommendation. Holders of old notes must make their own decision whether to tender pursuant to the exchange offer and, if so, the aggregate amount of old notes to tender. We recommend that you make that decision after reading this prospectus and the letter of transmittal and consulting with your advisors, if any, based on your financial position and requirements.
On October 17, 2014, we issued $250.0 million of old notes to the initial purchasers for resale to qualified institutional buyers in reliance upon the exemption from registration provided by Rule 144A under the Securities Act and to non-U.S. persons in offshore transactions in reliance upon the exemption provided by Regulation S of the Securities Act. As part of the offering, we entered into a registration rights agreement with the initial purchasers, which gives holders of the notes certain exchange and registration rights with respect to the notes. In the registration rights agreement, Halyard and the guarantors of the notes agreed for the benefit of the holders of the notes to use commercially reasonable efforts to (1) file a registration statement on an appropriate registration form with respect to a registered offer to exchange the old notes for new notes guaranteed by the guarantors, with terms substantially identical in all material respects to the old notes (except that the new notes will not contain terms with respect to transfer restrictions or any increase in annual interest rate) and (2) cause the registration statement to be declared effective under the Securities Act.
If we do not comply with certain of our obligations under the registration rights agreement, including the obligation to consummate the exchange offer on or prior to October 17, 2015, we will be required to pay additional interest in an amount equal to (i) 0.25% per annum for the first 90-day period beginning on the day immediately following such noncompliance and (ii) an additional 0.25% per annum with respect to each subsequent 90-day period, in each case until and including the date such noncompliance ends, up to a maximum increase of 1.00% per annum.
As a result of the registration of the new notes under the Securities Act, new notes issued in exchange for old notes should generally be freely transferable after the exchange offer without further registration under the Securities Act. Each broker-dealer that receives new notes for its own account in exchange for old notes, where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such old notes. See Plan of Distribution.
As of the date of this prospectus, $250.0 million aggregate principal amount of old notes are outstanding. This prospectus, together with the letter of transmittal, is first being sent on or about the date hereof to all holders of old notes known to us.
Terms of the Exchange Offer; Expiration Date of the Exchange Offer
Subject to terms and conditions detailed in this prospectus, we will accept for exchange old notes that are properly tendered on or prior to the expiration date and not withdrawn as permitted below. Old notes tendered in the exchange offer must be in denominations of a principal amount of $2,000 and integral multiples of $1,000
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in excess thereof. The holder of each old note accepted for exchange will receive a new note in the amount equal to the surrendered old note. Each holder of old notes that exchanges old notes for new notes in the exchange offer will be deemed to have made certain securities-related representations to us.
The new notes will evidence the same indebtedness as the old notes, which they replace, and will be issued under, and be entitled to the benefits of, the same indenture under which the old notes were issued. As a result, both series of notes will be treated as a single class of debt securities under the indenture. If your old notes are exchanged for new notes, you will not receive a payment in respect of accrued interest on such old notes. Instead, interest on the new notes you receive in exchange for such old notes will accrue from the date of original issuance of such old notes at the same rate as and will be payable on the same dates as interest was payable on such old notes.
The expiration date for the exchange offer is 5:00 p.m., New York City time, on , 2015, or such later date and time to which we, in our sole discretion, extend the exchange offer. We expressly reserve the right, in our sole discretion, to:
| extend the expiration date of the exchange offer; |
| amend or terminate the exchange offer, and not accept any old notes for exchange, upon the occurrence of any of the conditions of the exchange offer specified under Conditions to the Exchange Offer; and |
| delay acceptance of any old notes for exchange, by giving oral or written notice of such extension to the holders of such old notes. |
We will give oral or written notice of any extension, amendment, termination, non-acceptance, or delay to the holders of the old notes as promptly as practicable. Such notice, in the case of any extension, will be issued by means of a press release or other public announcement no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. If there is any material change in the exchange offer, including the waiver of a material condition, we will extend the offer period if necessary, so that at least five business days remain in the exchange offer following notice of the material change.
During an extension, all old notes previously tendered will remain subject to the exchange offer and may be accepted for exchange by us upon expiration of the exchange offer, unless validly withdrawn prior to that time. For purposes of the exchange offer, we will be deemed to have accepted validly surrendered old notes if and when we give oral or written notice of our acceptance to the exchange agent. Any old notes not accepted for exchange for any reason will be returned without expense to the tendering holder promptly after the expiration or termination of the exchange offer.
Exchange Offer Procedures
Your tender to us of old notes in accordance with the procedures set forth below, and our acceptance of the old notes, will constitute a binding agreement between us and you upon the terms and subject to the conditions set forth in this prospectus and the letter of transmittal.
To tender in the exchange offer, a holder of old notes must either transmit a properly completed and duly executed letter of transmittal (or a facsimile of the letter of transmittal), including all other documents required by the letter of transmittal, or, in the case of a book-entry transfer, an agents message in lieu of such letter of transmittal, to Deutsche Bank Trust Company Americas, as exchange agent, at the address set forth on the cover page of the letter of transmittal, for receipt at or prior to the expiration of the exchange offer. In addition, the exchange agent must receive, at or prior to the expiration of the exchange offer:
| certificates for such old notes in proper form for transfer, along with the letter of transmittal; or |
| a timely confirmation of a book-entry transfer (a book-entry confirmation) of such old notes into the exchange agents account at DTC pursuant to the ATOP procedures for book-entry transfer, along with the letter of transmittal or an agents message in lieu of such letter of transmittal. |
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The term agents message means a message transmitted by DTC and received by the exchange agent, forming part of a book-entry confirmation, and stating that DTC has received an express acknowledgment that the tendering holder has received and agrees to be bound by the letter of transmittal and that we may enforce such letter of transmittal against such holder. By transmitting an agents message, a holder is not required to deliver a letter of transmittal to the exchange agent. However, the holder will be bound by the terms of the letter of transmittal just as if the holder had signed it.
If your old notes are registered in the name of a custodial entity such as a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your old notes in the exchange offer, you must instruct the custodial entity to tender the old notes on your behalf pursuant to the procedures of the custodial entity. Custodial entities that are participants in DTC must tender old notes through the book-entry transfer procedures of ATOP, together with an agents message.
The method of delivery of old notes, letters of transmittal and all other required documents to the exchange agent is at the holders election and risk. If such delivery is by mail, we recommend the use of registered mail, properly insured, with return receipt requested. In all cases, you should allow sufficient time to ensure receipt by the exchange agent at or prior to the expiration of the exchange offer. No letters of transmittal or old notes should be sent to us.
We will make a final and binding determination, in our sole discretion, on all questions as to the validity, form, eligibility (including time of receipt) and acceptance and withdrawal of old notes tendered for exchange. We reserve the absolute right to reject any and all old notes determined by us not to be in proper form or not properly tendered. We also reserve the absolute right to refuse to accept any tendered old notes if, in our judgment or our counsels judgment, acceptance of such old notes may be unlawful. We further reserve the absolute right to waive any defects, irregularities or conditions of the exchange offer as to particular old notes, either before or after the expiration date of the exchange offer and whether or not waived in the case of other old notes. Our interpretation of the terms and conditions of the exchange offer as to any particular old note (including the letter of transmittal and the instructions thereto) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old notes for exchange must be cured within such time as we determine. We are not, nor is the exchange agent or any other person, under any duty to notify you of any defect or irregularity with respect to your tender of old notes for exchange, and no one will be liable for failing to provide such notification. Tenders of old notes will not be deemed to have been made until any such defects or irregularities have been cured or waived.
Proper Execution of Letter of Transmittal
Signatures on a letter of transmittal or a notice of withdrawal described below (Withdrawal Rights), as the case may be, must be guaranteed by an eligible institution (as defined below) unless the old notes tendered for exchange pursuant to the letter of transmittal are tendered:
| by a registered holder of old notes who has not completed the box entitled Special Issuance Instructions or Special Delivery Instructions on the letter of transmittal; or |
| for the account of an eligible institution. |
In the event that signatures on a letter of transmittal or a notice of withdrawal are required to be guaranteed, such guarantees must be by a firm that is a member of a registered national securities exchange or of the Financial Industry Regulatory Authority, or is a savings institution, commercial bank or trust company having an office or correspondent in the United States, or is otherwise an eligible guarantor institution within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (the Exchange Act), and that is, in each case, a member of a recognized signature guarantee program (i.e., the Securities Transfer Agent Medallion Program, the Stock Exchanges Medallion Program or the New York Stock Exchange Medallion Program) (each, an eligible institution).
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If an old note is registered in the name of the person(s) who signs the letter of transmittal, the signature(s) on the letter of transmittal must appear exactly as such name(s) are written on the certificate for the old note. If an old note is held by two or more holders, all such holders must sign the letter of transmittal. If old notes are registered in different names on different certificates for old notes, it will be necessary to complete and submit as many separate letters of transmittal and accompanying documents as there are different registrations of certificates. If old notes are registered in the name of a person other than the person who signs the letter of transmittal, such old notes must be endorsed or accompanied by bond powers.
If the letter of transmittal or any old notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing. Unless waived by us, proper evidence satisfactory to us of their authority to so act must also be submitted with the letter of transmittal.
Representations Required for Tender
By tendering old notes, you represent to us, among other things, that:
| you are not our affiliate, as defined under Rule 405 under the Securities Act; |
| the new notes acquired pursuant to the exchange offer are being obtained in the ordinary course of business of the person receiving such new notes, whether or not such person is the holder; |
| neither the holder nor any other person receiving the new notes has any arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the new notes; |
| if you are not a broker-dealer, you will not engage in, and you do not intend to engage in, the distribution of the new notes; |
| if you are a broker-dealer, you will receive the new notes for your own account in exchange for old notes that were acquired by you as a result of your market-making or other trading activities and you will deliver a prospectus in connection with any resale of the new notes; and |
| you are not acting on behalf of any person who, to your knowledge, could not truthfully make the foregoing representations. |
If you cannot make any of these representations, you will not be entitled to participate in the exchange offer and you must comply with the registration requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives new notes for its own account in exchange for old notes, where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. See Plan of Distribution.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer, we will accept, promptly after the expiration date, all old notes validly tendered and not withdrawn. See Conditions to the Exchange Offer. For purposes of the exchange offer, we will be deemed to have accepted properly tendered old notes for exchange if and when we give oral (confirmed in writing) or written notice to the exchange agent. We will issue the new notes in exchange for old notes promptly after acceptance of the old notes. New notes issued in exchange for old notes in the exchange offer will be delivered only in book-entry form through DTC. Accordingly, if you anticipate tendering your old notes other than through DTC, we urge you to promptly contact a bank, broker or other intermediary that has the capacity to hold securities through DTC to arrange for receipt of your new notes.
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In all cases, issuance of new notes for old notes that are accepted for exchange will be made only after timely receipt by the exchange agent of:
| a timely book-entry confirmation of such old notes into the exchange agents account at DTC; |
| a properly completed and duly executed letter of transmittal or an agents message in lieu thereof; and |
| all other required documents. |
If we do not accept any tendered old notes for any reason set forth in the terms and conditions of the exchange offer, or if old notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged old notes will be returned without cost to the tendering holder (or, in the case of old notes tendered by book-entry transfer into the exchange agents account at DTC, such non-exchanged old notes will be credited to an account maintained with DTC) promptly after the expiration or termination of the exchange offer.
Withdrawal Rights
You may withdraw your tender of old notes at any time prior to the expiration date. To be effective, the exchange agent must receive a written notice of withdrawal, prior to the expiration date, at one of the addresses or the facsimile number set forth below under Exchange Agent. Any such notice of withdrawal must:
| specify the name of the person having tendered the old notes to be withdrawn, and the name in which such old notes are registered if different from that of the tendering holder; |
| provide a description of the old notes to be withdrawn, including the principal amount of such old notes; |
| state where any certificates for the old notes have been transmitted; |
| state that the tender of the old notes is being withdrawn; and |
| must be guaranteed by an eligible institution, unless such old notes have been tendered for the account of an eligible institution. |
If certificates for old notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn. If old notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn old notes and otherwise comply with the procedures of DTC.
We will make a final and binding determination on all questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices. Withdrawal of tenders of old notes may not be rescinded, and any old notes properly withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer. Properly withdrawn old notes may be retendered by following one of the procedures described under Exchange Offer Procedures at any time on or prior to the expiration date for the exchange offer. Any old notes tendered for exchange but withdrawn will be returned without cost to the holder (or, in the case of old notes tendered by book-entry transfer into the exchange agents account at DTC, such old notes will be credited to an account maintained with DTC) promptly after withdrawal.
Conditions to the Exchange Offer
Notwithstanding any other provision of the exchange offer, we are not required to accept for exchange, or issue new notes in exchange for, any old notes, and we may terminate or amend the exchange offer, if any of the following events occur prior to our acceptance of such old notes:
1. | the exchange offer violates any applicable law or applicable interpretation of the staff of the Commission; |
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2. | there is threatened, instituted or pending any action or proceeding before, or any injunction, order or decree has been issued by, any court or governmental agency or other governmental regulatory or administrative agency or commission, |
| seeking to restrain or prohibit the making or consummation of the exchange offer or any other transaction contemplated by the exchange offer, or assessing or seeking any damages as a result thereof, or |
| resulting in a material delay in our ability to accept for exchange or exchange some or all of the old notes pursuant to the exchange offer; |
3. | any statute, rule, regulation, order or injunction has been sought, proposed, introduced, enacted, promulgated or deemed applicable to the exchange offer or any of the transactions contemplated by the exchange offer by any government or governmental authority, domestic or foreign, or any action has been taken, proposed or threatened, by any government, governmental authority, agency or court, domestic or foreign, that in our sole judgment might, directly or indirectly, result in any of the consequences referred to in clauses (1) or (2) above or, in our reasonable judgment, might result in the holders of new notes having obligations with respect to resales and transfers of new notes that are greater than those described in the interpretation of the Commission referred to on the cover page of this prospectus, or would otherwise make it inadvisable to proceed with the exchange offer; or |
4. | there has occurred: |
| any general suspension of or general limitation on prices for, or trading in, our securities on any national securities exchange or in the over-the-counter market, |
| any limitation by a governmental agency or authority that may adversely affect our ability to complete the transactions contemplated by the exchange offer, |
| a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation by any governmental agency or authority that adversely affects the extension of credit, or |
| a commencement of a war, armed hostilities or other similar international calamity directly or indirectly involving the United States, or, in the case of any of the foregoing existing at the time of the commencement of the exchange offer, a material acceleration or worsening thereof, |
which in our reasonable judgment, and regardless of the circumstances (including any action by us) giving rise to any such condition, makes it inadvisable to proceed with the exchange offer and/or with such acceptance for exchange or with such exchange.
The foregoing conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any condition or may be waived by us in whole or in part at any time in our reasonable discretion. Our failure at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right and each such right will be deemed an ongoing right that may be asserted at any time.
In addition, we will not accept for exchange any old notes tendered, and no new notes will be issued in exchange for any such old notes, if at such time any stop order is threatened or in effect with respect to the registration statement, of which this prospectus constitutes a part, or the qualification of the indenture under the Trust Indenture Act of 1939, as amended (the Trust Indenture Act).
Consequences of Exchanging or Failing to Exchange Old Notes
If you do not exchange your old notes for new notes in the exchange offer, your old notes will remain outstanding and will continue to accrue interest and be subject to the restrictions on transfer described in the legend on the old notes and in the indenture governing the old notes. These transfer restrictions are required
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because the old notes were issued under an exemption from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, you may not offer or sell your old notes unless they are registered or offered or sold in a transaction exempt from registration under the Securities Act and applicable state securities laws. We do not plan to register the old notes under the Securities Act and, following the consummation of the exchange offer, your old notes will not retain any rights under the registration rights agreement. Accordingly, the trading market for your untendered old notes could be adversely affected.
Based on interpretations by the staff of the Commission, as set forth in no-action letters issued to third parties, we believe that the new notes you receive in the exchange offer may be offered for resale, resold or otherwise transferred without compliance with the registration and prospectus delivery provisions of the Securities Act. However, you will not be able to freely transfer the new notes, and, to the extent described below, you will not be entitled to participate in the exchange offer if:
| you are our affiliate, as defined in Rule 405 under the Securities Act; |
| you are not acquiring the new notes in the exchange offer in the ordinary course of your business; |
| you have an arrangement or understanding with any person to participate in the distribution, as defined in the Securities Act, of the new notes you will receive in the exchange offer; |
| you are holding old notes that have, or are reasonably likely to have, the status of an unsold allotment in the initial offering; |
| if you are not a broker-dealer, you are engaged in or intend to engage in the distribution of the new notes; |
| if you are a broker-dealer, you will not receive the new notes for your own account in exchange for old notes that were acquired by you as a result of your market-making or other trading activities or you will not deliver a prospectus in connection with any resale of the new notes you receive; or |
| you are acting on behalf of a person who, to your knowledge, falls into one of the above exceptions. |
If you do not meet these requirements, you may not rely on the applicable interpretations of the staff of the Commission, you will not be entitled to participate in the exchange offer, and you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction involving the new notes. In addition, even if you do meet these requirements, to comply with state securities laws, you may not offer or sell the new notes in any state unless they have been registered or qualified for sale in that state or you comply with an available exemption from registration or qualification.
The Commission has not considered, and we do not intend to request the Commission to consider, the exchange offer in the context of a no-action letter. As a result, we cannot guarantee that the Commission would make a similar determination with respect to the exchange offer as in the no-action letters discussed above. If our belief with respect to the transferability of the new notes is not accurate, or if you do not meet the above requirements, and you transfer a new note without meeting the registration and prospectus delivery requirements of the Securities Act, or without an exemption from these requirements, then you could incur liability under the Securities Act. We do not and will not indemnify you against any liability that you may incur under the Securities Act.
Under some circumstances, holders of the old notes, including holders who are not permitted to participate in the exchange offer or who may not freely resell new notes received in the exchange offer, may require us to file, and to cause to become effective, a shelf registration statement covering resales of old notes by these holders.
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Exchange Agent
We have appointed Deutsche Bank Trust Company Americas as the exchange agent for the exchange offer. All executed letters of transmittal and all questions and requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal should be directed to the exchange agent addressed as follows:
Deutsche Bank Trust Company Americas
By Mail, Overnight Mail or Courier:
DB Services Americas, Inc.
5022 Gate Parkway, Suite 200
MS JCK01-0218
Jacksonville, FL 32256
Attention: Reorg Department
Confirm by Telephone: (877) 843-9767
By Facsimile Transmission (Eligible Institutions Only):
(615) 866-3889
Confirm by Telephone: (877) 843-9767
For Additional Information, Contact:
Telephone: (877) 843-9767
Email: DB.Reorg@db.com
Fees and Expenses
The principal solicitation is being made by mail by Deutsche Bank Trust Company Americas, as exchange agent. We will pay the exchange agent customary fees for its services, reimburse the exchange agent for its reasonable out-of-pocket expenses incurred in connection with the provision of these services and pay other registration expenses, including fees and expenses of the trustee under the indenture relating to the new notes, filing fees, blue sky fees and printing and distribution expenses. We will not make any payment to brokers, dealers or others soliciting acceptances of the exchange offer.
Additional solicitation may be made by telephone, facsimile or in person by our and our affiliates officers and regular employees and by persons so engaged by the exchange agent.
Accounting Treatment
We will record the new notes at the same carrying value as the old notes, as reflected in our accounting records on the date of the exchange. Accordingly, we will not recognize any gain or loss for accounting purposes.
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General
Certain terms used in this description are defined under the subheading Certain Definitions. In this description, the term Issuer refers to Halyard Health, Inc. and not to any of its subsidiaries. We refer to the new notes and old notes (to the extent not exchanged for new notes) in this description as the Notes.
The new notes being offered under this prospectus will be issued and governed by the terms of an indenture, dated as of October 17, 2014 (the Indenture ) between the Issuer and Deutsche Bank Trust Company Americas, as trustee (the Trustee ). The terms of the new notes are identical in all material respects to the terms of the old notes, except that the new notes are registered under the Securities Act and generally are not subject to transfer restrictions or registration rights. The terms of the Notes will include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended.
The following description is only a summary of the material provisions of the Indenture and does not purport to be complete and is qualified in its entirety by reference to the provisions of the Indenture, including the definitions therein of certain terms used below. We urge you to read the Indenture and the Registration Rights Agreement because those agreements, not this description, define your rights as Holders of the Notes. You may request copies of the Indenture and the Registration Rights Agreement at our address set forth under the heading Where You Can Find More Information.
Brief Description of the Notes
The Notes:
| will be senior unsecured obligations of the Issuer; |
| will be pari passu in right of payment with all existing and future senior Indebtedness (including the Senior Credit Facilities) and all other obligations (other than Subordinated Indebtedness) of the Issuer; |
| will be effectively subordinated to all secured existing and future Indebtedness and other obligations of the Issuer and the Guarantors (including the Senior Credit Facilities) to the extent of the value of the assets securing such Indebtedness and such other obligations; |
| will be senior in right of payment to any future Subordinated Indebtedness of the Issuer; |
| will be structurally subordinated to all existing and future Indebtedness and other liabilities of the Issuers Subsidiaries that are not Guarantors; and |
| will be guaranteed on a senior unsecured basis by each of the Restricted Subsidiaries that guarantees the Senior Credit Facilities. |
Guarantees
The Guarantors will jointly and severally unconditionally guarantee, on a senior unsecured basis, the performance and full and punctual payment when due, whether at maturity, by acceleration or otherwise, of all obligations of the Issuer under the Indenture and the Notes, whether for payment of principal of, or interest on, the Notes, expenses, indemnification or otherwise, on the terms set forth in the Indenture by executing the Indenture.
Each of the Restricted Subsidiaries that guarantees the Senior Credit Facilities will initially Guarantee the Notes. Each of the Guarantees of the Notes will be a general unsecured obligation of each Guarantor, will be pari passu in right of payment with all existing and future Indebtedness and all other obligations (other than Subordinated Indebtedness) of each such entity, will be effectively subordinated to all secured Indebtedness of each such entity (to the extent of the value of the assets securing such Indebtedness) and will be senior in right of
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payment to all existing and future Subordinated Indebtedness of each such entity. The Guarantees will be structurally subordinated to the Indebtedness and other liabilities of any Subsidiaries of such Guarantor that do not guarantee the Notes.
Not all of the Issuers Subsidiaries will guarantee the Notes, and Restricted Subsidiaries will Guarantee the Notes only to the extent provided for under the provisions of the covenant described under Certain CovenantsLimitation on Guarantees of Indebtedness by Restricted Subsidiaries. Our Foreign Subsidiaries will not guarantee the Notes. Subject to the last two sentences of the definition of Unrestricted Subsidiary, we will be permitted to designate Subsidiaries as Unrestricted Subsidiaries. Our Unrestricted Subsidiaries will not be subject to any restrictive covenants in the Indenture. Our Unrestricted Subsidiaries will not, either as of the Issue Date or in the future, guarantee the Notes.
In the event of a bankruptcy, liquidation or reorganization of any of the Subsidiaries that will not guarantee the Notes, such Subsidiaries will pay the holders of their debt and their trade creditors before they will be able to distribute or contribute, as the case may be, any of their assets to the Issuer or a Guarantor. As a result, all of the existing and future liabilities of the Subsidiaries that will not guarantee the Notes, including any claims of trade creditors, are structurally senior to the Notes. For the twelve months ended December 31, 2014, on a historical basis, the Subsidiaries that will not guarantee the Notes accounted for approximately 37% of the Issuers consolidated net sales and approximately 30% of the Issuers consolidated Adjusted EBITDA (as defined in Summary Summary Historical Financial Data). In addition, as of December 31, 2014, on a historical basis, such Subsidiaries held approximately 12% of the Issuers total assets and had approximately 12% of total liabilities (excluding intercompany indebtedness.)
The obligations of each Guarantor under its Guarantee will be limited as necessary to prevent the Guarantees from constituting a fraudulent conveyance under applicable law and therefore, are limited to the amount that such Guarantor could guarantee without such Guarantee constituting a fraudulent conveyance; this limitation, however, may not be effective to prevent such Guarantee from constituting a fraudulent conveyance.
Any Guarantor that makes a payment under its Guarantee will be entitled upon payment in full of all guaranteed obligations under the Indenture to a contribution from each other Guarantor in an amount equal to such other Guarantors pro rata portion of such payment based on the respective net assets of all the Guarantors at the time of such payment determined in accordance with GAAP.
If a Guarantee was rendered voidable, it could be subordinated by a court to all other obligations (including guarantees and other contingent liabilities) of the applicable Guarantor, and, depending on the amount of such obligations, a Guarantors liability on its Guarantee could be reduced to zero. See Risk FactorsRisks Related to the Notes and the Exchange OfferFederal and state fraudulent transfer laws may permit a court to void the notes and/or the guarantees and, if that occurs, you may not receive any payments on the notes.
The Indenture provides by its terms that a Guarantee by a Guarantor shall be automatically and unconditionally released and discharged upon:
(1) any direct or indirect sale, exchange or transfer (by merger, consolidation or otherwise) of (i) the Capital Stock of such Guarantor (including any sale, exchange or transfer), after which the applicable Guarantor is no longer a Restricted Subsidiary or (ii) all or substantially all the assets of such Guarantor, whether or not such Guarantor is the surviving Person in such transaction, to a Person which is not the Issuer or a Restricted Subsidiary; provided that such sale, exchange or transfer of Capital Stock or assets is made in a manner that is not prohibited by the applicable provisions of the Indenture;
(2) the release or discharge of such Guarantor from the guarantee of Indebtedness that resulted in the obligation of such Guarantor to guarantee the Notes (including the Senior Credit Facilities), except as a result of payment under such guarantee;
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(3) the proper designation of any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary; or
(4) the Issuer exercising its legal defeasance option or covenant defeasance option as described under Legal Defeasance and Covenant Defeasance or the Issuers obligations under the Indenture being discharged in accordance with the terms of the Indenture.
Upon request of the Issuer, the Trustee shall evidence such release by a supplemental indenture or other instrument which may be executed by the Trustee without the consent of any Holder; provided that the Issuer has delivered to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for in the Indenture relating to such release have been complied with.
Ranking
The payment of the principal of, premium, if any, and interest on the Notes and the payment of any Guarantee will rank pari passu in right of payment with all existing and future Indebtedness and all other obligations (other than Subordinated Indebtedness) of the Issuer or the relevant Guarantor, as the case may be, including the obligations of the Issuer and such Guarantor under the Senior Credit Facilities.
The Notes will be effectively subordinated to all existing and future Secured Indebtedness of the Issuer and each Guarantor, including Secured Indebtedness under the Senior Credit Facilities, to the extent of the value of the assets securing such Indebtedness, and will be structurally subordinated to all Indebtedness and other liabilities of the Subsidiaries that will not guarantee the Notes. As of March 31, 2015, the Issuer had $635 million of Indebtedness on a consolidated basis (including the Notes offered hereby), of which $385 million was Secured Indebtedness.
Although the Indenture will contain limitations on the amount of additional Indebtedness that the Issuer and the Guarantors may incur, the amount of such Indebtedness could be substantial, and such additional Indebtedness may be Secured Indebtedness. See Certain CovenantsLimitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock.
Paying Agent and Registrar for the Notes
The Issuer will maintain one or more paying agents for the Notes in the Borough of Manhattan, City of New York. The initial paying agent for the Notes will be the Trustee.
The Issuer will also maintain a registrar with offices in the Borough of Manhattan, City of New York. The initial registrar will be the Trustee. The registrar will maintain a register reflecting ownership of the Notes outstanding from time to time and will and facilitate transfer of Notes on behalf of the Issuer.
The Issuer may change the paying agents or the registrars without prior notice to the Holders. The Issuer or any of its Subsidiaries may act as a paying agent or registrar.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the Indenture. The registrar and the Trustee may require a Holder to, among other things, furnish appropriate endorsements and transfer documents in connection with a transfer of Notes. No service charge will be imposed by the Issuer, the registrar or the Trustee for any registration of transfer or exchange of a Note, but the Holders will be required to pay all taxes due on transfer. The Issuer is not required to transfer or exchange any Note selected for redemption or tendered (and not withdrawn) for repurchase in connection with a Change of Control Offer or an Asset Sale Offer. Also, the Issuer is not required to issue, transfer or exchange any Note for a period of 15 days before the sending or mailing of a notice of redemption of Notes to be redeemed. The registered Holder of a Note will be treated as the owner of it for all purposes.
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Principal, Maturity and Interest
The Issuer is offering to exchange an aggregate principal amount of $250.0 million of new notes for all $250.0 million aggregate principal amount of the old notes. The Notes will mature on October 15, 2022. Subject to compliance with the covenant described below under the caption Certain CovenantsLimitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock, the Issuer may issue additional Notes (the Additional Notes ) from time to time after this offering under the Indenture. The Notes and any Additional Notes subsequently issued under the Indenture will be treated as a single class for all purposes under the Indenture, including waivers, amendments, redemptions and offers to purchase. Unless the context requires otherwise, references to Notes for all purposes of the Indenture and this Description of New Notes include any Additional Notes that are actually issued; provided that Additional Notes will not be issued with the same CUSIP, if any, as existing Notes unless such Additional Notes are fungible with existing Notes for U.S. federal income tax purposes. The Issuer will issue the Notes in minimum denominations of $2,000 and integral multiples of $1,000 in excess of $2,000.
Interest will accrue on the Notes at a rate per annum equal to 6.25% from the Issue Date, or from the most recent date to which interest has been paid or provided for. Interest will be payable semiannually in arrears using a 360-day year comprised of twelve 30-day months in cash to Holders of record at the close of business on the April 1 or October 1 immediately preceding the interest payment date, on April 15 and October 15 of each year, commencing April 15, 2015. At maturity, the Issuer will pay accrued and unpaid interest from the most recent date to which interest has been paid or provided for.
No Sinking Fund Payments; Offers to Purchase; Open Market Purchases
The Issuer is not required to make any sinking fund payments with respect to the Notes. However, under certain circumstances, the Issuer may be required to offer to purchase Notes as described under the caption Repurchase at the Option of Holders. We may at any time and from time to time purchase Notes in the open market or otherwise.
Optional Redemption
At any time prior to October 15, 2017, the Issuer may on any one or more occasions redeem all or a part of the Notes upon not less than 30 nor more than 60 days prior notice, at a redemption price equal to 100% of the principal amount of the Notes redeemed, plus the Applicable Premium as of the date of redemption (the Redemption Date ), and, without duplication, accrued and unpaid interest, if any, to, but excluding, the Redemption Date, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date.
On and after October 15, 2017, the Issuer may redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days prior notice, at the redemption prices (expressed as percentages of principal amount of the Notes to be redeemed) set forth below, plus accrued and unpaid interest thereon, if any, to, but excluding, the applicable Redemption Date, subject to the right of Holders on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the twelve-month period beginning on October 15 of each of the years indicated below:
Year |
Percentage | |||
2017 |
104.688 | % | ||
2018 |
103.125 | % | ||
2019 |
101.563 | % | ||
2020 and thereafter |
100.000 | % |
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In addition, until October 15, 2017, the Issuer may, at its option, upon not less than 30 nor more than 60 days prior notice, on one or more occasions, redeem up to 35% of the aggregate principal amount of the Notes issued by it at a redemption price equal to 106.250% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to, but excluding, the applicable Redemption Date, subject to the right of Holders on the relevant record date to receive interest due on the relevant interest payment date, with an amount of cash not greater than the net cash proceeds of one or more Equity Offerings; provided that at least 65% of the aggregate principal amount of Notes originally issued under the Indenture remains outstanding immediately after the occurrence of each such redemption; provided further that each such redemption occurs within 180 days of the date of closing of each such Equity Offering.
The Issuer and its affiliates may acquire Notes by means other than a redemption, whether by tender offer, open market purchases, negotiated transactions or otherwise, in accordance with applicable securities laws, so long as such acquisition does not otherwise violate the terms of the Indenture.
Notice of any redemption upon any Equity Offering may be given prior to such Equity Offering, and any such redemption or notice may, at the Issuers discretion, be subject to completion of the related Equity Offering and other conditions as described under Selection and Notice.
The Trustee shall select the Notes to be purchased in the manner described under Selection and Notice.
Repurchase at the Option of Holders
Change of Control
The Notes will provide that if a Change of Control Repurchase Event occurs after the Issue Date, unless the Issuer has previously or concurrently mailed, or delivered by electronic transmission, a redemption notice with respect to all the outstanding Notes as described under Optional Redemption, the Issuer will make an offer to purchase all of the Notes pursuant to the offer described below (the Change of Control Offer ) at a price in cash (the Change of Control Payment ) equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to, but excluding, the date of purchase, subject to the right of Holders of the Notes of record on the relevant record date to receive interest due on the relevant interest payment date. Within 30 days following any Change of Control Repurchase Event, unless the Issuer has previously or concurrently mailed, or delivered by electronic transmission, a redemption notice with respect to all the outstanding Notes as described under Optional Redemption, the Issuer will send notice of such Change of Control Offer by first-class mail or electronically, with a copy to the Trustee, to each Holder of Notes to the address of such Holder appearing in the security register or otherwise in accordance with the procedures of The Depository Trust Company, with the following information:
(1) | that a Change of Control Offer is being made pursuant to the covenant entitled Change of Control, and that all Notes properly tendered pursuant to such Change of Control Offer will be accepted for payment by the Issuer; |
(2) | the purchase price and the purchase date, which will, subject to clause (8) below, be no earlier than 30 days nor later than 60 days from the date such notice is mailed (the Change of Control Payment Date ); |
(3) | that any Note not properly tendered will remain outstanding and continue to accrue interest; |
(4) | that unless the Issuer defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest on the Change of Control Payment Date; |
(5) |
that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender such Notes, with the form entitled Option of Holder to Elect Purchase on |
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the reverse of such Notes completed, to the paying agent specified in the notice at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; |
(6) | that Holders will be entitled to withdraw their tendered Notes and their election to require the Issuer to purchase such Notes; provided that the paying agent receives, not later than the close of business on the third Business Day preceding the Change of Control Payment Date, facsimile transmission or letter setting forth the name of the Holder of the Notes, the principal amount of Notes tendered for purchase, and a statement that such Holder is withdrawing its tendered Notes and its election to have such Notes purchased; |
(7) | that if the Holders tender less than all of the Notes, the Holders of the remaining Notes will be issued new Notes and such new Notes will be equal in principal amount to the unpurchased portion of the Notes surrendered. The unpurchased portion of the Notes must be equal to $2,000 or an integral multiple of $1,000 in excess thereof; |
(8) | if such notice is delivered prior to the occurrence of a Change of Control, stating that the Change of Control Offer is conditional on the occurrence of such Change of Control, and if applicable, shall state that, in the Issuers discretion, the Change of Control Payment Date may be delayed until such time as the Change of Control shall occur, or that such redemption may not occur and such notice may be rescinded in the event that the Issuer shall determine that such condition will not be satisfied by the Change of Control Payment Date or by the Change of Control Payment as so delayed; and |
(9) | the other instructions, as determined by the Issuer, consistent with the covenant described hereunder, that a Holder must follow. |
The Issuer will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws or regulations are applicable in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the Indenture, the Issuer will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in the Indenture by virtue thereof.
On the Change of Control Payment Date, the Issuer will, to the extent permitted by law,
(1) | accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer; |
(2) | deposit with the paying agent no later than 10:00 am New York time on the due date an amount equal to the aggregate Change of Control Payment in respect of all Notes or portions thereof so tendered; and |
(3) | deliver, or cause to be delivered, to the Trustee for cancellation the Notes so accepted together with an Officers Certificate to the Trustee stating that such Notes or portions thereof have been tendered to and purchased by the Issuer. |
The Senior Credit Facilities provide, and future credit agreements, indentures or other agreements relating to Indebtedness to which the Issuer becomes a party may provide, that certain change of control events with respect to the Issuer (including a Change of Control under the Indenture) constitutes a default thereunder. If the Issuer experiences a change of control that triggers a default under such agreements related to such Indebtedness, the Issuer could seek a waiver of such default or seek to refinance the Indebtedness that contain such prohibition. In the event the Issuer does not obtain such a waiver or refinance such Indebtedness, such default could result in amounts outstanding under such Indebtedness being declared due and payable.
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The Issuers ability to pay cash to the Holders of Notes following the occurrence of a Change of Control Repurchase Event may be limited by the Issuers then-existing financial resources. Therefore, sufficient funds may not be available when necessary to make any required repurchases.
The Change of Control purchase feature of the Notes may in certain circumstances make more difficult or discourage a sale or takeover of the Issuer and, thus, the removal of incumbent management. The Change of Control purchase feature is a result of negotiations between the Initial Purchasers and the Issuer. The Issuer has no present intention to engage in a transaction involving a Change of Control after the Issue Date, although it is possible that they could decide to do so in the future. Subject to the limitations discussed below, the Issuer could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect the Issuers capital structure or credit ratings. Restrictions on the Issuers ability to incur additional Indebtedness are contained in the covenants described under Certain CovenantsLimitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock and Certain CovenantsLiens. Such restrictions in the Indenture can be waived only with the consent of the Holders of a majority in principal amount of the Notes then outstanding. Except for the limitations contained in such covenants, however, the Indenture will not contain any covenants or provisions that may afford Holders of the Notes protection in the event of a highly leveraged transaction.
The Issuer will not be required to make a Change of Control Offer following a Change of Control Repurchase Event if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Issuer and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. Notwithstanding anything to the contrary herein, a Change of Control Offer may be made in advance of a Change of Control, conditional upon such Change of Control, if a definitive agreement is in place for the Change of Control at the time of making of the Change of Control Offer.
Notes repurchased by the Issuer pursuant to a Change of Control Offer will have the status of Notes issued but not outstanding or will be retired and canceled at the option of the Issuer. Notes purchased by a third party pursuant to the preceding paragraph will have the status of Notes issued and outstanding unless transferred to the Issuer.
The definition of Change of Control includes a disposition of all or substantially all of the assets of the Issuer to any Person. Although there is a limited body of case law interpreting the phrase substantially all, there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve a disposition of all or substantially all of the assets of the Issuer. As a result, it may be unclear as to whether a Change of Control has occurred and whether a Holder of Notes may require the Issuer to make an offer to repurchase the Notes as described above.
The provisions under the Indenture relating to the Issuers obligation to make an offer to repurchase the Notes as a result of a Change of Control Repurchase Event may be waived or modified with the written consent of the Holders of a majority in principal amount of the Notes.
In the event that Holders of not less than 90% in aggregate principal amount of the outstanding Notes accept a Change of Control Offer and the Issuer (or any third party making such Change of Control Offer in lieu of the Issuer as described above) purchases all of the Notes held by such Holders, the Issuer will have the right, upon notice as provided in the Indenture, given not more than 30 days following the purchase pursuant to the Change of Control Offer described above, to redeem all of the Notes that remain outstanding following such purchase at a redemption price equal to the Change of Control Payment, plus , to the extent not included in the Change of Control Payment, accrued and unpaid interest, if any, on the Notes that remain outstanding, to, but excluding, the date of redemption, subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date.
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For the avoidance of doubt, the Indenture provides that the Separation and Distribution shall not constitute a Change of Control or an Asset Sale under the Indenture.
Asset Sales
The Indenture provides that the Issuer will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale, unless:
(1) the Issuer or any such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by the Issuer) of the assets sold or otherwise disposed of; and
(2) in the Issuers good faith determination, at least 75% of the consideration therefor received by the Issuer or any such Restricted Subsidiary, as the case may be, is in the form of (i) cash or Cash Equivalents, (ii) Related Business Assets or (iii) any combination of the consideration specified in clauses (i) and (ii); provided that the amount of:
(a) any liabilities (as shown on the Issuers most recent consolidated balance sheet or in the footnotes thereto, or if incurred or accrued subsequent to the date of such balance sheet, such liabilities that would have been reflected on the Issuers consolidated balance sheet or in the footnotes thereto if such incurrence or accrual had taken place on or prior to the date of such balance sheet, as determined in good faith by the Issuer) of the Issuer or such Restricted Subsidiary (other than Contingent Obligations and liabilities that are by their terms subordinated to the Notes or any Guarantee) that are assumed by the transferee of any such assets (or are otherwise extinguished by the transferee in connection with the transactions relating to such Asset Sale) and for which the Issuer and all such Restricted Subsidiaries have been released,
(b) any notes or other obligations or securities received by the Issuer or such Restricted Subsidiary from such transferee that are converted by the Issuer or such Restricted Subsidiary into cash or Cash Equivalents, or by their terms are required to be satisfied for cash or Cash Equivalents (to the extent of the cash or Cash Equivalents received), in each case, within 180 days following the closing of such Asset Sale, and
(c) any Designated Non-cash Consideration received by the Issuer or such Restricted Subsidiary in such Asset Sale having an aggregate fair market value (as determined in good faith by the Issuer), taken together with all other Designated Non-cash Consideration received pursuant to this clause (c) since the Issue Date that is at that time outstanding (but, to the extent that any such Designated Non-Cash Consideration is sold or otherwise liquidated for cash, minus the lesser of (i) the amount of the cash received (less the cost of disposition, if any) and (ii) the initial amount of such Designated Non-Cash Consideration) not to exceed the greater of (x) $50.0 million and (y) 2.0% of Total Assets, with the fair market value (as determined in good faith by the Issuer) of each item of Designated Non-cash Consideration being measured at the time received and without giving effect to subsequent changes in value,
shall be deemed to be cash for purposes of this provision and for no other purpose.
Within 365 days after the receipt of any Net Proceeds of any Asset Sale, the Issuer or such Restricted Subsidiary, at its option, may apply the Net Proceeds from such Asset Sale,
(1) | to permanently reduce: |
(a) Obligations under one or more Credit Facilities and to correspondingly reduce commitments with respect thereto,
(b) Obligations under Pari Passu Indebtedness that is secured by a Lien, which Lien is permitted by the Indenture, and to correspondingly reduce commitments with respect thereto,
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(c) Obligations under the Notes (provided that such purchases are at or above 100% of the principal amount thereof) or any other Pari Passu Indebtedness of the Issuer or a Guarantor (and to correspondingly reduce commitments with respect thereto, if applicable); provided that if such Net Proceeds are applied to other Pari Passu Indebtedness (other than the Senior Credit Facilities or other Secured Indebtedness) then the Issuer shall (i) equally and ratably (based on the aggregate principal amount (or accreted value, as applicable)) reduce Obligations under the Notes (x) as provided under Optional Redemption or (y) through open market purchases (provided that such purchases are at or above 100% of the principal amount thereof) or (ii) make an offer (in accordance with the procedures set forth below for an Asset Sale Offer) to all Holders of Notes to purchase their Notes at 100% of the principal amount thereof, plus the amount of accrued but unpaid interest, if any, on the principal amount of Notes that would otherwise be redeemed under clause (i), or
(d) Indebtedness of a Non-Guarantor Subsidiary, other than Indebtedness owed to the Issuer or another Restricted Subsidiary; or
(2) to (a) make an Investment in any one or more businesses; provided that such Investment in any business is in the form of the acquisition of Capital Stock and results in the Issuer or one of its Restricted Subsidiaries, as the case may be, owning an amount of the Capital Stock of such business such that it constitutes a Restricted Subsidiary, (b) acquire properties (other than working capital), (c) make capital expenditures or (d) acquire other assets (other than working capital) that, in the case of each of (a), (b), (c) and (d) are either (x) used or useful in a Similar Business or (y) replace the businesses, properties and/or assets that are the subject of such Asset Sale;
provided that, in the case of clause (2) above, a binding commitment shall be treated as a permitted application of the Net Proceeds from the date of such commitment so long as the Issuer or such other Restricted Subsidiary enters into such commitment with the good faith expectation that such Net Proceeds will be applied to satisfy such commitment within 180 days of such commitment (an Acceptable Commitment); and provided further that if any Acceptable Commitment is later cancelled or terminated for any reason before such Net Proceeds are applied, then such Net Proceeds shall constitute Excess Proceeds; or
(3) | any combination of the foregoing. |
Any Net Proceeds from an Asset Sale that are not invested or applied as provided and within the time period set forth in the first sentence of the preceding paragraph (it being understood that any portion of such Net Proceeds used to make an offer to purchase Notes, as described in clause (1) above, shall be deemed to have been invested whether or not such offer is accepted) will be deemed to constitute Excess Proceeds. When the aggregate amount of Excess Proceeds exceeds $25.0 million, the Issuer or any other Restricted Subsidiary shall make an offer to all Holders of the Notes and, if required by the terms of any Pari Passu Indebtedness, to the holders of such Pari Passu Indebtedness (an Asset Sale Offer ) to purchase the maximum aggregate principal amount (or accreted value, as applicable) of the Notes in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof and such Pari Passu Indebtedness that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof (or accreted value, as applicable), plus accrued and unpaid interest, if any (or, in respect of such Pari Passu Indebtedness, such lesser price, if any, as may be provided for or permitted by the terms of such Pari Passu Indebtedness), to, but excluding, the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture.
The Issuer will commence an Asset Sale Offer with respect to Excess Proceeds within ten Business Days after the date that Excess Proceeds exceed $25.0 million by electronically delivering or mailing the notice required pursuant to the terms of the Indenture, with a copy to the Trustee.
To the extent that the aggregate principal amount (or accreted value, as applicable) of Notes and such Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Issuer may use any remaining Excess Proceeds for general corporate purposes, subject to the other covenants contained in
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the Indenture, and they will no longer constitute Excess Proceeds. If the aggregate amount (determined as above) of Notes and the Pari Passu Indebtedness surrendered in an Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the Notes (in accordance with customary procedures) and the Issuer shall select such Pari Passu Indebtedness to be purchased (a) if the Notes or such Pari Passu Indebtedness are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes or such Pari Passu Indebtedness, as applicable, are tendered or (b) by lot or such similar method in accordance with the procedures of The Depository Trust Company, unless otherwise required by law; provided that no Notes of $2,000 or less shall be repurchased in part. Upon completion of any such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
Pending the final application of any Net Proceeds pursuant to this covenant, the holder of such Net Proceeds may apply such Net Proceeds temporarily to reduce Indebtedness outstanding under a revolving credit facility or otherwise invest such Net Proceeds in any manner not prohibited by the Indenture.
The Issuer will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws or regulations are applicable in connection with the repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the Indenture, the Issuer will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in the Indenture by virtue thereof.
The provisions under the Indenture relating to the Issuers obligation to make an Asset Sale Offer may be waived or modified with the written consent of the Holders of a majority in principal amount of the Notes.
Selection and Notice
If the Issuer is redeeming less than all of the Notes at any time, the Trustee will select the Notes to be redeemed (a) on a pro rata basis to the extent practicable or (b) by lot or such other similar method, in each case in accordance with the procedures of The Depository Trust Company, unless otherwise required by law; provided that no Notes of $2,000 or less shall be redeemed or repurchased in part.
Notices of purchase or redemption shall be sent electronically in PDF format or mailed by first-class mail, postage prepaid, at least 30 but not more than 60 days before the purchase or redemption date to each Holder of Notes at such Holders registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of the Indenture. If any Note is to be purchased or redeemed in part only, any notice of purchase or redemption that relates to such Note shall state the portion of the principal amount thereof that has been or is to be purchased or redeemed.
The Issuer will issue a new Note in a principal amount equal to the unredeemed portion of the original Note in the name of the Holder upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the Redemption Date, interest ceases to accrue on Notes or portions of them called for redemption. Redemption amounts shall only be paid upon presentation and surrender of any such Notes to be redeemed. Payment of the redemption price and performance of the Issuers obligations in connection with any redemption may be performed by another Person.
In connection with any redemption of Notes (including with funds in an equal aggregate amount not exceeding the net cash proceeds of an Equity Offering), any such redemption may, at the Issuers discretion, be subject to one or more conditions precedent, including any related Equity Offering. In addition, if such redemption or notice is subject to satisfaction of one or more conditions precedent, such notice shall state that, in the Issuers discretion, the redemption date may be delayed until such time as any or all such conditions shall be satisfied, or such redemption may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied by the redemption date, or by the redemption date so delayed.
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Certain Covenants
Set forth below are summaries of certain covenants that are contained in the Indenture.
Covenant Termination
If on any date following the Escrow Release Date (i) the Notes have Investment Grade Ratings from both of the Rating Agencies, (ii) no Default or Event of Default under the Indenture has occurred and is continuing and (iii) the Issuer has delivered an Officers Certificate to the Trustee certifying that the conditions set forth in clauses (i) and (ii) above are satisfied (the occurrence of the events described in the foregoing clauses (i), (ii) and (iii) being collectively referred to as a Covenant Termination Event), the Issuer and its Restricted Subsidiaries will no longer be subject to, and will be permanently released from their obligations under, the following provisions of the Indenture:
(1) Repurchase at the Option of HoldersAsset Sales;
(2) Certain CovenantsLimitation on Restricted Payments;
(3) Certain CovenantsLimitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock;
(4) clause (4) of the first paragraph of Certain CovenantsMerger, Consolidation or Sale of All or Substantially All Assets;
(5) Certain CovenantsTransactions with Affiliates;
(6) Certain CovenantsDividend and Other Payment Restrictions Affecting Restricted Subsidiaries; and
(7) Certain CovenantsBusiness Activities;
and no failure by the Issuer or any Subsidiary to comply with any of the foregoing provisions shall constitute a Default or Event of Default under the Indenture.
There can be no assurance that the Notes will ever achieve or maintain Investment Grade Ratings.
Limitation on Restricted Payments
The Issuer will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:
(I) declare or pay any dividend or make any payment or distribution on account of the Issuers or any of its Restricted Subsidiaries Equity Interests, including any dividend or distribution payable in connection with any merger or consolidation other than:
(a) dividends, payments or distributions payable by the Issuer in Equity Interests (other than Disqualified Stock) of the Issuer; or
(b) dividends, payments or distributions by a Restricted Subsidiary so long as, in the case of any dividend, payment or distribution payable on or in respect of any class or series of securities issued by a Restricted Subsidiary other than a Wholly Owned Subsidiary, the Issuer or a Restricted Subsidiary receives at least its pro rata share of such dividend, payment or distribution in accordance with its Equity Interests in such class or series of securities;
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(II) purchase, redeem, defease or otherwise acquire or retire for value any Equity Interests of the Issuer, including in connection with any merger or consolidation;
(III) make any principal payment on, or redeem, repurchase, defease or otherwise acquire or retire for value, in each case prior to any scheduled repayment, sinking fund payment or maturity, any Subordinated
Indebtedness other than the payment, redemption, repurchase, defeasance, acquisition or retirement of:
(a) Indebtedness permitted under clause (7) of the covenant described under Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock; or
(b) Subordinated Indebtedness in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, redemption, repurchase, defeasance, acquisition or retirement; or
(IV) make any Restricted Investment
(all such payments and other actions set forth in clauses (I) through (IV) above being collectively referred to as Restricted Payments ), unless, at the time of such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof;
(2) immediately after giving effect to such transaction on a pro forma basis, the Issuer could incur $1.00 of additional Indebtedness pursuant to the Consolidated Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described under Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock; and
(3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Issuer and its Restricted Subsidiaries (and not rescinded or refunded) after the Issue Date (including Restricted Payments permitted by clauses (1) and (9) of the next paragraph, but excluding all other Restricted Payments permitted by the next paragraph), is less than the sum of (without duplication):
(a) the sum of (x) $25 million and (y) 50% of the Consolidated Net Income of the Issuer for the period (taken as one accounting period) beginning from October 1, 2014 to the end of the Issuers most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit); plus
(b) 100% of the aggregate net cash proceeds and the fair market value, as determined in good faith by the Issuer, of marketable securities or other property received by the Issuer since immediately after the Issue Date from the issue or sale of:
(i) Equity Interests of the Issuer, but excluding cash proceeds and the fair market value, as determined in good faith by the Issuer, of marketable securities or other property received from the sale of Equity Interests to employees, officers, managers, directors or consultants of the Issuer after the Issue Date to the extent such amounts have been applied to Restricted Payments made in accordance with clause (4) of the next paragraph; and
(ii) Indebtedness or Disqualified Stock of the Issuer or a Restricted Subsidiary that has been converted into or exchanged for Equity Interests of the Issuer;
provided, however, that this clause (b) shall not include the proceeds from (w) the issuance or sale of Equity Interests or the fair market value of any assets received by the Issuer or any Restricted Subsidiary in connection with the Transactions, (x) Refunding Capital Stock (as defined below), (y) Equity Interests, Indebtedness or
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Disqualified Stock of the Issuer sold to a Restricted Subsidiary or the Issuer or (z) Disqualified Stock or Indebtedness that has been converted or exchanged into Disqualified Stock; plus
(c) 100% of the aggregate amount of cash and the fair market value, as determined in good faith by the Issuer, of marketable securities or other property contributed to the capital of the Issuer following the Issue Date (other than (i) by a Restricted Subsidiary or the Issuer or (ii) the fair market value of any assets received by the Issuer or any Restricted Subsidiary in connection with the Transactions); plus
(d) 100% of the aggregate amount received in cash and the fair market value of marketable securities or other property received by means of:
(i) the sale or other disposition (other than to the Issuer or a Restricted Subsidiary) of Restricted Investments made by the Issuer or its Restricted Subsidiaries and repurchases and redemptions of such Restricted Investments from the Issuer or its Restricted Subsidiaries and repayments of loans or advances, and releases of guarantees, which constitute Restricted Investments by the Issuer or its Restricted Subsidiaries, in each case after the Issue Date; or
(ii) the sale (other than to the Issuer or a Restricted Subsidiary) of the stock of an Unrestricted Subsidiary (other than to the extent the Investment in such Unrestricted Subsidiary constituted a Permitted Investment) or a dividend or distribution from an Unrestricted Subsidiary after the Issue Date (other than to the extent the Investment in such Unrestricted Subsidiary constituted a Permitted Investment)
in the case of either clause (i) or (ii) of this paragraph (d), except to the extent any such amount was already included in the calculation of Consolidated Net Income; plus
(e) in the case of the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary after the Issue Date, the fair market value of the Investment in such Unrestricted Subsidiary (as determined by the Issuer in good faith) at the time of the redesignation of such Unrestricted Subsidiary as a Restricted Subsidiary other than an Unrestricted Subsidiary to the extent the Investment in such Unrestricted Subsidiary constituted a Permitted Investment.
The foregoing provisions will not prohibit:
(1) the payment of any dividend or distribution or the consummation of any irrevocable redemption within 60 days after the date of declaration thereof or the giving of such irrevocable notice, as applicable, if at the date of declaration or the giving of such notice such payment would have complied with the provisions of the Indenture;
(2) the purchase, redemption, repurchase, defeasance, retirement or other acquisition of any Equity Interests of the Issuer, or of Subordinated Indebtedness of the Issuer or any Guarantor, in exchange for, or out of the proceeds of the substantially concurrent issuance or sale (other than to a Restricted Subsidiary or to an employee stock ownership plan or any trust established by the Issuer or any Restricted Subsidiary) of, Equity Interests of the Issuer (other than Disqualified Stock) (collectively, the Refunding Capital Stock );
(3) the purchase, redemption, defeasance, repurchase or other acquisition or retirement of (x) Subordinated Indebtedness of the Issuer or a Guarantor made in exchange for, or out of the proceeds of the substantially concurrent incurrence of, new Indebtedness of the Issuer or a Guarantor, as the case may be, or (y) Disqualified Stock of the Issuer or any Guarantor in exchange for, or out of the proceeds of the substantially concurrent issuance of Disqualified Stock of the Issuer or any Guarantor, in each case which is incurred or issued in compliance with Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock so long as:
(a) the principal amount (or accreted value, if applicable) of such new Indebtedness or the liquidation preference of such new Disqualified Stock does not exceed the principal amount of (or accreted value,
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if applicable), plus any accrued and unpaid interest on, the Subordinated Indebtedness or the liquidation preference of, plus any accrued and unpaid dividends on, the Disqualified Stock, as applicable, being so purchased, redeemed, defeased, repurchased, acquired or retired, plus the amount of any premium required to be paid under the terms of the instrument governing the Subordinated Indebtedness or Disqualified Stock being so purchased, redeemed, defeased, repurchased, acquired or retired and any fees and expenses incurred in connection with the issuance of such new Indebtedness or Disqualified Stock;
(b) such new Indebtedness is subordinated to the Notes or the applicable Guarantee at least to the same extent as such Subordinated Indebtedness so purchased, redeemed, defeased, repurchased, acquired or retired for value;
(c) such new Indebtedness or Disqualified Stock has a final scheduled maturity date equal to or later than (i) the final scheduled maturity date of the Subordinated Indebtedness or Disqualified Stock being so purchased, redeemed, defeased, repurchased, acquired or retired or (ii) the date that is six months after the maturity date of the Notes; and
(d) such new Indebtedness or Disqualified Stock has a Weighted Average Life to Maturity equal to or greater than the remaining Weighted Average Life to Maturity of the Subordinated Indebtedness or Disqualified Stock being so purchased, redeemed, defeased, repurchased, acquired or retired;
(4) a Restricted Payment to pay for the repurchase, retirement or other acquisition or retirement for value of Equity Interests (other than Disqualified Stock) of the Issuer held by any future, present or former employee, officer, manager, director or consultant of the Issuer or any of its Subsidiaries pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement, or any stock subscription or shareholder agreement, or other similar arrangement; provided , however , that the aggregate Restricted Payments made under this clause (4) do not exceed in any calendar year $15.0 million (with unused amounts in any calendar year being carried over for one additional calendar year); provided further that such amount in any calendar year may be increased by an amount not to exceed:
(a) the cash proceeds from the sale of Equity Interests (other than Disqualified Stock) of the Issuer to employees, officers, managers, directors or consultants of the Issuer or any of its Subsidiaries that occurs after the Issue Date, to the extent the cash proceeds from the sale of such Equity Interests have not otherwise been applied to the payment of Restricted Payments by virtue of clause (3) of the first paragraph of this covenant; plus
(b) the cash proceeds of key man life insurance policies received by the Issuer or any of its Restricted Subsidiaries after the Issue Date; less
(c) the amount of any Restricted Payments previously made with the cash proceeds described in clauses (a) and (b) of this clause (4);
and provided further that cancellation of Indebtedness owing to the Issuer or any Restricted Subsidiary from employees, officers, managers, directors or consultants of the Issuer or any of the Issuers Restricted Subsidiaries in connection with a repurchase of Equity Interests of the Issuer will not be deemed to constitute a Restricted Payment for purposes of this covenant or any other provision of the Indenture;
(5) purchases, redemptions, repurchases or other acquisitions of Equity Interests deemed to occur
(i) upon exercise of stock options, stock appreciation rights, warrants or similar rights if such Equity Interests represent a portion of the exercise price of such options, stock appreciation rights or warrants or
(ii) for purposes of satisfying any federal, state or local income tax obligation (including any required tax withholding obligation) upon the exercise or vesting of a grant or award that was granted or awarded to an employee;
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(6) other Restricted Payments in an aggregate amount taken together with all other Restricted Payments made pursuant to this clause (6) not to exceed the greater of (x) $125.0 million and (y) 5.0% of Total Assets;
(7) distributions or payments of Receivables Fees;
(8) any Restricted Payment used to fund and effect the Transactions;
(9) the repurchase, redemption, defeasance or other acquisition or retirement for value of any Subordinated Indebtedness pursuant to the provisions similar to those described under the captions Repurchase at the Option of HoldersChange of Control and Repurchase at the Option of HoldersAsset Sales; provided that prior to any such repurchase, redemption, defeasance or other acquisition or retirement for value, all Notes tendered by Holders in connection with a Change of Control Offer or Asset Sale Offer, as applicable, have been repurchased, redeemed or acquired for value;
(10) the repurchase, redemption or other acquisition for value of Equity Interests of the Issuer deemed to occur in connection with paying cash in lieu of fractional shares of such Equity Interests in connection with a share dividend, distribution, share split, reverse share split, merger, consolidation, amalgamation or other business combination of the Issuer or its Subsidiaries, in each case, permitted under the Indenture;
(11) the distribution, by dividend or otherwise, of shares of Capital Stock of, or Indebtedness owed to the Issuer or a Restricted Subsidiary by, Unrestricted Subsidiaries (other than Unrestricted Subsidiaries, the primary assets of which are cash and/or Cash Equivalents);
(12) for any taxable period in which the taxable income of the Issuer and/or any of its Subsidiaries is included in a consolidated, combined or similar income tax group of which a direct or indirect parent of the Issuer is the common parent (a Tax Group ), an amount not to exceed the tax liabilities that the Issuer and the applicable Subsidiaries, in the aggregate, would have been required to pay in respect of such taxable income if such entities were a standalone group of corporations separate from such Tax Group (it being understood and agreed that, if Issuer or any Subsidiary pays any portion of such tax liabilities directly to any taxing authority, a Restricted Payment in duplication of such amount shall not be permitted to be made pursuant to this clause (12)); provided that, from and after the execution of the Tax Matters Agreement and while such agreement remains in effect, payments in respect of any taxes pursuant to this clause (12) shall not exceed the amounts required to be paid in respect of such taxes pursuant to such agreement;
(13) the declaration and payment of regularly scheduled or accrued dividends to holders of any class or series of Disqualified Stock of the Issuer or any Restricted Subsidiary or Preferred Stock of any Restricted Subsidiaries issued or incurred in accordance with the covenant described under Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock;
(14) payments of cash, or dividends, distributions or advances by the Issuer or any Restricted Subsidiary to allow the payment of cash in lieu of the issuance of fractional shares upon the exercise of options or warrants or upon the conversion or exchange of Capital Stock of any such Person;
(15) mandatory redemptions or repurchases of Disqualified Stock the issuance of which itself constituted a Restricted Payment or Permitted Investment otherwise permissible hereunder;
(16) the making of any Restricted Payments if, at the time of the making of such payments, and after giving pro forma effect thereto (including, without limitation, the incurrence of any Indebtedness to finance such payment), the Consolidated Total Leverage Ratio would not exceed 1.50 to 1.00; and
(17) the declaration and payment of dividends on the Issuers common Equity Interests, not to exceed $30.0 million in any calendar year;
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provided , however , that at the time of, and after giving effect to, any Restricted Payment permitted under clauses (6), (11) or (16), no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof.
As of the Issue Date, all of the Issuers Subsidiaries were Restricted Subsidiaries. The Issuer will not permit any Unrestricted Subsidiary to become a Restricted Subsidiary except pursuant to the last two sentences of the definition of Unrestricted Subsidiary. For purposes of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by the Issuer and its Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so designated will be deemed to be an Investment in an amount determined as set forth in the definition of Investment. Such designation will be permitted only if an Investment in such amount would be permitted at such time, whether as a Restricted Payment or a Permitted Investment, and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Unrestricted Subsidiaries will not be subject to any of the covenants set forth in the Indenture.
In the event that a Restricted Payment or Permitted Investment meets the criteria of more than one of the types of Restricted Payments described in the above clauses (including, without limitation, the first paragraph of this covenant) or Permitted Investment described in the definition thereof, the Issuer and its Restricted Subsidiaries, in their sole discretion, may divide, classify or reclassify all or any portion of such Restricted Payment or Permitted Investment in any manner that complies with this covenant and such Restricted Payment or Permitted Investment shall be treated as having been made pursuant to only the clause or clauses of this covenant or of the definition of Permitted Investment to which such Restricted Payment or Permitted Investment has been classified or reclassified; except that the Issuer may not reclassify any Restricted Payments as having been made under clause (16) of the second paragraph of this covenant if originally made under any other clause of the second paragraph of this covenant or under the first paragraph of this covenant.
Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock
The Issuer will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently, or otherwise (collectively, incur and collectively, an incurrence) with respect to any Indebtedness (including Acquired Indebtedness) and the Issuer will not issue any shares of Disqualified Stock and will not permit any Restricted Subsidiary to issue any shares of Disqualified Stock or Preferred Stock; provided , however , that the Issuer may incur Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified Stock, and any Restricted Subsidiary may incur Indebtedness (including Acquired Indebtedness), issue shares of Disqualified Stock and issue shares of Preferred Stock, if the Consolidated Fixed Charge Coverage Ratio at the time such additional Indebtedness is incurred or such Disqualified Stock or Preferred Stock is issued would have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock or Preferred Stock had been issued, as the case may be, and the application of proceeds therefrom had occurred at the beginning of the most recently ended four fiscal quarters for which internal financial statements are available; provided further , however , that Restricted Subsidiaries that are not Guarantors may not incur Indebtedness or issue Disqualified Stock or Preferred Stock if, after giving pro forma effect to such incurrence or issuance, the aggregate amount of Indebtedness or Disqualified Stock or Preferred Stock of Restricted Subsidiaries that are not Guarantors outstanding pursuant to this paragraph and clause (17) of the next succeeding paragraph would exceed the greater of (x) 100.0 million and (y) 4.0% of Total Assets determined at the time of incurrence.
The foregoing limitations will not apply to:
(1) the incurrence of Indebtedness under Credit Facilities by the Issuer or any of its Restricted Subsidiaries and the issuance and creation of letters of credit and bankers acceptances thereunder (with letters of credit and bankers acceptances being deemed to have a principal amount equal to the face amount thereof); provided , however , that immediately after giving effect to any such incurrence, the then outstanding aggregate
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principal amount of all Indebtedness under this clause (1) does not exceed at any one time the sum of (x) $895.0 million plus (y) the maximum principal amount of Secured Indebtedness that could be incurred such that after giving effect to such incurrence, the Consolidated Secured Leverage Ratio would be no greater than 2.50 to 1.00;
(2) the incurrence by the Issuer and any Guarantor of Indebtedness represented by (a) the Notes (including any Guarantee) (other than any Additional Notes) and (b) any exchange notes and any related guarantees to be issued pursuant to a registered exchange offer in accordance with the Registration Rights Agreement in exchange for the Notes or Additional Notes, if any, issued in compliance with the Indenture;
(3) Indebtedness of the Issuer and its Restricted Subsidiaries in existence on the Issue Date or incurred on or before the Escrow Release Date in connection with the Transactions (in each case, other than Indebtedness described in clauses (1) and (2));
(4) Indebtedness (including Capitalized Lease Obligations and Attributable Debt), Disqualified Stock and Preferred Stock incurred or issued by the Issuer or any of its Restricted Subsidiaries to finance the purchase, lease, construction, repair or improvement of property (real or personal) or equipment that is used or useful in a Similar Business, whether through the direct purchase of assets or the Capital Stock of any Person owning such assets, and any Indebtedness incurred to refinance any such Indebtedness, in an aggregate principal amount or liquidation preference which, when aggregated with the principal amount of all other Indebtedness, Disqualified Stock and Preferred Stock then outstanding under this clause (4) does not exceed the greater of (x) $100.0 million and (y) 4.0% of Total Assets determined at the time of incurrence;
(5) Indebtedness incurred by the Issuer or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit, bankers acceptances, bank guarantees, warehouse receipts or similar facilities issued or entered into in the ordinary course of business, including letters of credit in respect of workers compensation claims, performance or surety bonds, health, disability, social security or other employee benefits, property, casualty or liability insurance or self-insurance or other Indebtedness with respect to reimbursement type obligations regarding workers compensation claims, performance or surety bonds, health, disability, social security or other employee benefits or property, casualty or liability insurance or self-insurance;
(6) Indebtedness arising from agreements of the Issuer or its Restricted Subsidiaries providing for indemnification, holdback, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the acquisition or disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition;
(7) Indebtedness of the Issuer to a Restricted Subsidiary or of a Restricted Subsidiary to the Issuer or another Restricted Subsidiary; provided that any such Indebtedness (other than such as may arise from ordinary course intercompany cash management obligations) owing by the Issuer or a Guarantor to a Non-Guarantor Subsidiary is expressly subordinated in right of payment to the Notes or the applicable Guarantee, as applicable; and provided further that any subsequent issuance or transfer of any Capital Stock or any other event which results in any Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to the Issuer or another Restricted Subsidiary or any pledge of such Indebtedness constituting a Permitted Lien) shall be deemed, in each case, to be an incurrence of such Indebtedness not permitted by this clause (7);
(8) shares of Preferred Stock of a Restricted Subsidiary issued to the Issuer or another Restricted Subsidiary, provided that any subsequent issuance or transfer of any Capital Stock or any other event which results in such Preferred Stock being beneficially owned by a Person other than the Issuer or any Restricted Subsidiary or any other subsequent transfer of any such shares of Preferred Stock (except to the Issuer or another of its Restricted Subsidiaries) shall be deemed in each case to be an issuance of such shares of Preferred Stock not permitted by this clause (8);
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(9) Hedging Obligations incurred in the ordinary course of business (excluding Hedging Obligations entered into for speculative purposes);
(10) obligations in respect of performance, bid, appeal, custom and surety bonds and completion guarantees and similar obligations provided by the Issuer or any of its Restricted Subsidiaries or obligations in respect of letters of credit, bank guarantees or similar instruments related thereto, in each case in the ordinary course of business or consistent with past practice;
(11) Indebtedness or Disqualified Stock of the Issuer and Indebtedness, Disqualified Stock or Preferred Stock of the Issuer or Guarantor not otherwise permitted hereunder in an aggregate principal amount or liquidation preference, which when aggregated with the outstanding principal amount and liquidation preference of all other Indebtedness, Disqualified Stock and Preferred Stock then outstanding and incurred pursuant to this clause (11) (including any refinancing thereof), does not at any one time outstanding exceed the greater of (x) $75.0 million and (y) 3.0% of Total Assets determined at the time of incurrence;
(12) the incurrence by the Issuer or any Restricted Subsidiary of Indebtedness, Disqualified Stock or Preferred Stock which serves to refund or refinance:
(a) any Indebtedness, Disqualified Stock or Preferred Stock incurred or issued as permitted under the first paragraph of this covenant and clauses (2) and (3) above, this clause (12) and clause (13) below, or
(b) any Indebtedness, Disqualified Stock or Preferred Stock incurred or issued to so refund or refinance the Indebtedness, Disqualified Stock or Preferred Stock described in clause (a) above, including, in each case, additional Indebtedness, Disqualified Stock or Preferred Stock incurred to pay premiums (including tender premiums), accrued interest, defeasance costs and reasonable fees and expenses in connection therewith (collectively, the Refinancing Indebtedness ); provided , however , that such Refinancing Indebtedness:
(A) has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is incurred which is not less than the remaining Weighted Average Life to Maturity of the Indebtedness, Disqualified Stock or Preferred Stock being refunded or refinanced,
(B) to the extent such Refinancing Indebtedness refinances (i) Indebtedness subordinated or pari passu to the Notes or any Guarantee thereof, such Refinancing Indebtedness is subordinated or pari passu, as the case may be, to the Notes or the Guarantee at least to the same extent as the Indebtedness being refinanced or refunded or (ii) Disqualified Stock or Preferred Stock, such Refinancing Indebtedness must be Disqualified Stock or Preferred Stock, respectively, and
(C) shall not include:
(i) Indebtedness, Disqualified Stock or Preferred Stock of a Non-Guarantor Subsidiary that refinances Indebtedness, Disqualified Stock or Preferred Stock of the Issuer;
(ii) Indebtedness, Disqualified Stock or Preferred Stock of a Non-Guarantor Subsidiary that refinances Indebtedness, Disqualified Stock or Preferred Stock of a Guarantor; or
(iii) Indebtedness, Disqualified Stock or Preferred Stock of the Issuer or a Restricted Subsidiary that refinances Indebtedness, Disqualified Stock or Preferred Stock of an Unrestricted Subsidiary;
and provided further that subclause (A) of this clause (12) will not apply to any refunding or refinancing of Indebtedness under the Senior Credit Facilities;
(13) Indebtedness, Disqualified Stock or Preferred Stock of (x) the Issuer or a Restricted Subsidiary incurred to finance an acquisition or (y) Persons that are acquired by the Issuer or any Restricted Subsidiary or
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merged into or consolidated with the Issuer or a Restricted Subsidiary in accordance with the terms of the Indenture; provided that after giving effect to such acquisition, merger or consolidation, either:
(a) the Issuer would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Fixed Charge Coverage Ratio test set forth in the first paragraph of this covenant, or
(b) the Consolidated Fixed Charge Coverage Ratio is greater than or equal to the Consolidated Fixed Charge Coverage Ratio immediately prior to such acquisition, merger or consolidation;
(14) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business or other cash management services in the ordinary course of business, provided that such Indebtedness is extinguished within ten Business Days of notice of its incurrence;
(15) Indebtedness of the Issuer or any of its Restricted Subsidiaries supported by a letter of credit or bank guarantee issued pursuant to the Credit Facilities, in a principal amount not in excess of the stated amount of such letter of credit or bank guarantee;
(16) (a) any guarantee by the Issuer or a Restricted Subsidiary of Indebtedness or other obligations of any Restricted Subsidiary so long as the incurrence of such Indebtedness incurred by such Restricted Subsidiary is permitted under the terms of the Indenture, or
(b) any guarantee by a Restricted Subsidiary of Indebtedness of the Issuer; provided that such guarantee is incurred in accordance with the covenant described below under Limitation on Guarantees of Indebtedness by Restricted Subsidiaries;
(17) Indebtedness of Non-Guarantor Subsidiaries in an aggregate principal amount, which when aggregated with the principal amount of all other Indebtedness of Non-Guarantor Subsidiaries then outstanding and incurred pursuant to this clause (17) and the first paragraph of this covenant, does not exceed the greater of (x) $100.0 million and (y) 4.0% of Total Assets at any one time outstanding (including any refinancing thereof);
(18) Indebtedness of the Issuer or any of its Restricted Subsidiaries consisting of (i) the financing of insurance premiums or (ii) take-or-pay obligations contained in supply arrangements in each case, incurred in the ordinary course of business;
(19) Indebtedness of the Issuer or any of its Restricted Subsidiaries undertaken in connection with cash management, overdraft protection and related activities with respect to any Subsidiary or joint venture in the ordinary course of business;
(20) Indebtedness consisting of Indebtedness issued by the Issuer or any of its Restricted Subsidiaries to current or former employees, officers, managers, directors and consultants thereof, their respective estates, spouses or former spouses, in each case to finance the purchase or redemption of Equity Interests of the Issuer to the extent described in clause (4) of the second paragraph under the caption Limitation on Restricted Payments; and
(21) guarantees incurred in the ordinary course of business in respect of obligations of (or to) suppliers, customers, lessors and licensees that, in each case, are non-Affiliates.
For purposes of determining compliance with this covenant, in the event that an item of Indebtedness, Disqualified Stock or Preferred Stock (or any portion thereof) meets the criteria of more than one of the categories of permitted Indebtedness, Disqualified Stock or Preferred Stock described in clauses (1) through (21) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Issuer, in its sole discretion, will divide and/or classify on the date of incurrence and may later redivide and/or reclassify such item of Indebtedness, Disqualified Stock or Preferred Stock (or any portion thereof) and will only be required to include the amount and type of such Indebtedness, Disqualified Stock or Preferred Stock in one of the above
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clauses or such paragraph; provided that all Indebtedness outstanding under the Credit Facilities on the Escrow Release Date will be treated as incurred under clause (1) of the preceding paragraph and will not later be reclassified.
Accrual of interest or dividends, the accretion of accreted value and the payment of interest in the form of additional indebtedness with the same terms, the payment of dividends in the form of additional shares of Disqualified Stock or Preferred Stock, as applicable, of the same class, and accretion of original issue discount or liquidation preference will not be deemed to be an incurrence of Indebtedness, Disqualified Stock or Preferred Stock for purposes of this covenant. Guarantees of, or obligations in respect of letters of credit relating to, Indebtedness which is otherwise included in the determination of a particular amount of Indebtedness shall not be included in the determination of such amount of Indebtedness; provided that the incurrence of the Indebtedness represented by such guarantee or letter of credit, as the case may be, was in compliance with this covenant.
For purposes of determining compliance with any U.S. dollar-denominated restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was incurred, in the case of term debt, or first committed or first incurred (whichever is lower), in the case of revolving credit debt; provided that if such Indebtedness is incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing would cause the applicable U.S. dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S. dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness being refinanced plus the amount of any reasonable premium (including reasonable tender premiums), defeasance costs and any reasonable fees and expenses incurred in connection with the issuance of such Indebtedness. For the avoidance of doubt and notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that may be incurred pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in the exchange rate of currencies.
The principal amount of any Indebtedness incurred to refinance other Indebtedness, if incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such respective Indebtedness is denominated that is in effect on the date of such refinancing. The principal amount of any non-interest bearing Indebtedness or other discount security constituting Indebtedness at any date shall be the principal amount thereof that would be shown on a balance sheet of the Issuer dated such date prepared in accordance with GAAP.
The Indenture provides that the Issuer will not, and will not permit any Guarantor to, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is subordinated or junior in right of payment to any Indebtedness of the Issuer or such Guarantor, as the case may be, unless such Indebtedness is expressly subordinated in right of payment to the Notes or such Guarantors Guarantee to the extent and in the same manner as such Indebtedness is subordinated to other Indebtedness of the Issuer or such Guarantor, as the case may be.
The Indenture does not treat (1) unsecured Indebtedness as subordinated or junior to Secured Indebtedness merely because it is unsecured or (2) Indebtedness as subordinated or junior to any other Indebtedness merely because it has a junior priority with respect to the same collateral.
Liens
The Issuer will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien (except Permitted Liens) that secures Indebtedness, on any asset or property of the Issuer or any Restricted Subsidiary, or any income or profits therefrom, unless:
(1) in the case of Liens securing Subordinated Indebtedness, the Notes and related Guarantees are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens; or
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(2) in all other cases, the Notes or the Guarantees are equally and ratably secured.
The foregoing shall not apply to (a) Liens securing the Notes and the related Guarantees, (b) Liens securing Indebtedness permitted to be incurred under Credit Facilities, including any letter of credit facility relating thereto, that was permitted by the terms of the Indenture to be incurred pursuant to clause (1) of the second paragraph under Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock and (c) Liens securing Pari Passu Indebtedness (including Credit Facilities) permitted to be incurred pursuant to the covenant described under Certain CovenantsLimitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock; provided that at the time of any incurrence of such Pari Passu Indebtedness and after giving pro forma effect thereto (in a manner consistent with the calculation of the Consolidated Fixed Charge Coverage Ratio) under this clause (c), the Consolidated Secured Leverage Ratio shall not be greater than 3.00 to 1.00.
Any Lien created for the benefit of the Holders of the Notes pursuant to this covenant shall be deemed automatically and unconditionally released and discharged upon the release and discharge of the applicable Lien described in clauses (1) and (2) above.
Merger, Consolidation or Sale of All or Substantially All Assets
The Issuer may not consolidate or merge with or into or wind up into (whether or not such Person is the surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to any Person unless:
(1) the Issuer is the surviving Person or the Person formed by or surviving any such consolidation, merger or winding up (if other than the Issuer) or the Person to whom such sale, assignment, transfer, lease, conveyance or other disposition will have been made is a corporation, partnership (including a limited partnership), trust or limited liability company organized or existing under the laws of the United States, any state or commonwealth thereof, the District of Columbia or any territory thereof (such Person, as the case may be, being herein called the Successor Company); provided that if such Person is not a corporation, a co-obligor of the Notes is a corporation organized or existing under such laws;
(2) the Successor Company, if other than the Issuer, expressly assumes all the obligations of the Issuer under the Indenture, the Registration Rights Agreement and the Notes pursuant to a supplemental indenture or other documents or instruments in form reasonably satisfactory to the Trustee;
(3) immediately after such transaction, no Default exists;
(4) immediately after giving pro forma effect to such transaction and any related financing transactions, as if such transactions had occurred at the beginning of the applicable four-quarter period,
(a) the Successor Company or the Issuer, as applicable, would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described under Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock, or
(b) the Consolidated Fixed Charge Coverage Ratio for the Successor Company or the Issuer, as applicable, and its Restricted Subsidiaries would be greater than or equal to such ratio for the Issuer and its Restricted Subsidiaries immediately prior to such transaction;
(5) if the Issuer is not the Successor Company, each Guarantor, unless it is the other party to the transactions described above, shall have by supplemental indenture confirmed that its Guarantee shall apply to such Persons obligations under the Indenture and the Notes; and
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(6) the Issuer shall have delivered to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that (i) such consolidation, merger or transfer and such supplemental indentures, if any, comply with the Indenture and (ii) with respect to the Opinion of Counsel, that the supplemental indenture (or other documents setting forth the assumption of the obligations of the Issuer) constitutes a legal, valid and binding obligation of the Successor Company, enforceable against the Successor Company in accordance with its terms.
The Successor Company will succeed to, and be substituted for, the Issuer under the Indenture, the Registration Rights Agreement and the Notes and, except in the case of a lease, the Issuer will automatically be released and discharged from its obligations under the Indenture and the Notes. Notwithstanding the foregoing clauses (3) and (4):
(1) any Restricted Subsidiary may consolidate with, merge into or wind up into or sell, assign, transfer, lease, convey or otherwise dispose of all or part of its properties and assets to the Issuer or any Restricted Subsidiary; and
(2) the Issuer may merge with an Affiliate of the Issuer solely for the purpose of reorganizing the Issuer in a state or commonwealth of the United States, the District of Columbia or any territory thereof so long as the amount of Indebtedness of the Issuer and its Restricted Subsidiaries is not increased thereby.
Notwithstanding the foregoing, the Separation and Distribution and the related transactions were permitted under the Indenture.
Subject to certain limitations described in the Indenture governing release of a Guarantee by a Guarantor, no Guarantor will, and the Issuer will not permit any such Guarantor to, consolidate or merge with or into or wind up into (whether or not such Guarantor is the surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to any Person unless:
(1) (a) such Guarantor is the surviving Person or the Person formed by or surviving any such consolidation, merger or winding up (if other than such Guarantor) or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made is a Person organized or existing under the laws of the jurisdiction of organization of such Guarantor, as the case may be, or the laws of the United States, any state or commonwealth thereof, the District of Columbia or any territory thereof (such Guarantor or such Person, as the case may be, being herein called the Successor Person );
(b) the Successor Person, if other than such Guarantor or another Guarantor, expressly assumes all the obligations of such Guarantor under the Indenture, the Registration Rights Agreement and such Guarantors related Guarantee pursuant to supplemental indentures or other documents or instruments in form reasonably satisfactory to the Trustee;
(c) immediately after such transaction, no Default exists; and
(d) if such Guarantor or another Guarantor is not the Successor Person, the Issuer shall have delivered to the Trustee (i) an Officers Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indentures, if any, comply with the Indenture; and (ii) with respect to the Opinion of Counsel, the supplemental indenture (or other documents setting forth the assumption of the obligations of the applicable Guarantor) constitutes a legal, valid and binding obligation of the Successor Person, enforceable against such Successor Person in accordance with its terms; or
(2) the disposition is not prohibited by the covenant described under Repurchase at the Option of the HoldersAsset Sales.
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In the case of clause (1) above, the Successor Person will succeed to, and be substituted for, such Guarantor under the Indenture and such Guarantors Guarantee and, except in the case of a lease, such Guarantor will automatically be released and discharged from its obligations under the Indenture and such Guarantors Guarantee. Notwithstanding the foregoing, any Guarantor may (1) merge into or transfer all or part of its properties and assets to another Guarantor or the Issuer, (2) merge with an Affiliate of the Issuer solely for the purpose of reincorporating the Guarantor in the United States, any state thereof, the District of Columbia or any territory thereof or (3) convert into a corporation, partnership, limited partnership, limited liability corporation or trust organized or existing under the laws of the jurisdiction of organization of such Guarantor.
Transactions with Affiliates
The Issuer will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Issuer (each of the foregoing, an Affiliate Transaction ) involving aggregate payments or consideration in excess of $10.0 million, unless:
(1) such Affiliate Transaction is on terms, taken as a whole, that are not materially less favorable to the Issuer or its relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Issuer or such Restricted Subsidiary with an unrelated Person on an arms-length basis; and
(2) any Affiliate Transaction or series of related Affiliate Transactions involving aggregate payments or consideration in excess of $50.0 million is approved by the majority of the disinterested members of the Board of Directors of the Issuer.
The foregoing provisions will not apply to the following:
(1) transactions between or among the Issuer and any of its Restricted Subsidiaries;
(2) Restricted Payments permitted by the provisions of the Indenture described above under the covenant Limitation on Restricted Payments and Permitted Investments;
(3) the payment of customary fees and compensation paid to, and indemnities and reimbursements and employment and severance arrangements and agreements provided on behalf of, or entered into with, officers, directors, employees or consultants of the Issuer or any of its Restricted Subsidiaries;
(4) (A) any agreement, instrument or arrangement as in effect as of the Issue Date (or transactions pursuant thereto), (B) any other agreements, instruments or arrangements (or transactions pursuant thereto) as in effect on the Distribution Date (including the Separation and Distribution Documents) or pursuant to or in connection with the Separation and Distribution Documents (including the Transactions) or (C) any amendment, modification or supplement to the agreements referenced in clause (A) or (B) above or any replacement thereof, as long as the terms of such agreement or arrangement, as so amended, modified, supplemented or replaced are not materially more disadvantageous to the Holders when taken as a whole compared to the applicable agreements, instruments or arrangements as in effect on the Issue Date or as described in the Offering Memorandum, as applicable, as determined in good faith by the Issuer;
(5) the Transactions and the payment of all fees and expenses related to the Transactions;
(6) transactions with customers (including leases or other arrangements for the use of advertising space), clients, suppliers, or purchasers or sellers of goods or services, or transactions otherwise relating to the purchase or sale of goods or services, in each case in the ordinary course of business and otherwise in compliance
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with the terms of the Indenture which are fair to the Issuer and its Restricted Subsidiaries, in the reasonable determination of the Board of Directors of the Issuer or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party;
(7) the issuance or transfer of Equity Interests (other than Disqualified Stock) of the Issuer and the granting of registration and other customary rights in connection therewith;
(8) sales of accounts receivable, or participations therein, and related assets and any other customary transaction effected in connection with any Receivables Facility;
(9) payments, loans, advances or guarantees (or cancellation of payments, loans, advances or guarantees) to employees, directors or consultants of the Issuer or any of its Restricted Subsidiaries and employment agreements, benefit plans, equity plans, stock option and stock ownership plans and other similar arrangements with such employees, directors or consultants which, in each case, are approved by the Issuer in good faith;
(10) transactions with joint ventures or Unrestricted Subsidiaries for the purchase or sale of goods, equipment and services entered into in the ordinary course of business;
(11) transactions in which the Issuer or any Restricted Subsidiary, as the case may be, delivered to the Trustee a letter from an Independent Financial Advisor stating that such transaction is fair to the Issuer or such Restricted Subsidiary from a financial point of view or meets the requirements of clause (1) of the preceding paragraph;
(12) the issuances of securities or other payments, loans (or cancellation of loans) awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, benefit plans, equity plans, stock option and stock ownership plans or similar employee benefit plans approved by the Board of Directors of the Issuer in good faith;
(13) any contribution to the capital of the Issuer (other than in consideration of Disqualified Stock);
(14) the provision to Unrestricted Subsidiaries of cash management, accounting and other overhead services in the ordinary course of business undertaken in good faith and not for the purpose of circumventing any covenant set forth in the Indenture;
(15) any transaction with a Person (other than an Unrestricted Subsidiary) that would constitute an Affiliate Transaction solely because the Issuer or any of its Restricted Subsidiaries owns an Equity Interest in or otherwise controls such Person;
(16) any transaction in which the only consideration paid by the Issuer or any of its Restricted Subsidiaries is in the form of Equity Interests (other than Disqualified Stock) of the Issuer to Affiliates of the Issuer or any contribution to the capital of the Issuer or any Restricted Subsidiary (other than in consideration of Disqualified Stock);
(17) intellectual property licenses in the ordinary course of business;
(18) transactions between the Issuer or any of its Restricted Subsidiaries and any Person that would constitute an Affiliate Transaction solely because a director of which is also a director of the Issuer or any other direct or indirect parent of the Issuer; provided , that such director abstains from voting as a director of the Issuer or such direct or indirect parent of the Issuer, as the case may be, on any matter involving such other Person;
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(19) (A) the guarantee by the Issuer or any Restricted Subsidiary of the Indebtedness of any parent company of the Issuer that becomes the parent company of the Issuer in a Change of Control transaction consummated in accordance with the Indenture, or of any Indebtedness of Subsidiaries of such parent company; provided that such guarantee was permitted by the terms of the Indenture to be incurred and (B) the granting by the Issuer or any of its Restricted Subsidiaries of any Liens to secure such Indebtedness or such guarantee; provided that such Liens are permitted to be incurred under the Indenture;
(20) any non-recourse pledge of Equity Interests of an Unrestricted Subsidiary to support the Indebtedness of such Unrestricted Subsidiary; and
(21) prior to the Separation and Distribution, (A) any cash management transactions or related transactions between or among the Issuer or any of its Restricted Subsidiaries, on the one hand, and Kimberly-Clark or any of its other Subsidiaries, on the other hand, (B) any cancellation of Indebtedness, intercompany accounts, balances, credits or debits between or among the Issuer or any of its Restricted Subsidiaries, on the one hand, and Kimberly-Clark or any of its other Subsidiaries, on the other hand, and (C) any other transactions between or among the Issuer or any of its Restricted Subsidiaries, on the one hand, and Kimberly-Clark or any of its other Subsidiaries, on the other hand, in each case under this clause (C) in the ordinary course of business.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Issuer will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual restriction on the ability of any such Restricted Subsidiary to:
(1) (a) pay dividends or make any other distributions to the Issuer or any of its Restricted Subsidiaries on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits, or
(b) pay any Indebtedness owed to the Issuer or any of its Restricted Subsidiaries;
(2) make loans or advances to the Issuer or any of its Restricted Subsidiaries; or
(3) sell, lease or transfer any of its properties or assets to the Issuer or any of its Restricted Subsidiaries, except (in each case) for such encumbrances or restrictions existing under or by reason of:
(a) contractual encumbrances or restrictions (i) in effect on the Issue Date, (ii) created, incurred, assumed or suffered to exist, directly or indirectly, on or before the Escrow Release Date, in connection with the Transactions, or (iii) pursuant to the Senior Credit Facilities and the related documentation and related Hedging Obligations;
(b) (i) the Indenture, the Notes, the Escrow Agreement and the Guarantees (and any exchange notes and related guarantees) and (ii) any agreement governing Indebtedness permitted to be incurred pursuant to the covenant described under Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock; provided that the provisions relating to restrictions of the type described in clauses (1) through (3) above contained in such agreement, taken as a whole, are not materially more restrictive than the provisions contained in the Senior Credit Facilities, or in the Indenture, in each case as in effect when initially executed;
(c) purchase money obligations for property acquired in the ordinary course of business and Capitalized Lease Obligations that impose restrictions of the nature discussed in clause (3) above on the property so acquired or leased;
(d) applicable law or any applicable rule, regulation or order;
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(e) any agreement or other instrument of a Person (including an Unrestricted Subsidiary that becomes a Restricted Subsidiary) acquired by or merged or consolidated with or into the Issuer or any of its Restricted Subsidiaries in existence at the time of such transaction (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person and its Subsidiaries, or the property or assets of the Person and its Subsidiaries, so acquired;
(f) contracts for the sale of assets (including the Capital Stock of a Subsidiary), including customary restrictions with respect to a Subsidiary of the Issuer, that impose restrictions solely on the assets to be sold;
(g) Secured Indebtedness otherwise permitted to be incurred pursuant to the covenants described under Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock and Liens that limit the right of the debtor to dispose of the assets securing such Secured Indebtedness or places any restriction on the Issuers or its Restricted Subsidiaries use of the assets securing such Secured Indebtedness;
(h) restrictions on cash or other deposits or net worth imposed by customers, suppliers, utilities or landlords or required by insurance, surety or bonding companies, in each case, under contracts entered into in the ordinary course of business;
(i) other Indebtedness, Disqualified Stock or Preferred Stock of Non-Guarantor Subsidiaries permitted to be incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock;
(j) customary provisions limiting the disposition or distribution of assets or property in partnership and joint venture agreements or arrangements, operating agreements, stock sale agreements, sale and leaseback agreements and other similar agreements or arrangements (including agreements entered into in connection with a Restricted Investment) entered into in the ordinary course of business, which limitation is applicable only to the assets that are the subject of such agreements;
(k) customary provisions contained in leases, sub-leases, licenses or sub-licenses and other agreements, in each case, entered into in the ordinary course of business;
(l) other encumbrances and restrictions created in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Issuer or any Restricted Subsidiary thereof in any manner material to the Issuer or any Restricted Subsidiary thereof;
(m) restrictions created in connection with any Receivables Facility that, in the good faith determination of the Issuer, are necessary or advisable to effect such Receivables Facility; provided that such restrictions apply only to the applicable Receivables Subsidiary;
(n) any other agreement or instrument governing any Indebtedness, Disqualified Stock, or Preferred Stock permitted to be incurred or issued pursuant to the covenant described under Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock entered into after the Issue Date that contains encumbrances and other restrictions that either (x) are no more restrictive in any material respect taken as a whole with respect to any Restricted Subsidiary than (i) the restrictions contained in the Indenture as of the Issue Date or (ii) those encumbrances and other restrictions that are in effect on the Issue Date with respect to that Restricted Subsidiary pursuant to agreements in effect on the Issue Date, (y) are not materially more disadvantageous, taken as a whole, to the Holders than is customary in comparable financings for similarly situated issuers or (z) will not otherwise materially impair the Issuers ability to make payments on the Notes when due, in each case in the good faith judgment of the Issuer;
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(o) any encumbrances or restrictions of the type referred to in clauses (1), (2) and (3) above imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (a) through (n) above; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Issuer, no more restrictive in any material respect with respect to such encumbrance and other restrictions taken as a whole than those prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing.
For purposes of determining compliance with this covenant (i) the priority of any Preferred Stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on common stock shall not be deemed a restriction on the ability to make distributions on Capital Stock and (ii) the subordination of loans or advances made to the Issuer or a Restricted Subsidiary to other Indebtedness incurred by the Issuer or any such Restricted Subsidiary shall not be deemed a restriction on the ability to make loans or advances.
Limitation on Guarantees of Indebtedness by Restricted Subsidiaries
The Issuer will not permit any Restricted Subsidiary that is not a Guarantor to guarantee the payment of any Indebtedness of the Issuer or any Guarantor unless:
(1) within 20 days after such Restricted Subsidiary guarantees such other Indebtedness, such Restricted Subsidiary executes and delivers a supplemental indenture to the Indenture providing for a Guarantee by such Restricted Subsidiary, except that with respect to a guarantee of Indebtedness of the Issuer or any Guarantor:
(a) if the Notes or such Guarantors Guarantee is subordinated in right of payment to such Indebtedness, the Guarantee under the supplemental indenture shall be subordinated to such Restricted Subsidiarys guarantee with respect to such Indebtedness substantially to the same extent as the Notes or such Guarantors Guarantee is subordinated to such Indebtedness; and
(b) if such Indebtedness is by its express terms subordinated in right of payment to the Notes or such Guarantors Guarantee, any such guarantee by such Restricted Subsidiary with respect to such Indebtedness shall be subordinated in right of payment to such Restricted Subsidiarys Guarantee of the Notes substantially to the same extent as such Indebtedness is subordinated to the Notes or such Guarantors Guarantee; and
(2) the Issuer shall within 20 days deliver to the Trustee an Opinion of Counsel reasonably satisfactory to the Trustee;
provided that this covenant shall not be applicable to any guarantee of any Restricted Subsidiary that existed at the time such Person became a Restricted Subsidiary and was not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary. The Issuer may elect, in its sole discretion, to cause any Subsidiary that is not otherwise required to be a Guarantor to become a Guarantor, in which case such Subsidiary shall not be required to comply with the 20 day periods described above.
For the avoidance of doubt, this covenant shall not prohibit a guarantee or pledge by a Non-Guarantor Subsidiary securing the payment of Indebtedness of another Non-Guarantor Subsidiary.
Business Activities
The Issuer will not, and will not permit any Restricted Subsidiary to, engage in any business other than Similar Businesses, except as would not be material to the Issuer and its Restricted Subsidiaries, taken as a whole.
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Payments for Consent
The Issuer will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
Reports and Other Information
Notwithstanding that the Issuer may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the SEC, the Indenture requires the Issuer to file with the SEC (and make available (without exhibits), without cost, to (i) Holders of the Notes, upon their request, and (ii) the Trustee, within 15 days after it files such reports and information with the SEC, to the extent not publicly available on the SECs EDGAR system or the Issuers public website; provided , however , that the Trustee shall have no responsibility whatsoever to determine whether such filing or any other filing described below has occurred) from and after the Issue Date,
(1) within the time period then in effect under the rules and regulations of the Exchange Act with respect to the filing of a Form 10-K by a non-accelerated filer, annual reports on Form 10-K, or any successor or comparable form, containing the information required to be contained therein, or required in such successor or comparable form;
(2) within the time period then in effect under the rules and regulations of the Exchange Act with respect to the filing of a Form 10-Q by a non-accelerated filer, for each of the first three fiscal quarters of each fiscal year, reports on Form 10-Q containing all quarterly information that would be required to be contained in Form 10-Q, or any successor or comparable form; and
(3) within the time period then in effect under the rules and regulations of the Exchange Act with respect to the filing of a Form 8-K, after the occurrence of an event required to be therein reported, such other reports on Form 8-K, or any successor or comparable form;
in each case, taking into account any extension of time, deemed filing date or safe harbor contemplated or provided by Rule 12b-25, Rule 13a-11(c) and Rule 15d-11(c) under the Exchange Act or successor provisions and in a manner that complies in all material respects with the requirements specified in such form; provided that the Issuer shall not be so obligated to file such reports with the SEC if the SEC does not permit such filing, in which event the Issuer will post such reports on a website, which may, in the Issuers sole discretion, be non-public to which Holders are given access, within 15 days after the time the Issuer would have been required to file such information with the SEC, if it were subject to Sections 13 or 15(d) of the Exchange Act.
The filing requirements set forth above for the applicable period may be satisfied by the Issuer prior to the commencement of the exchange offer or the effectiveness of the shelf registration statement (each as described under Exchange Offer; Registration Rights) by (i) the posting of such reports or the information required to be set forth therein on the Issuers public website (which may include a press release of the Issuer), or (ii) the filing with the SEC of the exchange offer registration statement and/or shelf registration statement, and any amendments thereto, with such financial information that satisfies Regulation S-X of the Securities Act, provided that, this paragraph shall not supersede or in any manner suspend or delay the Issuers reporting obligations, or the time periods required therefor, set forth above.
Notwithstanding the foregoing, if any parent of the Issuer becomes a guarantor of the Notes (there being no obligation of such parent to do so), the reports, information and other documents required to be filed and provided as described above may, at the option of the Issuer, be filed by and be those of the parent, rather
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than those of the Issuer, so long as such filings would satisfy the SECs requirements; provided that such reports include a reasonable explanation of the material differences between the assets, liabilities and results of operations of such parent and its consolidated Subsidiaries, on the one hand, and the Issuer and its Restricted Subsidiaries, on the other hand.
In addition, to the extent not satisfied by the foregoing, for so long as any Notes are outstanding, the Issuer will furnish to Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. For the avoidance of doubt, this covenant will not require the Issuer or the Restricted Subsidiaries to provide or file any information pursuant to the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC that would not otherwise be applicable to them.
To the extent that any reports or other information is not furnished within the time periods specified above and such reports or other information is subsequently furnished prior to the time such failure results in an Event of Default, the Issuer will be deemed to have satisfied its obligations with respect thereto and any Default with respect thereto shall be deemed to have been cured.
The Indenture provides that prior to the Escrow Release Date, the Issuer was deemed to have been in compliance with the reporting obligations set forth in this Reporting and Other Information by virtue of filing the Form 10.
Events of Default and Remedies
The Indenture provides that each of the following is an Event of Default:
(1) default in payment when due and payable, upon redemption, acceleration or otherwise, of principal of the Notes;
(2) default for 30 days or more in the payment when due of interest on or with respect to the Notes;
(3) failure by the Issuer or any Restricted Subsidiary for 60 days after receipt of written notice given by the Trustee or the Holders of not less than 25% in principal amount of the Notes then outstanding to comply with any of its other obligations, covenants or agreements (other than a default referred to in clause (1) or (2) above) or clause (4) below) contained in the Indenture or the Notes;
(4) failure by the Issuer for 180 days after receipt of written notice given by the Trustee or the Holders of not less than 25% in principal amount of the Notes then outstanding to comply with the provisions described under Certain CovenantsReports and Other Information;
(5) default under any mortgage, indenture or instrument under which there is issued or by which there is secured or evidenced any Indebtedness for money borrowed by the Issuer or any of its Restricted Subsidiaries or the payment of which is guaranteed by the Issuer or any of its Restricted Subsidiaries, other than Indebtedness owed to the Issuer or a Restricted Subsidiary, whether such Indebtedness or guarantee now exists or is created after the issuance of the Notes, if both:
(a) such default either results from the failure to pay any principal of such Indebtedness at its stated final maturity (after giving effect to any applicable grace periods) or relates to an obligation other than the obligation to pay principal of any such Indebtedness at its stated final maturity and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated maturity; and
(b) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at stated final maturity (after giving effect to any applicable grace periods), or the maturity of which has been so accelerated, aggregate to $50.0 million or more;
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(6) failure by the Issuer or any Significant Subsidiary to pay final judgments aggregating in excess of $50.0 million (excluding amounts covered by insurance provided by a reputable and solvent carrier that has not disclaimed coverage or amounts covered by valid third party indemnification obligations from a third party that is solvent), which final judgments remain unpaid, undischarged and unstayed for a period of more than 60 days after such judgment becomes final, and in the event such judgment is not covered by insurance, an enforcement proceeding has been commenced by any creditor upon such judgment or decree which is not promptly stayed;
(7) certain events of bankruptcy or insolvency with respect to the Issuer or any Significant Subsidiary; or
(8) the Guarantee of any Significant Subsidiary shall for any reason cease to be in full force and effect or be declared null and void or any responsible officer of such Guarantor that is a Significant Subsidiary, as the case may be, denies that it has any further liability under its Guarantee or gives notice to such effect, in each case other than by reason of the termination of the Indenture or the release of any such Guarantee in accordance with the Indenture.
If any Event of Default (other than of a type specified in clause (7) above) occurs and is continuing with respect to the Notes, the Trustee or the Holders of at least 25% in principal amount of the then total outstanding Notes, may declare the principal, interest and any other monetary obligations on all the then outstanding Notes, to be due and payable immediately.
Upon the effectiveness of such declaration, such principal and interest with respect to the Notes will be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising under clause (7) of the first paragraph of this section, all outstanding Notes will become due and payable immediately without further action or notice.
The Indenture provides that the Trustee may withhold from the Holders notice of any continuing Default, except a Default relating to the payment of principal or interest, if it determines that withholding notice is in their interest. In addition, the Trustee shall have no obligation to accelerate the Notes if in the best judgment of the Trustee acceleration is not in the best interest of the Holders of the Notes.
The Indenture provides that the Holders of a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default and its consequences under the Indenture except a continuing Default in the payment of interest on, or the principal of, any Note held by a non-consenting Holder, and rescind any acceleration and its consequences with respect to the Notes (except if such recession would conflict with any judgment of a court of competent jurisdiction). In the event of any Event of Default specified in clause (5) above, such Event of Default and all consequences thereof (excluding any resulting payment default, other than as a result of acceleration of the Notes) shall be annulled, waived and rescinded, automatically and without any action by the Trustee or the Holders, if within 20 days after such Event of Default arose:
(1) the Indebtedness or guarantee that is the basis for such Event of Default has been discharged; or
(2) the holders thereof have rescinded or waived the acceleration, notice or action (as the case may be) giving rise to such Event of Default; or
(3) the default that is the basis for such Event of Default has been cured.
Subject to the provisions of the Indenture relating to the duties of the Trustee thereunder, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Holders of the Notes unless the Holders have offered to the Trustee indemnity or security satisfactory to the Trustee against any loss, liability or expense.
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Except to enforce the right to receive payment of principal, or interest, when due, no Holder of a Note may pursue any remedy with respect to the Indenture or the Notes unless:
(1) such Holder has previously given the Trustee notice that an Event of Default is continuing with respect to the Notes;
(2) Holders of at least 25% in principal amount of the total outstanding Notes have requested the Trustee to pursue the remedy;
(3) Holders have offered the Trustee security or indemnity satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity; and
(5) Holders of a majority in principal amount at maturity of the total outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period.
Subject to certain restrictions, under the Indenture the Holders of a majority in principal amount of the total outstanding Notes are given the right to direct in writing the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder of a Note or that would involve the Trustee in personal liability.
The Indenture provides that the Issuer is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuer is required, within 30 days after becoming aware of any Default, to deliver to the Trustee an Officers Certificate specifying such Default (unless such Default has been cured before the end of the 30-day period) and what action the Issuer proposes to take with respect thereto.
Notwithstanding anything to the contrary set forth herein, no provision of the Indenture shall prevent the completion of any of the Transactions, nor shall the Transactions give rise to any Default or impair or reduce the availability or constitute the utilization of any basket or other exceptions (other than any such baskets or other exceptions that expressly refer to the Transactions or the Separation and Distribution) in the covenants under the Indenture or the Notes. Notwithstanding anything to the contrary set forth herein, no provision of the Indenture shall restrict the transactions described in clauses (A) and (B) of clause (21) of the second paragraph under Certain CovenantsTransactions with Affiliates, in each case entered into in the ordinary course of business.
No Personal Liability of Directors, Officers, Employees and Stockholders
No past, present or future director, officer, employee, incorporator, member or stockholder of the Issuer or any Guarantor shall have any liability for any obligations of the Issuer or the Guarantors under the Notes, the Guarantees or the Indenture or for any claim based on, in respect of, or by reason of such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The obligations of the Issuer and the Guarantors under the Indenture with respect to the Notes will terminate (other than certain obligations) and will be released upon payment in full of all of the Notes. The Issuer may, at its option and at any time, elect to have all of its obligations discharged with respect to the Notes and
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have each Guarantors obligation discharged with respect to its related Guarantee ( Legal Defeasance ) and cure all then existing Events of Default with respect to the Notes except for:
(1) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Notes when such payments are due solely out of the trust created pursuant to the Indenture;
(2) the Issuers obligations with respect to the Notes concerning issuing temporary Notes, registration of such Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and the Issuers obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Issuer may, at its option and at any time, elect to have its obligations and those of each Guarantor released with respect to substantially all of the restrictive covenants in the Indenture with respect to the Notes ( Covenant Defeasance ) and thereafter any omission to comply with such obligations shall not constitute a Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including bankruptcy, receivership, rehabilitation and insolvency events pertaining to the Issuer or Guarantors that are Significant Subsidiaries) described under Events of Default and Remedies will no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance with respect to the Notes:
(1) the Issuer must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in U.S. dollars, Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal amount of, premium, if any, and interest due on the Notes on the stated maturity date or on the redemption date, as the case may be, of such principal amount, premium, if any, or interest on the Notes and the Issuer must specify whether the Notes are being defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the Issuer shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that, subject to customary assumptions and exclusions,
(a) the Issuer has received from, or there has been published by, the United States Internal Revenue Service a ruling, or
(b) since the issuance of the Notes, there has been a change in the applicable U.S. federal income tax law,
in either case to the effect that, and based thereon, such Opinion of Counsel shall confirm that, subject to customary assumptions and exclusions, the Holders of the Notes will not recognize income, gain or loss for U.S. federal income tax purposes, as applicable, as a result of such Legal Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Issuer shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that, subject to customary assumptions and exclusions, the Holders will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject to such U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
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(4) no Default (other than that resulting from borrowing funds to be applied to make such deposit and any similar and simultaneous deposit relating to other Indebtedness, and, in each case, the granting of Liens in connection therewith) shall have occurred and be continuing on the date of such deposit with respect to the Notes;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the Senior Credit Facilities or any other material agreement or instrument (other than the Indenture) to which the Issuer or any Guarantor is a party or by which the Issuer or any Guarantor is bound (other than that resulting from borrowing of funds to be applied to make such deposit and any similar and simultaneous deposit relating to other Indebtedness and, in each case, the granting of Liens in connection therewith);
(6) the Issuer shall have delivered to the Trustee an Officers Certificate stating that the deposit was not made by the Issuer with the intent of defeating, hindering, delaying or defrauding any creditors of the Issuer or any Guarantor or others; and
(7) the Issuer shall have delivered to the Trustee an Officers Certificate and an Opinion of Counsel (which Opinion of Counsel may be subject to customary assumptions and exclusions) each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance, as the case may be, have been complied with.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as to the Notes, when either:
(1) all the Notes theretofore authenticated and delivered, except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust, have been delivered to the Trustee for cancellation; or
(2) (a) all the Notes not theretofore delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise, will become due and payable within one year or are to be called for redemption and redeemed within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Issuer, and the Issuer or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, Government Securities, or a combination thereof, in such amounts as will be sufficient (in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants) without consideration of any reinvestment of interest to pay and discharge the entire indebtedness on the Notes not theretofore delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption;
(b) the Issuer has paid or caused to be paid all sums payable by it under the Indenture; and
(c) the Issuer has delivered irrevocable instructions to the Trustee to apply the deposited money toward the payment of the Notes at maturity or the redemption date, as the case may be.
In addition, the Issuer must deliver an Officers Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Issuer and the Trustee may amend or supplement the Indenture, any Guarantee, the Escrow Agreement and the Notes with the consent of the Holders of at least a majority in principal amount of the Notes (including Additional Notes) then outstanding voting as a single class (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, the Notes), and any existing Default or Event of Default (other than a continuing Default in the payment of
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interest on, or the principal of, any Note, except a payment default resulting from acceleration that has been rescinded) or compliance with any provision of the Indenture or the Notes issued thereunder may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, the Notes). In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Issuer, or by any Affiliate of the Issuer, shall be considered as though not outstanding, except as provided for in the Indenture.
The Indenture provides that, without the consent of each affected Holder of Notes, an amendment or waiver may not, with respect to the Notes held by a non-consenting Holder:
(1) reduce the principal amount of the Notes whose Holders must consent to an amendment, supplement or waiver;
(2) reduce the principal amount of or change the fixed final maturity of any Note or alter or waive the provisions (other than any amendment or waiver of any minimum notice period for redemption, which may be amended or waived with the consent of Holders of at least a majority in principal amount of the Notes then outstanding) with respect to the redemption of Notes (other than provisions relating to the covenants described above under the caption Repurchase at the Option of Holders)
(3) reduce the rate of or change the time for payment of interest on any Note;
(4) waive a Default or Event of Default in (a) the payment of principal of, or interest on, the Notes, except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration, or (b) in respect of a covenant or provision contained in the Indenture or any Guarantee which cannot expressly by its terms be amended or modified without the consent of all Holders;
(5) make any Note payable in money other than that stated therein;
(6) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders to receive payments of principal of, or interest on, the Notes;
(7) make any change in these amendment and waiver provisions as it relates to the Notes;
(8) impair the right of any Holder to receive payment of principal of, or interest on, such Holders Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holders Notes;
(9) make any change to or modify the ranking of the Notes that would adversely affect the Holders; or
(10) except as expressly permitted by the Indenture, modify the terms of the Guarantees of any Significant Subsidiary in any manner adverse to the Holders of the Notes.
Notwithstanding the foregoing, the Issuer, any Guarantor (with respect to a Guarantee or the Indenture to which it is a party) and the Trustee may amend or supplement the Indenture, any Guarantee, the Escrow Agreement or the Notes without the consent of any Holder;
(1) to cure any ambiguity, omission, mistake, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of certificated Notes;
(3) to comply with the covenant relating to mergers, consolidations and sales of assets;
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(4) to provide the assumption of the Issuers or any Guarantors obligations to the Holders;
(5) to make any change that would provide any additional rights or benefits to the Holders or that does not materially adversely affect the legal rights under the Indenture of any such Holder;
(6) to add covenants for the benefit of the Holders or to surrender any right or power conferred upon the Issuer or any Guarantor;
(7) to comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act;
(8) to evidence and provide for the acceptance and appointment under the Indenture of a successor Trustee thereunder pursuant to the requirements thereof;
(9) to provide for the issuance of exchange notes or private exchange notes, which are identical to exchange notes except that they are not freely transferable;
(10) to add a Guarantor under the Indenture, or to secure the Obligations thereunder, or to release any Guarantor from its Guarantee if such release is in accordance with the terms of the Indenture;
(11) to conform the text of the Indenture, the Guarantees or the Notes to any provision of this Description of Note, section of the Offering Memorandum as described in an Officers Certificate;
(12) to make any amendment to the provisions of the Indenture relating to the transfer and legending of Notes as permitted by the Indenture, including, without limitation, to facilitate the issuance and administration of the Notes; provided , however , that (i) compliance with the Indenture as so amended would not result in Notes being transferred in violation of the Securities Act or any applicable securities law and (ii) such amendment does not materially and adversely affect the rights of Holders to transfer Notes;
(13) to provide for the issuance of Additional Notes in accordance with the terms of the Indenture; or
(14) to comply with the rules of any applicable securities depositary.
The consent of the Holders is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment.
Notices
Notices given by publication will be deemed given on the first date on which publication is made and notices given by first-class mail, postage prepaid, will be deemed given five calendar days after mailing.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee thereunder, should it become a creditor of the Issuer, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign.
The Indenture provides that the Holders of a majority in principal amount of the outstanding Notes will have the right to direct in writing the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of
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Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of the Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to the Trustee against any loss, liability or expense.
Governing law
The Indenture, the Notes, the Escrow Agreement and any Guarantee are to be governed by and construed in accordance with the laws of the State of New York.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. For purposes of the Indenture, unless otherwise specifically indicated, the term consolidated with respect to any Person refers to such Person consolidated with the Issuer and its Restricted Subsidiaries, and excludes from such consolidation any Unrestricted Subsidiary as if such Unrestricted Subsidiary were not an Affiliate of such Person.
Acquired Indebtedness means, with respect to any specified Person,
(1) Indebtedness of any other Person existing at the time such other Person is merged or consolidated with or into or became a Restricted Subsidiary of such specified Person, including Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Restricted Subsidiary of such specified Person, and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person;
provided that any Indebtedness of such other Person that is extinguished, redeemed, defeased, retired or otherwise repaid at the time of, or substantially concurrently with, the consummation of the transaction pursuant to which such other Person becomes a Restricted Subsidiary of the specified Person will not be Acquired Indebtedness.
Additional Interest means all additional interest then owing pursuant to the Registration Rights Agreement.
Affiliate of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, control (including, with correlative meanings, the terms controlling, controlled by and under common control with), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. No Person (other than the Issuer or any Subsidiary of the Issuer) in whom a Receivables Subsidiary makes an Investment in connection with a financing of accounts receivable will be deemed to be an Affiliate of the Issuer or any of its Subsidiaries solely by reason of such Investment.
Applicable Premium means with respect to any Note on any Redemption Date, the greater of:
(1) 1.0% of the principal amount of such Note on such Redemption Date; and
(2) the excess, if any, of (a) the present value at such Redemption Date of (i) the redemption price of such Note at October 15, 2017 (such redemption price being set forth in the table appearing above under the caption Optional Redemption), plus (ii) all required remaining interest payments due on such Note through
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October 15, 2017 (excluding accrued but unpaid interest to the Redemption Date), computed using a discount rate equal to the applicable Treasury Rate as of such Redemption Date plus 50 basis points; over (b) the principal amount of such Note.
The Issuer shall determine the Applicable Premium.
Asset Sale means:
(1) the sale, conveyance, transfer or other disposition, whether in a single transaction or a series of related transactions, of property or assets (including by way of a Sale and Leaseback Transaction) of the Issuer or any of its Restricted Subsidiaries (each referred to in this definition as a disposition); or
(2) the issuance or sale of Equity Interests (other than directors qualifying shares or shares or interests required to be held by foreign nationals or other third parties to the extent required by applicable law) of any Restricted Subsidiary (other than Preferred Stock of Restricted Subsidiaries issued in compliance with the covenant described under Certain CovenantsLimitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock), whether in a single transaction or a series of related transactions;
in each case, other than:
(a) any disposition of cash, Cash Equivalents or Investment Grade Securities or damaged, obsolete, unsuitable or worn out equipment or other assets, or assets no longer used or useful in the business of the Issuer and the Restricted Subsidiaries in the reasonable opinion of the Issuer, or any sale or disposition of property or assets in connection with scheduled turnarounds or maintenance, in each case in the ordinary course of business, or any disposition of inventory, services or goods (or other assets) held for sale in the ordinary course of business;
(b) the disposition of all or substantially all of the assets of (1) the Issuer in a manner permitted pursuant to the provisions described above under Certain CovenantsMerger, Consolidation or Sale of All or Substantially All Assets or any disposition that constitutes a Change of Control pursuant to the Indenture or (2) any Guarantor to the extent that such disposition is made to a Person who either (A) is the Issuer or a Guarantor or (B) becomes a Guarantor pursuant to the provisions described above under Certain CovenantsMerger, Consolidation or Sale of All or Substantially All Assets;
(c) the making of any Restricted Payment that is permitted to be made, and is made, under the covenant described above under Certain CovenantsLimitation on Restricted Payments or any Permitted Investments;
(d) any disposition of assets or issuance or sale of Equity Interests of any Restricted Subsidiary in any transaction or series of transactions with an aggregate fair market value (as determined in good faith by the Issuer) not to exceed $15.0 million;
(e) any disposition of property or assets or issuance of securities by a Restricted Subsidiary to the Issuer or by the Issuer or a Restricted Subsidiary to another Restricted Subsidiary;
(f) to the extent allowable under Section 1031 of the Internal Revenue Code of 1986, or any comparable or successor provision, any exchange of like property (excluding any boot thereon) for use in a Similar Business;
(g) the lease, assignment or sub-lease of any real or personal property in the ordinary course of business;
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(h) any issuance or sale of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary;
(i) foreclosures, condemnations or similar actions on assets (including transfers of property subject to casualty proceedings) or dispositions of assets required by law, governmental regulation or any order of any court, administrative agency or regulatory body;
(j) sales of accounts receivable, or participations therein, and related assets in connection with any Receivables Facility or similar factoring arrangements;
(k) the licensing or sub-licensing of intellectual property or other general intangibles in the ordinary course of business;
(l) sales, transfers and other dispositions of Investments in joint ventures to the extent required by, or made pursuant to, customary buy/sell arrangements or rights of first refusal between the joint venture parties set forth in joint venture arrangements and similar binding arrangements;
(m) the lapse or abandonment of intellectual property rights in the ordinary course of business, which in the reasonable good faith determination of the Issuer is not material to the conduct of the business of the Issuer and its Restricted Subsidiaries taken as a whole;
(n) the granting of Liens not prohibited by the Indenture;
(o) an issuance of Equity Interests pursuant to benefit plans, employment agreements, equity plans, stock subscription or shareholder agreements, stock ownership plans and other similar plans, polices, contracts or arrangements established in the ordinary course of business or approved by the Issuer in good faith;
(p) any surrender or waiver of contract rights or the settlement, release, recovery on or surrender of contract, tort or other claims of any kind;
(q) dispositions of receivables in connection with the compromise, settlement or collection thereof in the ordinary course of business or in bankruptcy or similar proceedings and exclusive of factoring or similar arrangements;
(r) any financing transaction (excluding by way of a Sale and Leaseback Transaction) with respect to property constructed, acquired, replaced, repaired or improved by the Issuer or any of its Restricted Subsidiaries after the Issue Date;
(s) the unwinding or termination of any Hedging Obligations;
(t) any other disposition pursuant to the Transactions; and
(u) dispositions of leasehold improvements or leased assets in connection with the termination of any operating lease.
Attributable Debt in respect of a Sale and Leaseback Transaction means, at the time of determination, the present value of the total obligations of the lessee for net rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction, including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP.
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Business Day means each day which is not a Saturday, a Sunday or a day on which commercial banking institutions are not required to be open in the State of New York.
Capital Stock means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.
Capitalized Lease Obligation means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized and reflected as a liability on a balance sheet (excluding the footnotes thereto) in accordance with GAAP.
Cash Distribution means a cash distribution from the Issuer to Kimberly-Clark, in an amount determined by Kimberly-Clark, that was funded on or prior to the Distribution Date with (i) the net cash proceeds from the Notes, plus (ii) the net cash proceeds from the term loan portion of the Senior Credit Facilities received by the Issuer on or before such distribution, plus (iii) cash held by the Issuer and its Restricted Subsidiaries on the distribution date plus (iv) the net cash proceeds resulting from the settlement of certain intercompany transactions between the Issuer and its Subsidiaries, on the one hand, and Kimberly-Clark and its subsidiaries, on the other hand, minus (v) an amount (to be not less than $40.0 million) determined by Kimberly-Clark to be retained by the Issuer or its Restricted Subsidiaries for working capital and other general corporate purposes of the Issuer and its Subsidiaries.
Cash Equivalents means:
(1) United States dollars;
(2) (a) euro, or any national currency of any member state of the European Union; or (b) in the case of any Foreign Subsidiary that is a Restricted Subsidiary, such local currencies held by them from time to time in the ordinary course of business;
(3) securities issued or directly and fully and unconditionally guaranteed or insured by (i) the U.S. government or any agency or instrumentality thereof or (ii) any foreign country whose sovereign debt is rated at least A1 by Moodys and at least A+ by S&P or any agency or instrumentality of such foreign country, in each case the securities of which are unconditionally guaranteed as a full faith and credit obligation of such government with maturities of 24 months or less from the date of acquisition;
(4) certificates of deposit, time deposits and dollar time deposits with maturities of one year or less from the date of acquisition, bankers acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any commercial bank having capital and surplus of not less than $500.0 million in the case of U.S. banks and $100.0 million (or the U.S. dollar equivalent as of the date of determination) in the case of non U.S. banks;
(5) repurchase obligations for underlying securities of the types described in clauses (3) and (4) above and clause (7) below entered into with any financial institution meeting the qualifications specified in clause (4) above;
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(6) commercial paper rated at least P-1 by Moodys or at least A-1 by S&P (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency) and in each case maturing within 24 months after the date of creation thereof;
(7) marketable short term money market and similar securities having a rating of at least P-2 or A-2 from either Moodys or S&P, respectively (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency) and in each case maturing within 24 months after the date of creation thereof;
(8) readily marketable direct obligations issued by any state, commonwealth or territory of the United States or any political subdivision or taxing authority thereof having an Investment Grade Rating from either Moodys or S&P (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency) with maturities of 24 months or less from the date of acquisition;
(9) Investments with average maturities of 24 months or less from the date of acquisition in money market funds rated AAA (or the equivalent thereof) or better by S&P or Aaa3 (or the equivalent thereof) or better by Moodys (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency); and
(10) securities of, or other evidence of investments in, investment funds investing 95% of their assets in securities of the types described in clauses (1) through (9) of this definition above).
In the case of Investments by any Foreign Subsidiary that is a Restricted Subsidiary or Investments made in a country outside the United States of America, Cash Equivalents shall also include (i) investments of the type and maturity described in clauses (1) through (10) above of foreign obligors, which Investments or obligors (or the parents of such obligors) have ratings described in such clauses or equivalent ratings from comparable foreign rating agencies and (ii) other short-term investments utilized by Foreign Subsidiaries that are Restricted Subsidiaries in accordance with normal investment practices for cash management in investments analogous to the foregoing investments in clauses (1) through (10) and in this paragraph.
Notwithstanding the foregoing, Cash Equivalents shall include amounts denominated in currencies other than those set forth in clauses (1) and (2) above; provided that such amounts are converted into any currency listed in clauses (1) and (2) as promptly as practicable and in any event within ten Business Days following the receipt of such amounts.
Change of Control means the occurrence of any of the following:
(1) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of the assets of the Issuer and its Subsidiaries, taken as a whole, to any Person;
(2) the Issuer becomes aware of (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act or any successor provision), in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of 50% or more of the total voting power of the Voting Stock of the Issuer (directly or through the acquisition of voting power of Voting Stock of any direct or indirect parent company of the Issuer); or
(3) the approval of any plan or proposal for the winding up or liquidation of the Issuer.
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For purposes of this definition, any direct or indirect holding company of the Issuer shall not itself be considered a Person or group for purposes of clause (2) above; provided that no Person or group beneficially owns, directly or indirectly, 50% or more of the total voting power of the Voting Stock of such holding company. For the avoidance of doubt, the Separation and Distribution will not be considered a Change of Control.
Change of Control Repurchase Event means the occurrence of both a Change of Control and a Rating Decline.
Consolidated Depreciation and Amortization Expense means, with respect to any Person, for any period, the total amount of depreciation and amortization expense, including the amortization of deferred financing fees of such Person and its Restricted Subsidiaries for such period on a consolidated basis and otherwise determined in accordance with GAAP.
Consolidated Fixed Charge Coverage Ratio means, as of any date of determination, the ratio of: EBITDA to Consolidated Interest Expense of the Issuer and its Restricted Subsidiaries for the most recently ended four full fiscal quarters ending immediately prior to such date for which internal financial statements are available.
In the event that the Issuer or any of its Restricted Subsidiaries (i) incurs, assumes, guarantees, redeems, retires or extinguishes any Indebtedness (other than Indebtedness incurred under any revolving credit facility or other incurrence of Indebtedness for working capital purposes pursuant to working capital facilities, unless, in each case, such Indebtedness has been permanently repaid and has not been replaced) or (ii) issues or redeems Disqualified Stock or Preferred Stock, in each case, on or subsequent to the commencement of the period for which the Consolidated Fixed Charge Coverage Ratio is being calculated but prior to or simultaneously with the event for which the calculation of the Consolidated Fixed Charge Coverage Ratio is made (the Consolidated Fixed Charge Coverage Ratio Calculation Date ), then the Consolidated Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee, redemption, retirement or extinguishment of Indebtedness, or such issuance or redemption of Disqualified Stock or Preferred Stock, as if the same had occurred on the first day of the applicable four quarter period.
For purposes of making the computation referred to above, Investments, acquisitions, dispositions, mergers, amalgamations and consolidations (as determined in accordance with GAAP) and operational changes, in each case with respect to a business, a company, a segment, an operating division or unit or line of business that the Issuer or any of its Restricted Subsidiaries has determined to make and/or made during the four quarter reference period or subsequent to such reference period and on or prior to or simultaneously with the Consolidated Fixed Charge Coverage Ratio Calculation Date shall be calculated on a pro forma basis assuming that all such Investments, acquisitions, dispositions, mergers, amalgamations and consolidations and operational changes (and the change of any associated Fixed Charges and the change in EBITDA resulting therefrom) had occurred on the first day of the four quarter period. If since the beginning of such period any Person that subsequently became a Restricted Subsidiary or was merged with or into the Issuer or any of its Restricted Subsidiaries since the beginning of such period shall have made any Investment, acquisition, disposition, merger, amalgamation and consolidation and operational changes, in each case with respect to a business, a company, a segment, an operating division or unit or line of business that would have required adjustment pursuant to this definition, then the Consolidated Fixed Charge Coverage Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, acquisition, disposition, merger, amalgamation and consolidation and operational changes had occurred at the beginning of the applicable four quarter period.
For purposes of this definition, whenever pro forma effect is to be given to a transaction, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of the Issuer. Any such pro forma calculation may include adjustments appropriate, in the reasonable determination of the Issuer, as set forth in an Officers Certificate, to reflect reasonably identifiable and factually supportable cost-savings,
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operating expense reductions, restructuring charges and expenses and other operating improvements or synergies reasonably expected to result from any action taken or expected to be taken within 12 months after the date of any acquisition, disposition, merger, amalgamation, consolidation or operational changes; provided that no such amounts shall be included pursuant to this paragraph to the extent duplicative of any amounts that are otherwise added back in computing EBITDA with respect to such period.
If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the Consolidated Fixed Charge Coverage Ratio Calculation Date had been the applicable rate for the entire four quarter period (taking into account any Hedging Obligations applicable to such Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by a responsible financial or accounting officer of the Issuer to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP. For purposes of making the computation referred to above, interest on any Indebtedness under a revolving credit facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the applicable four quarter period. Interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Issuer may designate.
Consolidated Indebtedness means, as of any date of determination, the sum, without duplication, of (1) the total amount of (A) Indebtedness for borrowed money, (B) Indebtedness evidenced by bonds, notes (other than notes in favor of trade creditors evidencing trade payables incurred in the ordinary course of business), debentures or other similar instruments for the payment of which such Person is liable, (C) Capitalized Lease Obligations, (D) the Notes and (E) guarantees of the foregoing, in each case, of the Issuer and its Restricted Subsidiaries (excluding (x) Indebtedness in respect of letters of credit and bankers acceptances (or, without duplication, reimbursement agreements in respect thereof), except to the extent of unreimbursed amounts drawn thereunder, (y) intercompany Indebtedness and (z) Indebtedness in respect of Hedging Obligations not yet due and owing), outstanding on such date; minus (2) up to $40.0 million of unrestricted cash included in the consolidated balance sheet of the Issuer and its Restricted Subsidiaries, as of the most recently ended fiscal period (with such pro forma adjustments as are appropriate and consistent with the pro forma adjustment provisions set forth in the definition of Consolidated Fixed Charge Coverage Ratio as determined in good faith by the Issuer); plus (3) the greater of (i) the aggregate liquidation preference and (ii) maximum fixed repurchase price without regard to any change of control or redemption premiums of all Disqualified Stock of the Issuer and the Guarantors and all Preferred Stock of Restricted Subsidiaries, in each case determined on a consolidated basis in accordance with GAAP. For purposes of this definition, the maximum fixed repurchase price of any Disqualified Stock or Preferred Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock or Preferred Stock as if such Disqualified Stock or Preferred Stock were purchased on any date on which Consolidated Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Stock or Preferred Stock, such fair market value shall be the fair market value (as determined in good faith by the Issuer).
Consolidated Interest Expense means, with respect to any Person for any period, without duplication, the sum of:
(1) consolidated interest expense of such Person and its Restricted Subsidiaries for such period to the extent such expense was deducted (and not added back) in computing Consolidated Net Income (including (a) amortization of original issue discount resulting from the issuance of Indebtedness at less than par, (b) all commissions, discounts and other fees and charges owed with respect to letters of credit or bankers acceptances, (c) non-cash interest expense (but excluding any non-cash interest expense attributable to the movement in the mark to market valuation of Hedging Obligations or other derivative instruments pursuant to GAAP), (d) the interest component of Capitalized Lease Obligations, (e) imputed interest with respect to Attributable Debt and
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(f) net payments, if any, pursuant to interest rate Hedging Obligations with respect to Indebtedness, and excluding (w) Additional Interest paid in respect of the Notes to the extent that the Issuer is no longer required to pay Additional Interest in respect thereof, (x) amortization of deferred financing fees, debt issuance costs, commissions, fees and expenses, (y) any expensing of bridge, commitment and other financing fees and (z) commissions, discounts, yield and other fees and charges (including any interest expense) related to any Receivables Facility); plus
(2) consolidated capitalized interest of such Person and such Subsidiaries for such period, whether paid or accrued; plus
(3) any interest expense of Indebtedness of another Person Guaranteed by such Person or one or more of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries to the extent such Guarantee or Lien is called upon; plus
(4) whether or not treated as interest expense in accordance with GAAP, all cash dividends or other distributions accrued (excluding dividends payable solely in Equity Interests (other than Disqualified Stock) of the Issuer) on any series of Disqualified Stock or any series of Preferred Stock during such period.
For purposes of this definition, interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by such Person to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP.
Consolidated Net Income means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, and otherwise determined in accordance with GAAP (it being understood that for purposes of calculating Consolidated Net Income of the Issuer and its Restricted Subsidiaries for any period prior to the Separation and Distribution, such calculation shall be based on the combined audited or unaudited financial statements of Kimberly-Clarks health care business included in the Offering Memorandum, as applicable); provided , however , that, without duplication:
(1) any after-tax effect of extraordinary, non-recurring or unusual gains, charges, costs, losses, income or expenses (including expenses relating to (a) severance and relocation costs or (b) any rebranding or corporate name change), shall be excluded,
(2) the Net Income for such period shall not include the cumulative effect of a change in accounting principles during such period,
(3) any after-tax effect of income (loss) from disposed, abandoned or discontinued operations and any net after-tax gains or losses on disposal of disposed, abandoned or discontinued operations shall be excluded,
(4) any after-tax effect of gains or losses (less all fees and expenses relating thereto) attributable to asset dispositions other than in the ordinary course of business, as determined in good faith by the Issuer, shall be excluded,
(5) the Net Income for such period of any Person that is not a Subsidiary, or is an Unrestricted Subsidiary, or that is accounted for by the equity method of accounting, shall be excluded; provided that Consolidated Net Income of the Issuer shall be increased by the amount of dividends or distributions or other payments that are actually paid in cash (or to the extent converted into cash or Cash Equivalents) to the Issuer or a Restricted Subsidiary in respect of such period,
(6) solely for the purposes of determining the amount available for Restricted Payments under clause (3) of the first paragraph under Certain CovenantsLimitation on Restricted Payments, the Net Income for
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such period of any Restricted Subsidiary that is not a Guarantor shall be excluded if the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of its Net Income is not at the date of determination wholly permitted without any prior governmental approval (which has not been obtained) or, directly or indirectly, by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule, or governmental regulation applicable to that Restricted Subsidiary or its stockholders, unless such restriction with respect to the payment of dividends or similar distributions has been legally waived; provided that Consolidated Net Income of the Issuer will be increased by the amount of dividends or other distributions or other payments actually paid in cash (or to the extent converted into cash or Cash Equivalents) to the Issuer or a Restricted Subsidiary thereof in respect of such period, to the extent not already included therein,
(7) any after-tax effect of income (loss) from the early extinguishment of Indebtedness or Hedging Obligations or other derivative instruments shall be excluded,
(8) any royalties incurred during such period in connection with the Transactions and any fees and expenses incurred during such period, or any amortization thereof for such period, in connection with the Transactions and any acquisition, Investment, Asset Sale, issuance or repayment of Indebtedness, issuance of Equity Interests, refinancing transaction or amendment or modification of any debt instrument (in each case, including any such transaction consummated prior to the Issue Date and any such transaction undertaken but not completed) and any charges or non-recurring merger costs incurred during such period as a result of any such transaction shall be excluded,
(9) to the extent covered by insurance and actually reimbursed, or, so long as the Issuer has made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer and only to the extent that such amount is in fact reimbursed within 365 days of the date of such determination (with a deduction in the applicable future period for any amount so excluded to the extent not so reimbursed within such 365 day period), expenses, charges or losses with respect to liability or casualty events or business interruption shall be excluded,
(10) any non-cash compensation expense realized from employee benefit plans or other post-employment benefit plans, grants of stock appreciation or similar rights, stock options or other rights to officers, directors and employees of such Person or any of its Restricted Subsidiaries shall be excluded,
(11) any impairment charge or asset write-off, in each case, pursuant to GAAP and the amortization of intangibles arising pursuant to GAAP shall be excluded, and
(12) effects of adjustments in the property and equipment and other intangible assets, deferred revenue and debt line items in such Persons consolidated financial statements pursuant to GAAP resulting from the application of purchase accounting in relation to any consummated acquisition after the Escrow Release Date and any increase in amortization or depreciation or other noncash charges resulting therefrom and any write-off of any amounts thereof, net of taxes, shall be excluded.
Consolidated Secured Leverage Ratio , as of any date of determination, means the ratio of (1) Consolidated Indebtedness of the Issuer and its Restricted Subsidiaries that is secured by a Lien as of such date, to (2) EBITDA of the Issuer and its Restricted Subsidiaries for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding such date, in each case with such pro forma adjustments to Consolidated Indebtedness and EBITDA as are appropriate and consistent with the pro forma adjustment provisions set forth in the definition of Consolidated Fixed Charge Coverage Ratio.
Consolidated Total Leverage Ratio , as of any date of determination, means the ratio of (1) Consolidated Indebtedness of the Issuer and its Restricted Subsidiaries, to (2) EBITDA of the Issuer and its Restricted Subsidiaries for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding such date, in each case with such pro forma adjustments to Consolidated
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Indebtedness and EBITDA as are appropriate and consistent with the pro forma adjustment provisions set forth in the definition of Consolidated Fixed Charge Coverage Ratio.
Contingent Obligations means, with respect to any Person, any obligation of such Person guaranteeing any leases, dividends or other obligations that do not constitute Indebtedness ( primary obligations ) of any other Person (the primary obligor ) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent:
(1) to purchase any such primary obligation or any property constituting direct or indirect security therefor,
(2) to advance or supply funds:
(a) for the purchase or payment of any such primary obligation, or
(b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, or
(c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof.
Credit Facilities means, with respect to the Issuer or any of its Restricted Subsidiaries, one or more debt facilities, including the Senior Credit Facilities, or other financing arrangements (including, without limitation, commercial paper facilities, receivables financing or indentures) providing for revolving credit loans, term loans, letters of credit, bankers acceptances or other Indebtedness, including any notes, mortgages, guarantees, collateral documents, instruments and agreements executed in connection therewith, and any amendments, supplements, modifications, extensions, renewals, restatements or refundings thereof and any indentures or credit facilities or commercial paper facilities that replace, refund or refinance any part of the loans, notes, other credit facilities or commitments thereunder, including any such replacement, refunding or refinancing facility or indenture that increases the amount permitted to be borrowed thereunder or alters the maturity thereof ( provided that such increase in borrowings is permitted under Certain CovenantsLimitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock) or adds Restricted Subsidiaries as additional borrowers or guarantors thereunder and whether by the same or any other agent, lender or group of lenders.
Default means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
Designated Non-cash Consideration means the fair market value (as determined in good faith by the Issuer) of non-cash consideration received by the Issuer or any of its Restricted Subsidiaries in connection with an Asset Sale.
Disqualified Stock means, with respect to any Person, any Capital Stock of such Person which, by its terms, or by the terms of any security into which it is convertible or for which it is putable or exchangeable, or upon the happening of any event, matures or is mandatorily redeemable (other than solely as a result of a change of control or asset sale) pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof (other than solely as a result of a change of control or asset sale), in whole or in part, in each case prior to the date 91 days after the earlier of the maturity date of the Notes or the date the Notes are no longer outstanding; provided , however , that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such date shall be deemed to be Disqualified Stock; provided further , however , that if such Capital Stock is issued to
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any employee or any plan for the benefit of employees of the Issuer or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Issuer or its Subsidiaries in order to satisfy applicable statutory or regulatory obligations or as a result of any such employees termination, death or disability; provided further , however , that any class of Capital Stock of such Person that by its terms authorizes such Person to satisfy its obligations thereunder by delivery of Capital Stock that is not Disqualified Stock shall not be deemed to be Disqualified Stock.
Distribution means Kimberly-Clarks distribution of the shares of the Issuers common stock to Kimberly-Clarks stockholders.
Distribution Agreement means the Distribution Agreement between Kimberly-Clark and the Issuer, dated on or prior to the Distribution Date.
Distribution Date means the date on which the Distribution was made.
Domestic Subsidiary means any Subsidiary that is organized or existing under the laws of the United States, any state thereof or the District of Columbia but excluding any such Subsidiary that is a Subsidiary of a Foreign Subsidiary.
EBITDA means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period:
(1) increased, to the extent deducted (and not added back in computing Consolidated Net Income, without duplication) by:
(a) provision for taxes based on income or profits or capital gains, including, without limitation, federal, state, non-U.S. franchise, excise, value added and similar taxes and foreign withholding taxes of such Person paid or accrued during such period, including any penalties and interest relating to such taxes or arising from any tax examinations; plus
(b) Consolidated Interest Expense of such Person for such period; plus
(c) Consolidated Depreciation and Amortization Expense of such Person for such period; plus
(d) any fees, expenses or charges related to any Equity Offering, Permitted Investment, acquisition, disposition, recapitalization or the incurrence, modification, amendment or repayment of Indebtedness permitted to be incurred by the Indenture (including a refinancing thereof) (whether or not successful), including (i) such fees, expenses or charges related to the offering of the Notes and the Senior Credit Facilities and the other Transactions and any amendment or modification of Indebtedness permitted to be incurred by the Indenture and (ii) commissions, discounts, yield and other fees, charges and expenses (including interest expense) related to any Receivables Facility; plus
(e) the amount of any restructuring charge or reserve, including any restructuring costs incurred in connection with acquisitions, mergers or consolidations after the Issue Date and costs related to the closure and/or consolidation of facilities, retention charges, systems establishment costs, excess pension charges and severance costs; plus
(f) any other non-cash charges, including any write offs or write downs and non-cash compensation expenses recorded from grants of stock appreciation or similar rights, stock options, restricted stock or other rights ( provided that if any such non-cash charges represent an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof in such future period shall be subtracted from EBITDA in such future period to the extent paid, but excluding from this proviso, for the avoidance of doubt, amortization of a prepaid cash item that was paid in a prior period); plus
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(g) the amount of any minority interest expense consisting of Subsidiary income attributable to minority equity interests of third parties in any non-Wholly Owned Subsidiary; plus
(h) the amount of loss on sale of receivables and related assets to the Receivables Subsidiary in connection with a Receivables Facility; plus
(i) any costs or expense incurred by the Issuer or a Restricted Subsidiary pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any stock subscription or shareholder agreement, to the extent that such cost or expenses are funded with cash proceeds contributed to the capital of the Issuer or net cash proceeds of an issuance of Equity Interest of the Issuer (other than Disqualified Stock) solely to the extent that such net cash proceeds are excluded from the calculation set forth in clause (3) of the first paragraph under Certain CovenantsLimitation on Restricted Payments; plus
(j) the amount of cost savings, operating expense reductions, other operating improvements and initiatives and synergies projected by the Issuer in good faith to be reasonably anticipated to be realizable within 12 months of the date of any Investment, acquisition, disposition, merger, consolidation, restructuring, cost-savings initiative, or initiative or other action being given pro forma effect (which will be added to EBITDA as so projected until fully realized and calculated on a pro forma basis as though such cost savings, operating expense reductions, other operating improvements and initiatives and synergies had been realized on the first day of such period), net of the amount of actual benefits realized during such period from such actions; provided that (x) substantially all steps have been taken or procedures are in place for realizing such cost savings, operating expense reductions, other operating improvements and initiatives and synergies and (y) such cost savings, operating expense reductions, other operating improvements and initiatives and synergies are reasonably identifiable and factually supportable (in the good faith determination of the Issuer);
(2) decreased by (without duplication) non-cash gains increasing Consolidated Net Income of such Person for such period, excluding any non-cash gains to the extent they represent the accrual of revenue in the ordinary course of business or the reversal of an accrual or reserve for a potential cash item that reduced EBITDA in any prior period; and
(3) increased or decreased by (without duplication):
(a) any net loss or gain resulting in such period from Hedging Obligations and the application of Financial Accounting Codification No. 815-Derivatives and Hedging;
(b) any net loss or gain resulting in such period from currency translation gains or losses related to currency remeasurements of Indebtedness (including any net loss or gain resulting from hedge agreements for currency exchange risk); and
(c) any adjustment of the nature used in connection with the calculation of Adjusted EBITDA, as set forth in footnote 3 in the section SummarySummary Historical and Pro Forma Combined Financial Data in the Offering Memorandum.
Employee Matters Agreement means the Employee Matters Agreement between Kimberly-Clark and the Issuer, to be dated on or prior to the Distribution Date.
EMU means economic and monetary union as contemplated in the Treaty on European Union.
Equity Interests means Capital Stock and all warrants, options or other rights to acquire Capital Stock, but excluding any debt security that is convertible into, or exchangeable for, Capital Stock.
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Equity Offering means any public or private sale of common stock or Preferred Stock of the Issuer (excluding Disqualified Stock), other than:
(1) public offerings with respect to any of the Issuers common stock registered on Form S-4 or Form S-8;
(2) issuances to any Subsidiary of the Issuer; and
(3) Refunding Capital Stock.
Escrow Agent means Deutsche Bank Trust Company Americas, as escrow agent.
Escrow Agreement means the Escrow Agreement, dated as of the Issue Date, among the Issuer, the Trustee and the Escrow Agent.
Escrow Release Date means the date the Escrow Agent released the escrowed funds from the escrow account in accordance with the terms of the Escrow Agreement.
euro means the single currency of participating member states of the EMU.
Event of Default has the meaning set forth under Events of Default and Remedies.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
Foreign Subsidiary means any Subsidiary that is not a Domestic Subsidiary.
Form 10 means the registration statement on Form 10 originally filed by the Issuer with the SEC on May 6, 2014, as amended or supplemented.
GAAP means generally accepted accounting principles in the United States which are in effect on the Issue Date; except with respect to any reports or financial information required to be delivered pursuant to Certain CovenantsReports and Other Information, which shall be prepared in accordance with GAAP as in effect on the date thereof.
Government Securities means securities that are:
(1) direct obligations of, or obligations guaranteed by, the United States of America for the timely payment of which its full faith and credit is pledged; or
(2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America,
which, in either case, are not callable or redeemable at the option of the issuers thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such Government Securities or a specific payment of principal of or interest on any such Government Securities held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Securities or the specific payment of principal of or interest on the Government Securities evidenced by such depository receipt.
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guarantee means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness or other obligations.
Guarantee means the guarantee by any Guarantor of the Issuers Obligations under the Notes and the Indenture.
Guarantor means each Restricted Subsidiary that incurs a Guarantee of the Notes; provided that upon the release or discharge of such Person from its Guarantee in accordance with the Indenture, such Person automatically ceases to be a Guarantor.
Hedging Obligations means, with respect to any Person, the obligations of such Person under any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, commodity swap agreement, commodity cap agreement, commodity collar agreement, foreign exchange contract, currency swap agreement or similar agreement providing for the transfer or mitigation of interest rate, commodity price or currency risks either generally or under specific contingencies (including indemnity agreements or arrangements in connection with the foregoing).
Holder means the Person in whose name a Note is registered on the registrars books.
Indebtedness means, with respect to any Person, without duplication:
(1) any indebtedness (including principal and premium) of such Person, whether or not contingent:
(a) in respect of borrowed money;
(b) evidenced by bonds, notes, debentures or similar instruments or letters of credit or bankers acceptances (or, without duplication, reimbursement agreements in respect thereof);
(c) representing the balance deferred and unpaid of the purchase price of any property or services, except (i) any such balance that constitutes a trade payable or similar obligation to a trade creditor, in each case accrued in the ordinary course of business, (ii) any earn-out obligations until such obligation becomes due and payable and is not so paid, and (iii) liabilities accrued in the ordinary course of business; or
(d) representing any Hedging Obligations;
if and to the extent that any of the foregoing Indebtedness (other than letters of credit, bankers acceptances (or reimbursement agreements in respect thereof) and Hedging Obligations) would appear as a liability upon a balance sheet (excluding the footnotes thereto) of such Person prepared in accordance with GAAP;
(2) all Attributable Debt and all Capitalized Lease Obligations;
(3) to the extent not otherwise included, any obligation by such Person to be liable for, or to pay, as obligor, guarantor or otherwise, on Indebtedness of the type referred to in clause (1) of a third Person (whether or not such items would appear upon the balance sheet of such obligor or guarantor), other than by endorsement of negotiable instruments for collection in the ordinary course of business; and
(4) to the extent not otherwise included, Indebtedness of the type referred to in clause (1) of a third Person secured by a Lien on any asset owned by such first Person (other than Liens on Equity Interests of Unrestricted Subsidiaries securing Indebtedness of such Unrestricted Subsidiaries), whether or not such Indebtedness is assumed by such first Person; provided , for purposes hereof the amount of such Indebtedness shall be the lesser of the Indebtedness so secured and the fair market value of the assets of the first person securing such Indebtedness;
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provided , however , that notwithstanding the foregoing, Indebtedness shall be deemed not to include (a) Contingent Obligations incurred in the ordinary course of business, (b) deferred or prepaid revenues, or (c) obligations under or in respect of Receivables Facilities. Furthermore, notwithstanding the foregoing, any Indebtedness that has been defeased in accordance with GAAP or defeased pursuant to the deposit of cash or Cash Equivalents (in an amount sufficient to satisfy all such obligations relating to Indebtedness at maturity or redemption, as applicable, and all payments of interest and premium, if any) in a trust or account created or pledged for the sole benefit of the holders of such Indebtedness, and subject to no other Liens, and the other applicable terms of the instrument governing such Indebtedness, shall not constitute or be deemed Indebtedness; provided that such defeasance has been made in a manner not prohibited by the Indenture.
Independent Financial Advisor means an accounting, appraisal, investment banking firm or consultant to Persons engaged in Similar Businesses of nationally recognized standing that is, in the good faith judgment of the Issuer, qualified to perform the task for which it has been engaged.
Initial Purchasers means Morgan Stanley & Co. LLC (as Representative ) and the other Initial Purchasers represented by such Representative.
Intellectual Property Agreements means each of the intellectual property license agreements and trademark license agreements between Kimberly-Clark or its Subsidiaries and the Issuer or its Subsidiaries, dated on or prior to the Distribution Date.
Investment Grade Rating means a rating equal to or higher than Baa3 (or the equivalent) by Moodys and BBB- (or the equivalent) by S&P, or an equivalent rating by any other Rating Agency, and in each such case with a stable or better outlook.
Investment Grade Securities means:
(1) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (other than Cash Equivalents);
(2) debt securities or debt instruments with an Investment Grade Rating, but excluding any debt securities or instruments constituting loans or advances among the Issuer and its Subsidiaries;
(3) investments in any fund that invests exclusively in investments of the type described in clauses (1) and (2) which fund may also hold immaterial amounts of cash pending investment or distribution; and
(4) corresponding instruments in countries other than the United States customarily utilized for high quality investments.
Investments means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of loans (including guarantees), advances or capital contributions (excluding accounts receivable, trade credit, deposits, advances to customers, dealers, distributors and suppliers, commission, payroll, travel and similar advances to officers and employees, in each case made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities issued by any other Person and investments that are required by GAAP to be classified on the balance sheet (excluding the footnotes) of such Person in the same manner as the other investments included in this definition to the extent such transactions involve the transfer of cash or other property. For purposes of the definition of Unrestricted Subsidiary and the covenant described under Certain CovenantsLimitation on Restricted Payments:
(1) Investments shall include the portion (proportionate to the Issuers direct or indirect equity interest in such Subsidiary) of the fair market value (as determined in good faith by the Issuer) of the net assets of
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a Subsidiary of the Issuer at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Issuer or applicable Restricted Subsidiary shall be deemed to continue to have a permanent Investment in an Unrestricted Subsidiary in an amount (if positive) equal to:
(a) the Issuers direct or indirect Investment in such Subsidiary at the time of such redesignation; less
(b) the portion (proportionate to the Issuers direct or indirect equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, as determined in good faith by the Issuer.
If the Issuer or any Restricted Subsidiary sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary, the Issuer will be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed. The acquisition by the Issuer or any Restricted Subsidiary of a Person that holds an Investment in a third Person will be deemed to be an Investment by the Issuer or such Restricted Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person.
The amount of any Investment outstanding at any time shall be the original cost of such Investment, reduced by any dividend, distribution, interest payment, return of capital, repayment or other amount received in cash by the Issuer or a Restricted Subsidiary in respect of such Investment.
Issue Date means October 17, 2014.
Kimberly-Clark means Kimberly-Clark Corporation, a Delaware corporation.
Lien means, with respect to any asset, any mortgage, lien (statutory or otherwise), pledge, hypothecation, charge, security interest, preference, priority or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or similar agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction; provided that in no event shall an operating lease be deemed to constitute a Lien.
Manufacturing and Supply Agreements means one or more manufacturing and supply, distribution and non-competition agreements between Kimberly-Clark and the Issuer (or their respective Affiliates) dated on or prior to the Distribution Date.
Moodys means Moodys Investors Service, Inc. and any successor to its rating agency business.
Net Income means, with respect to any Person, the net income (loss) attributable to such Person and its Restricted Subsidiaries, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends.
Net Proceeds means the aggregate cash proceeds and the fair market value of any Cash Equivalents received by the Issuer or any of its Restricted Subsidiaries in respect of any Asset Sale, including any cash received upon the sale or other disposition of any Designated Non-cash Consideration received in any Asset Sale, net of the direct costs relating to such Asset Sale and the sale or disposition of such Designated Non-cash Consideration, including legal, accounting and investment banking fees, and brokerage and sales commissions,
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any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), in the case of any Asset Sale by a Restricted Subsidiary that is not a Wholly Owned Subsidiary, the pro-rata portion of the net proceeds thereof attributable to minority interests and not available for distribution to or for the account of the Issuer or a Restricted Subsidiary, amounts required to be applied to the repayment of principal, premium, if any, and interest on Indebtedness (other than Subordinated Indebtedness) required (other than required by clause (1) of the second paragraph of Repurchase at the Option of HoldersAsset Sales) to be paid as a result of such transaction, any costs associated with unwinding any related Hedging Obligations in connection with such transaction and any deduction of appropriate amounts to be provided by the Issuer or any of its Restricted Subsidiaries as a reserve in accordance with GAAP against any liabilities associated with the asset disposed of in such transaction and retained by the Issuer or any of its Restricted Subsidiaries after such sale or other disposition thereof, including pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction.
Non-Guarantor Subsidiary means any Restricted Subsidiary that is not a Guarantor.
Obligations means any principal (including any accretion), interest (including any interest accruing subsequent to the filing of a petition in bankruptcy, reorganization or similar proceeding at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable state, federal or foreign law), penalties, fees, indemnifications, reimbursements (including reimbursement obligations with respect to letters of credit and bankers acceptances), damages and other liabilities, and guarantees of payment of such principal (including any accretion), interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities, payable under the documentation governing any Indebtedness.
Offering Memorandum means the offering memorandum, dated October 2, 2014, relating to the sale of the old notes.
Officer means the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, the President, any Executive Vice President, Senior Vice President or Vice President, the Treasurer, Assistant Treasurer, the Secretary or the Assistant Secretaries of the Issuer.
Officers Certificate means a certificate signed on behalf of the Issuer by an Officer of the Issuer, who must be the principal executive officer, the principal financial officer or the principal accounting officer of the Issuer that meets the requirements set forth in the Indenture.
Opinion of Counsel means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Issuer.
Pari Passu Indebtedness means indebtedness of the Issuer or a Guarantor that ranks equally in right of payment with the Notes or such Guarantors Guarantee, as applicable.
Permitted Investments means:
(1) any Investment in the Issuer or any of its Restricted Subsidiaries;
(2) any Investment in cash, Cash Equivalents or Investment Grade Securities;
(3) any Investment by the Issuer or any of its Restricted Subsidiaries in a Person that is engaged in a Similar Business if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary; or
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(b) such Person, in one transaction or a series of related transactions, is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Issuer or a Restricted Subsidiary, and, in each case, any Investment held by such Person;
provided, that such Investment was not acquired by such Person in contemplation of such acquisition, merger, consolidation or transfer;
(4) any Investment in securities or other assets not constituting cash or Cash Equivalents or Investment Grade Securities and received in connection with an Asset Sale made pursuant to the provisions of Repurchase at the Option of HoldersAsset Sales or any other disposition of assets not constituting an Asset Sale;
(5) any Investment (a) existing on the Issue Date or made pursuant to binding commitments in effect on the Issue Date or an Investment consisting of any replacement, extension, modification or renewal of any Investment existing on the Issue Date; provided that the amount of any such Investment may only be increased as required by the terms of such Investment as in existence on the Issue Date, or (b) made or acquired pursuant to the Transactions;
(6) any Investment acquired by the Issuer or any of its Restricted Subsidiaries:
(a) in exchange for any other Investment or accounts receivable held by the Issuer or any such Restricted Subsidiary in connection with or as a result of a bankruptcy workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable;
(b) as a result of a foreclosure by the Issuer or any of its Restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default; or
(c) as a result of the settlement, compromise or resolution of litigation, arbitration or other disputes or in satisfaction of judgments against other Persons, in each case, with Persons who are not Affiliates of the Issuer;
(7) Hedging Obligations permitted under clause (9) of the covenant described in Certain CovenantsLimitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock;
(8) Investments the payment for which consists of Equity Interests (exclusive of Disqualified Stock) of the Issuer;
(9) guarantees of Indebtedness permitted under the covenant described in Certain Covenants Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock;
(10) any transaction to the extent it constitutes an Investment that is permitted and made in accordance with the provisions of the second paragraph of the covenant described under Certain Covenants Transactions with Affiliates (except transactions described in clauses (2), (6), (8), (9) and (11) of such paragraph);
(11) Investments consisting of (x) purchases and acquisitions of inventory, supplies, material, services or equipment, or other similar assets or purchases of contract rights or licenses or leases of intellectual property, in each case in the ordinary course of business or (y) the licensing or contribution of intellectual property pursuant to joint marketing arrangements with other Persons;
(12) additional Investments having an aggregate fair market value (as determined in good faith by the Issuer), taken together with all other Investments made pursuant to this clause (12) that are at that time outstanding (without giving effect to the sale of an Unrestricted Subsidiary to the extent the proceeds of such sale
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do not consist of cash or marketable securities), not to exceed the greater of (x) $125.0 million and (y) 5.0% of Total Assets at the time of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value);
(13) Investments in a Receivables Subsidiary or any Investment by a Receivables Subsidiary in any Person that, in the good faith determination of the Issuer is necessary or advisable to effect any Receivables Facility or any repurchases in connection therewith;
(14) advances to, or guarantees of Indebtedness of, officers, directors and employees not in excess of $10.0 million outstanding at any one time, in the aggregate;
(15) loans and advances to officers, directors and employees for business-related travel expenses, moving expenses, payroll expenses and other similar expenses, in each case incurred in the ordinary course of business or consistent with past practices or to fund such Persons purchase of Equity Interests of the Issuer;
(16) any Investment by the Issuer or any of its Restricted Subsidiaries in an Unrestricted Subsidiary or a joint venture engaged in a Similar Business in an aggregate amount, taken together with all other Investments made pursuant to this clause (16) that are at the time outstanding, not to exceed the greater of (x) $100.0 million and (y) 4.0% of Total Assets (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value);
(17) any Investment in any Subsidiary or joint venture in connection with intercompany cash management arrangements or related activities arising in the ordinary course of business;
(18) advances, guarantees, endorsements for collection or deposit or customary trade arrangements with customers, suppliers, vendors or distributors in the ordinary course of business;
(19) lease, utility and other similar deposits in the ordinary course of business; and
(20) guarantees by the Issuer or any of its Restricted Subsidiaries of operating leases or of other obligations that do not constitute Indebtedness, in each case entered into by the Issuer or any Restricted Subsidiary in the ordinary course of business.
Permitted Liens means, with respect to any Person:
(1) pledges, deposits or security by such Person under workmens compensation laws, unemployment insurance, employers health tax, and other social security laws or similar legislation or other insurance related obligations (including, but not limited to, in respect of deductibles, self-insured retention amounts and premiums and adjustments thereto) or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or U.S. government bonds to secure surety, stay, customs or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, performance and return of money bonds and other similar obligations (including letters of credit issued in lieu of any such bonds or to support the issuance thereof and including those to secure health, safety and environmental obligations), in each case incurred in the ordinary course of business;
(2) Liens imposed by law or regulation, such as carriers, warehousemens and mechanics Liens, in each case for sums not yet overdue for a period of more than 30 days or being contested in good faith by appropriate proceedings or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review if adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP;
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(3) Liens for taxes, assessments or other governmental charges not yet overdue for a period of more than 30 days or which are being contested in good faith by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP;
(4) Liens in favor of issuers of performance, surety bonds or bid, indemnity, warranty, release, appeal or similar bonds or with respect to other regulatory requirements or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business;
(5) survey exceptions, encumbrances, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not incurred in connection with Indebtedness or other covenants, conditions, restrictions and minor defects or irregularities in title ( Other Encumbrances ), in each case which Liens and Other Encumbrances do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;
(6) Liens securing Indebtedness permitted to be incurred pursuant to clause (4) or (17) of the second paragraph under Certain Covenants-Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock; provided that (x) Liens securing Indebtedness permitted to be incurred pursuant to clause (4) extend only to the assets and/or Capital Stock, the acquisition, lease, construction, repair, replacement or improvement of which is financed thereby and any replacements, additions and accessions thereto and any income or profits thereof, and (y) Liens securing Indebtedness permitted to be incurred pursuant to clause (17) extend only to the assets of Non-Guarantor Subsidiaries;
(7) Liens existing on the Issue Date or incurred in connection with the Transactions (other than incurred under the Senior Credit Facilities);
(8) Liens on property or shares of stock of a Person at the time such Person becomes a Subsidiary; provided, however, such Liens are not created or incurred in connection with, or in contemplation of, such other Person becoming such a Subsidiary; provided further , however, that such Liens may not extend to any other property owned by the Issuer or any of its Restricted Subsidiaries;
(9) Liens on property at the time the Issuer or a Restricted Subsidiary acquired the property, including any acquisition by means of a merger or consolidation with or into the Issuer or any of its Restricted Subsidiaries; provided however , that such Liens are not created or incurred in connection with, or in contemplation of, such acquisition, merger or consolidation; provided further , however, that the Liens may not extend to any other property owned by the Issuer or any of its Restricted Subsidiaries;
(10) Liens securing Indebtedness or other obligations of a Restricted Subsidiary owing to the Issuer or any Restricted Subsidiary permitted to be incurred in accordance with the second paragraph under Certain CovenantsLimitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock;
(11) Liens securing Hedging Obligations;
(12) Liens on specific items of inventory or other goods and proceeds of any Person securing such Persons obligations in respect of bankers acceptances or trade letters of credit issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(13) (a) leases, subleases, licenses or sublicenses (including of real property and intellectual property) granted to others in the ordinary course of business and, (b) with respect to any leasehold interest held by the Issuer or any of its Subsidiaries, the terms of the leases granting such leasehold interest and the rights of lessors
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thereunder, in the case of each of (a) and (b) which do not materially interfere with the ordinary conduct of the business of the Issuer or any of its Restricted Subsidiaries and do not secure any Indebtedness;
(14) Liens arising from Uniform Commercial Code (or equivalent statute) financing statement filings regarding operating leases entered into by the Issuer and its Restricted Subsidiaries in the ordinary course of business;
(15) Liens in favor of the Issuer or any Guarantor;
(16) Liens on equipment of the Issuer or any of its Restricted Subsidiaries granted in the ordinary course of business;
(17) Liens on accounts receivable and related assets incurred in connection with a Receivables Facility;
(18) Liens to secure any refinancing, refunding, extension, renewal or replacement (or successive refinancings, refundings, extensions, renewals or replacements) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clauses (6), (7), (8), (9) and this clause (18); provided , however , that (a) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements on such property), and (b) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (i) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clauses (6), (7), (8), (9) and this clause (18) at the time the original Lien became a Permitted Lien under the Indenture, and (ii) an amount necessary to pay any fees and expenses, including premiums, and accrued and unpaid interest related to such refinancing, refunding, extension, renewal or replacement;
(19) Liens on insurance policies and proceeds thereof, or other deposits, to secure insurance premium financings, in each case, made in the ordinary course of business;
(20) other Liens securing Obligations which do not exceed the greater of (x) $50.0 million and (y) 2.0% of Total Assets in aggregate principal amount at any one time outstanding;
(21) Liens securing judgments for the payment of money not constituting an Event of Default under clause (6) under the caption Events of Default and Remedies so long as such Liens are adequately bonded and any appropriate legal proceedings that may have been duly initiated for the review of such judgment have not been finally terminated or the period within which such proceedings may be initiated has not expired;
(22) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;
(23) Liens (i) of a collection bank arising under Section 4-210 of the Uniform Commercial Code or any comparable or successor provision on items in the course of collection, (ii) attaching to commodity trading accounts or other commodity brokerage accounts incurred in the ordinary course of business, and (iii) in favor of banking or other financial institutions arising as a matter of law or pursuant to customary depositary terms encumbering deposits (including the right of set-off) and which are within the general parameters customary in the banking industry;
(24) Liens deemed to exist in connection with Investments in repurchase agreements permitted under Certain CovenantsLimitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock; provided that such Liens do not extend to any assets other than those that are the subject of such repurchase agreement;
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(25) Liens encumbering reasonable customary initial deposits and margin deposits and similar Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business and not for speculative purposes;
(26) bankers liens, Liens that are statutory, common law or contractual rights of set-off and other similar Liens, in each case (i) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness, (ii) relating to pooled deposit or sweep accounts of the Issuer or any of its Restricted Subsidiaries to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Issuer and its Restricted Subsidiaries or (iii) relating to purchase orders and other agreements entered into with customers of the Issuer or any of its Restricted Subsidiaries in the ordinary course of business;
(27) Liens on assets of Non-Guarantor Subsidiaries securing Indebtedness of such Non-Guarantor Subsidiary;
(28) Liens on the Equity Interests of Unrestricted Subsidiaries that secure Indebtedness of such Unrestricted Subsidiaries;
(29) any encumbrance or restriction (including put and call arrangements) with respect to capital stock of any joint venture or similar arrangement pursuant to any joint venture or similar agreement;
(30) Liens on property or assets used to defease or to irrevocably satisfy and discharge Indebtedness; provided that such defeasance or satisfaction and discharge is not prohibited by the Indenture;
(31) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into in the ordinary course of business;
(32) Liens incurred to secure cash management services or to implement cash pooling arrangements in the ordinary course of business; and
(33) Liens solely on any cash earnest money deposits made by the Issuer or any of its Restricted Subsidiaries in connection with any letter of intent or purchase agreement in respect of any Investment permitted hereunder.
For purposes of this definition, the term Indebtedness shall be deemed to include interest on and the costs in respect of such Indebtedness.
Person means any individual, corporation, limited liability company, partnership, joint venture, association, joint stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.
Preferred Stock means any Equity Interest with preferential rights of payment of dividends or upon liquidation, dissolution, or winding up.
Rating Agencies means Moodys and S&P or if Moodys or S&P or both shall not make a rating on the Notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Issuer which shall be substituted for Moodys or S&P or both, as the case may be.
Rating Category means (a) with respect to S&P, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (b) with respect to Moodys, any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (c) the equivalent of any such category of S&P or Moodys used by another Rating Agency selected by the Issuer. In determining whether the rating of the Notes
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has decreased by one or more gradations, gradations within Rating Categories ((i) + and for S&P; (ii) 1, 2 and 3 for Moodys; and (iii) the equivalent gradations for another Rating Agency selected by the Issuer) shall be taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to BB, or from BB- to B+, will constitute a decrease of one gradation).
Rating Date means the date which is 90 days prior to the earlier of (a) a Change of Control or (b) public notice of the occurrence of a Change of Control or of the intention by the Issuer to effect a Change of Control.
Rating Decline with respect to the Notes shall be deemed to occur if, within 90 days after public notice of the occurrence of a Change of Control (which period shall be extended so long as the rating of the Notes is under publicly announced consideration for possible downgrade by either of the Rating Agencies with respect to a Rating Category), the rating of the Notes by each Rating Agency shall be decreased by one or more gradations to or within a Rating Category (including gradations within Rating Categories as well as between Rating Categories) as compared to the rating of the Notes on the Rating Date.
Receivables Facility means any of one or more securitization or receivables financing facilities as amended, supplemented, modified, extended, renewed, restated or refunded from time to time, the Obligations of which are non-recourse (except for customary representations, warranties, covenants and indemnities made in connection with such facilities) to the Issuer or any of its Restricted Subsidiaries (other than a Receivables Subsidiary) pursuant to which the Issuer or any of its Restricted Subsidiaries contributes, sells or otherwise conveys its accounts receivable, and related assets to either (a) a Person that is not a Restricted Subsidiary or (b) a Receivables Subsidiary that in turn sells, or grants a security interest in, its accounts receivable and related assets to a Person that is not a Restricted Subsidiary.
Receivables Fees means distributions or payments made directly or by means of discounts with respect to any accounts receivable or participation interest therein issued or sold in connection with, and other fees paid to a Person that is not a Restricted Subsidiary in connection with, any Receivables Facility.
Receivables Subsidiary means any Subsidiary formed for the purpose of, and that solely engages only in one or more Receivables Facilities and other activities reasonably related thereto.
Registration Rights Agreements means the Registration Rights Agreement with respect to the Notes, dated the Issue Date, among the Issuer and the Initial Purchasers and any similar registration rights agreements with respect to any Additional Notes.
Related Business Assets means (a) substantially all the assets of a business operating or engaged in a Similar Business, (b) Capital Stock in any Person operating or engaged in a Similar Business that results in the Issuer or any of its Restricted Subsidiaries, as the case may be, owning an amount of the Capital Stock of such Person such that it constitutes a Restricted Subsidiary or (c) any other property or assets (other than cash or Cash Equivalents) used or useful in a Similar Business; provided that any assets received by the Issuer or a Restricted Subsidiary in exchange for assets transferred by the Issuer or a Restricted Subsidiary shall not be deemed to be Related Business Assets if they consist of securities of a Person, unless upon receipt of the securities of such Person, such Person would become a Restricted Subsidiary.
Restricted Investment means an Investment other than a Permitted Investment.
Restricted Subsidiary means, at any time, each direct and indirect Subsidiary of the Issuer (including any Foreign Subsidiary) that is not then an Unrestricted Subsidiary; provided , however , that upon the occurrence of an Unrestricted Subsidiary ceasing to be an Unrestricted Subsidiary, such Subsidiary shall be included in the definition of Restricted Subsidiary.
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S&P means Standard & Poors, a division of McGraw Hill Financial, Inc., and any successor to its rating agency business.
Sale and Leaseback Transaction means any direct or indirect arrangement providing for the leasing by the Issuer or any of its Restricted Subsidiaries of any real or tangible personal property, which property has been or is to be sold or transferred for value by the Issuer or such Restricted Subsidiary to a third Person in contemplation of such leasing.
SEC means the U.S. Securities and Exchange Commission.
Secured Indebtedness means any Indebtedness of the Issuer or any of its Restricted Subsidiaries secured by a Lien. For the avoidance of doubt, Attributable Debt will be considered to be secured by the asset that is the subject of the Sale and Leaseback Transaction.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
Senior Credit Facilities means the credit facility under the credit agreement entered into in connection with the Transactions by and among the Issuer, the Guarantors, the lenders party thereto in their capacities as lenders thereunder, including any guarantees, collateral documents, instruments and agreements executed in connection therewith, and any amendments, supplements, modifications, extensions, renewals, restatements, refundings or refinancings thereof and any indentures or credit facilities or commercial paper facilities with banks or other institutional lenders or investors that replace, refund or refinance any part of the loans, notes, other credit facilities or commitments thereunder, including any such replacement, refunding or refinancing facility or indenture that increases the amount borrowable thereunder or alters the maturity thereof ( provided that such increase in borrowings is permitted under Certain CovenantsLimitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock above).
Separation means the series of internal transactions, including those described under the The Separation and Distribution, Our Relationship with Kimberly-Clark after the Distribution and Certain Relationships and Related Party Transactions or otherwise described in the Form 10 (including the payment by the Issuer of the Cash Distribution to Kimberly-Clark), following which the Issuer will hold the business constituting Kimberly-Clarks health care business.
Separation and Distribution Documents means the Distribution Agreement, Transition Services Agreement, Tax Matters Agreement, Employee Matters Agreement, Intellectual Property Agreements, Manufacturing and Supply Agreements and any other instruments, assignments, documents and agreements executed in connection with the implementation of the transactions contemplated by any of the foregoing.
Significant Subsidiary means any Restricted Subsidiary that would be a significant subsidiary as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such regulation is in effect on the Issue Date.
Similar Business means any business conducted or proposed to be conducted by the Issuer and its Restricted Subsidiaries as described in the Offering Memorandum or any business that is similar, reasonably related, incidental or ancillary thereto.
Subordinated Indebtedness means:
(1) any Indebtedness of the Issuer which is by its terms subordinated in right of payment to the Notes, and
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(2) any Indebtedness of a Guarantor which is by its terms subordinated in right of payment to the Guarantee of such entity.
Subsidiary means, with respect to any Person:
(1) any corporation, association, or other business entity (other than a partnership, joint venture, limited liability company or similar entity) of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time of determination owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof; and
(2) any partnership, joint venture, limited liability company or similar entity of which
(a) more than 50% of the capital accounts, distribution rights, total equity and voting interests or general or limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof whether in the form of membership, general, special or limited partnership or otherwise, and
(b) such Person or any Restricted Subsidiary of such Person is a controlling general partner or otherwise controls such entity.
Tax Matters Agreement means the Tax Matters Agreement between Kimberly-Clark and the Issuer, dated on or prior to the Distribution Date.
Total Assets means total assets of the Issuer and its Restricted Subsidiaries on a consolidated basis, shown on the most recent balance sheet of the Issuer and its Restricted Subsidiaries as may be expressly stated without giving effect to any amortization of the amount of intangible assets since the Issue Date, with such pro forma adjustments as are appropriate and consistent with the pro forma adjustment provisions set forth in the definition of Consolidated Fixed Charge Coverage Ratio.
Transactions means (1) (A) the Separation, (B) the Distribution, (C) the Cash Distribution, (D) any other transactions contemplated by, or pursuant to, the Separation and Distribution Documents or otherwise in connection with the Separation and Distribution (including any cancellation or termination of Indebtedness, agreements, arrangements, commitments or understandings, including intercompany accounts payables, receivables or Indebtedness, between the Issuer or any of its Restricted Subsidiaries, on the one hand, and Kimberly-Clark or any of its other Subsidiaries, on the other hand, and making certain intercompany contributions and dividend payments) and (E) any other transactions pursuant to agreements or arrangements in effect on the Distribution Date on substantially the terms described in the Offering Memorandum or any amendment, modification, addition or supplement thereto or replacement thereof, as long as the terms of such agreement or arrangement, as so amended, modified, added, supplemented or replaced are not materially more disadvantageous to the Holders when taken as a whole compared to the applicable agreements as described in the Offering Memorandum (as determined in good faith by the Issuer), (2) the issuance of the Notes, (3) the entering into of the Senior Credit Facilities and the borrowing of the term loan thereunder and (4) the payment of fees and expenses in connection with the foregoing.
Transaction Services Agreement means the Transaction Services Agreement between Kimberly-Clark and Issuer, to be dated on or prior to the Distribution Date.
Treasury Rate means, as of any Redemption Date, the yield to maturity as of such Redemption Date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the Redemption Date (or, if such Statistical Release is no longer published, any publicly available source
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of similar market data)) most nearly equal to the period from the Redemption Date to October 15, 2017; provided, however, that if the period from the Redemption Date to October 15, 2017 is less than one year, the weekly average yield on actively traded United States Treasury securities adjusted to a constant maturity of one year will be used.
Trust Indenture Act means the Trust Indenture Act of 1939, as amended (15 U.S.C. §§ 77aaa-77bbbb).
Unrestricted Subsidiary means:
(1) any Subsidiary of the Issuer which at the time of determination is an Unrestricted Subsidiary (as designated by the Issuer, as provided below); and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Issuer may designate any Subsidiary of the Issuer (including any existing Subsidiary and any newly acquired or newly formed Subsidiary but excluding each Issuer) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Equity Interests or Indebtedness of, or owns or holds any Lien on, any property of, the Issuer or any Subsidiary of the Issuer (other than solely any Subsidiary of the Subsidiary to be so designated); provided that:
(1) such designation complies with the covenants described under Certain CovenantsLimitation on Restricted Payments; and
(2) each of (a) the Subsidiary to be so designated; and (b) its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Issuer or any Restricted Subsidiary except for Liens described in clause (28) of the definition of Permitted Liens.
The Issuer may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that, immediately after giving effect to such designation, no Default shall have occurred and be continuing and either:
(1) the Issuer could incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Fixed Charge Coverage Ratio test described in the first paragraph under Certain CovenantsLimitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock; or
(2) the Consolidated Fixed Charge Coverage Ratio for the Issuer and its Restricted Subsidiaries would be greater than or equal to such ratio immediately prior to such designation.
in each case on a pro forma basis taking into account such designation.
Any such designation by the Issuer shall be notified by the Issuer to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors of the Issuer or any committee thereof giving effect to such designation and an Officers Certificate certifying that such designation complied with the foregoing provisions.
Voting Stock of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the board of directors or other governing body of such Person.
Weighted Average Life to Maturity means, when applied to any Indebtedness, Disqualified Stock or Preferred Stock, as the case may be, at any date, the quotient obtained by dividing:
(1) the sum of the products of the number of years from the date of determination to the date of each successive scheduled principal payment of such Indebtedness or scheduled redemption or similar payment with respect to such Disqualified Stock or Preferred Stock multiplied by the amount of such payment; by
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(2) the sum of all such payments.
Wholly Owned Subsidiary of any Person means a Subsidiary of such Person, 100% of the outstanding Equity Interests of which (other than directors qualifying shares or shares or interests required to be held by foreign nationals or other third parties to the extent required by applicable law) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person.
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DESCRIPTION OF OTHER INDEBTEDNESS
The following summary of certain provisions of our other indebtedness does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the corresponding agreements.
Revolving Credit Facility and Term Loan Facility
On October 31, 2014, Halyard, as borrower, entered into a Credit Agreement among Morgan Stanley Senior Funding, Inc., as term loan administrative agent, Citibank, N.A., as revolver administrative agent and swing-line lender, and the other parties thereto, establishing credit facilities in an aggregate principal amount of $640.0 million, including a five-year senior secured Revolving Credit Facility allowing borrowings of up to $250.0 million, with a letter of credit subfacility in an amount of $75.0 million and a swingline subfacility in an amount of $25.0 million, and a seven-year senior secured Term Loan Facility of $390.0 million.
All obligations under the Credit Agreement and obligations under certain hedging agreements and cash management arrangements are (i) guaranteed by Halyard and each of its direct and indirect, existing and future, material wholly-owned domestic restricted subsidiaries and (ii) secured by substantially all of Halyards and the guarantors present and after-acquired personal property and material fee-owned real property, subject to certain exceptions.
In addition, the Credit Agreement contains an accordion feature that will allow Halyard, subject to the satisfaction of certain conditions, including Halyards receipt of increased commitments from existing lenders or new commitments from new lenders, to incur additional term loans under the Term Loan Facility or under new term loan facilities or to increase the amount of the commitments under the Revolving Credit Facility, including through the establishment of one or more tranches under the Revolving Credit Facility, in an aggregate principal amount not to exceed the sum of (i) $255 million, plus (ii) voluntary prepayments of loans under the Term Loan Facility and voluntary commitment reductions under the Revolving Credit Facility, plus (iii) an unlimited amount, so long as Halyards consolidated net secured leverage ratio is equal to or less than 2.50 to 1.00, after giving pro forma effect to the incurrence of any such incremental loans or commitments. The Credit Agreement contains a feature that allows Halyard, subject to consent of the extending lenders, to extend the maturity of the commitments or loans outstanding under each of the Term Loan Facility and Revolving Credit Facility.
Borrowings under the Term Loan Facility will bear interest, at Halyards option, at either (i) a reserve-adjusted LIBOR rate plus 3.25%, or (ii) a base rate (calculated as the greatest of (1) the prime rate, (2) the U.S. federal funds effective rate plus 0.50% and (3) the one month LIBOR Rate plus 1.00%) plus 2.25%.
Borrowings under the Revolving Credit Facility will bear interest, at Halyards option, at either (i) a reserve-adjusted LIBOR rate, plus a margin initially equal to 2.25% and then, following Halyards delivery under the Credit Agreement of Halyards financial statements for Halyards fiscal quarter ending March 31, 2015, ranging between 1.75% to 2.50% per annum, depending on Halyards consolidated total leverage ratio, or (ii) the base rate plus a margin initially equal to 1.25% and then, following Halyards delivery of those financial statements, ranging between 0.75% to 1.50% per annum, depending on Halyards consolidated total leverage ratio. The unused portion of Halyards Revolving Credit Facility will be subject to a commitment fee equal to (i) 0.25% per annum, when Halyards consolidated total leverage ratio is less than 2.25 to 1.00 and (ii) 0.40% per annum, otherwise.
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The Credit Agreement contains certain affirmative and negative covenants that Halyard considers usual and customary for an agreement of this type. Such covenants, subject to exceptions, limit Halyards ability and the ability of Halyards restricted subsidiaries to, among other things:
| incur additional indebtedness and guarantee indebtedness; |
| pay dividends or make other distributions or repurchase or redeem Halyards capital stock; |
| prepay, redeem or repurchase subordinated indebtedness or modify the agreements relating thereto; |
| make loans, investments and acquisitions; |
| sell, transfer or otherwise dispose of assets; |
| create or incur liens; |
| enter into certain types of transactions with affiliates; |
| enter into agreements restricting Halyards restricted subsidiaries ability to pay dividends; |
| consolidate, merge or sell all or substantially all of Halyards assets; and |
| create unrestricted subsidiaries. |
In addition, under the Revolving Credit Facility, but not the Term Loan Facility, Halyard is subject to financial covenants restricting Halyards consolidated net secured leverage ratio from exceeding 2.50 to 1.00 and Halyards consolidated interest coverage ratio from being less than 3.00 to 1.00.
Repayment of borrowings under the Term Loan Facility and Revolving Credit Facility will be subject to acceleration upon the occurrence of certain events of default that Halyard considers usual and customary for an agreement of this type, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults and cross-acceleration to material indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments, actual or asserted failure of material loan or security documents to be in force and effect, and change of control. Failure to comply with the financial covenants described above will not constitute an event of default under the Term Loan Facility unless and until the Revolving Credit Facility is terminated and accelerated by the requisite lenders thereunder.
The Term Loan Facility requires quarterly amortization payments equal to 0.25% of the aggregate principal amount of the term loans outstanding on the closing date. Halyard is permitted to prepay all or a portion of the term loans and revolving loans under the Credit Agreement at any time, subject, in the case of the Term Loan Facility, to a 1.00% premium if Halyard effects a repricing transaction in the first year after the closing date. Borrowings under the Credit Agreement are subject to mandatory prepayments with the net cash proceeds of certain issuances of debt, certain asset sales and other dispositions and certain casualty events, and, starting with the fiscal year ending December 31, 2015, with excess cash flow if Halyards consolidated net secured leverage ratio is not less than 1.00 to 1.00.
The administrative agents and certain of the parties to the Credit Agreement and certain of their respective affiliates have performed in the past, and may perform in the future, banking, investment banking or other advisory services for Halyard and its affiliates from time to time for which they have received, or will receive, customary fees and expenses.
As of December 31, 2014, we had no borrowings and letters of credit of $2 million outstanding under the Revolving Credit Facility, leaving $248 million available for borrowing.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
To ensure compliance with U.S. Treasury Department Circular 230, you are hereby notified that: (a) any discussion of U.S. federal tax issues in this prospectus is not intended or written to be relied upon, and cannot be relied upon, by you for the purpose of avoiding penalties that may be imposed on you under the Internal Revenue Code of 1986, as amended (the Code); (b) such discussion is included herein in connection with the promotion or marketing (within the meaning of Circular 230) of the transactions or matters addressed herein; and (c) you should seek advice based on your particular circumstances from an independent tax advisor.
This section is a discussion of the material U.S. federal income tax considerations relating to the exchange of old notes for new notes in the exchange offer, as well as the ownership and disposition of the new notes. This summary does not provide a complete analysis of all potential tax considerations. The information provided below is based on existing U.S. federal income tax authorities, all of which are subject to change or differing interpretations, possibly with retroactive effect. There can be no assurances that the Internal Revenue Service (the IRS) will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling from the IRS with respect to the U.S. federal income tax consequences of exchanging the old notes for new notes, or owning or disposing of the new notes. The summary generally applies only to beneficial owners of new notes that exchange their old notes for new notes in the exchange offer and that hold the new notes as capital assets (generally, for investment). This discussion does not purport to deal with all aspects of U.S. federal income taxation that may be relevant to a particular beneficial owner in light of that beneficial owners circumstances (for example, persons subject to the alternative minimum tax provisions of the Code, or a U.S. holder (as defined below) whose functional currency is not the U.S. dollar). Also, it is not intended to apply to investors that are subject to special rules (such as dealers in securities, traders in securities that elect to use a mark-to-market method of accounting, banks, thrifts, regulated investment companies, real estate investment trusts, insurance companies, tax-exempt entities, tax-deferred or other retirement accounts, certain former citizens or residents of the United States, persons holding new notes as part of a hedging or conversion transaction or a straddle, or persons deemed to sell new notes under the constructive sale provisions of the Code). Finally, the summary does not describe the effects of the U.S. federal estate and gift tax laws or the effects of any foreign, state or local laws.
Holders considering the exchange of old notes for new notes in the exchange offer should consult their own tax advisors regarding the application of the U.S. federal income tax laws to their particular situations and the consequences of U.S. federal estate or gift tax laws, foreign, state and local laws, and tax treaties.
U.S. Holders
As used herein, the term U.S. holder means a beneficial owner of new notes that, for U.S. federal income tax purposes is (1) an individual citizen or resident of the United States, (2) a corporation, or an entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any state of the United States or the District of Columbia, (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (4) a trust if it (x) is subject to the primary supervision of a U.S. court and the control of one of more U.S. persons or (y) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
A non-U.S. holder is a beneficial owner of new notes that is an individual, corporation, estate, or trust that is not a U.S. holder (as defined above).
If a partnership (including for this purpose an entity or arrangement, domestic or foreign, that is treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of a new note, the tax treatment of a
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partner in the partnership will depend upon the status of the partner and the activities of the partnership. A beneficial owner of a new note that is a partnership and the partners in such partnership, should consult their own tax advisors about the U.S. federal income tax consequences of exchanging old notes for new notes, and owning and disposing of the new notes.
Exchange Offer
The exchange of an old note for a new note pursuant to the exchange offer will not constitute a significant modification of the old note for U.S. federal income tax purposes and, accordingly, the new note will be treated as a continuation of the old note in the hands of such holder. As a result, there will be no U.S. federal income tax consequences to a U.S. holder who exchanges an old note for a new note pursuant to the exchange offer, and any such holder will have the same adjusted tax basis and holding period in the new note as it had in the old note immediately before the exchange. A U.S. holder who does not exchange its old notes for new notes pursuant to the exchange offer will not recognize any gain or loss for U.S. federal income tax purposes.
Taxation of Interest
U.S. holders will be required to recognize as ordinary income any stated interest paid or accrued on the new notes in accordance with their regular method of tax accounting.
In general, if the terms of a debt instrument entitle a holder to receive payments (other than fixed periodic interest) that exceed the issue price of the instrument by more than a de minimis amount, the holder will be required to include such excess in income as original issue discount over the term of the instrument, regardless of the holders regular method of tax accounting. We believe that the new notes will not be issued with original issue discount for U.S. federal income tax purposes.
Sale, Exchange, Redemption or Other Taxable Disposition of New Notes
A U.S. holder generally will recognize capital gain or loss if the holder disposes of a new note in a sale, exchange (other than this exchange offer), redemption or other taxable disposition. The U.S. holders gain or loss will equal the difference between the proceeds received by the holder (other than amounts attributable to accrued but unpaid interest) and the holders tax basis in the new note. Proceeds that are attributable to accrued interest will not be taken into account in computing the U.S. holders capital gain or loss, but instead will be recognized as ordinary interest income to the extent that the U.S. holder has not previously included the accrued interest in income. The gain or loss recognized by the U.S. holder on the disposition of the new note will be long-term capital gain or loss if the holder held the new note for more than one year, or short-term capital gain or loss if the holder held the new note for one year or less, at the time of the disposition. Long-term capital gains of non-corporate U.S. holders currently are taxed at a maximum 20% federal rate. Short-term capital gains are taxed at ordinary income rates. The deductibility of capital losses is subject to limitations.
Additional Tax on Net Investment Income
A U.S. holder that is an individual, an estate or a trust that does not fall into a special class of trusts will also be subject to a 3.8% tax on the lesser of (1) its net investment income (or undistributed net investment income in the case of an estate or trust) as defined in Section 1411(c)(1) of the Code for the relevant taxable year and (2) the excess of its modified adjusted gross income for such taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000, depending on the individuals circumstances). A U.S. holders net investment income will generally include its interest income and its net gains from a sale, exchange (other than this exchange offer), redemption or other taxable disposition, unless such interest payments or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities).
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Information Reporting and Backup Withholding
In general, information reporting requirements apply to payments to a non-corporate U.S. holder of stated interest on the notes and the proceeds of a sale, exchange (other than this exchange offer), redemption or other taxable disposition of the notes. Additionally, backup withholding may apply to any payments of stated interest and to payment of the proceeds of a sale, exchange (other than this exchange offer), redemption or other taxable disposition if made to a U.S. holder that is not a corporation and such holder fails to provide a correct taxpayer identification number or otherwise comply with applicable requirements of the backup withholding rules. Backup withholding is not an additional tax and may be credited against such U.S. holders U.S. federal income tax liability (which may result in such U.S. holder being entitled to a refund of U.S. federal income tax), provided that correct information is timely provided to the IRS.
Non-U.S. Holders
The following discussion is limited to the U.S. federal income tax consequences relevant to a non-U.S. holder (as defined above).
Exchange Offer
The exchange of an old note for a new note pursuant to the exchange offer will not constitute a significant modification of the old note for U.S. federal income tax purposes and, accordingly, the new note will be treated as a continuation of the old note in the hands of such holder. As a result, there will be no U.S. federal income tax consequences to a non-U.S. holder who exchanges an old note for a new note pursuant to the exchange offer, and any such holder will have the same adjusted tax basis and holding period in the new note as it had in the old note immediately before the exchange. A non-U.S. holder who does not exchange its old notes for new notes pursuant to the exchange offer will not recognize any gain or loss for U.S. federal income tax purposes.
Taxation of Interest
Payments of interest to non-U.S. holders are generally subject to U.S. federal income tax at a rate of 30% (or a reduced or zero rate under the terms of an applicable income tax treaty between the United States and the non-U.S. holders country of residence), collected by means of withholding by the payor. Payments of interest on the new notes to a non-U.S. holder, however, will qualify as portfolio interest, and thus will be exempt from U.S. federal income and withholding, if the non-U.S. holder certifies (as discussed below) that such non-U.S. holder does not:
| own, actually or constructively, shares of our stock representing at least 10% of the total combined voting power of all classes of our stock entitled to vote; |
| constitute a bank that acquired the notes in consideration for an extension of credit made pursuant to a loan agreement entered into in the ordinary course of business; |
| constitute a controlled foreign corporation (as defined in the Code) that is related, directly or indirectly, to us through stock ownership; or |
| conduct a trade or business in the United States to which such interest payments are effectively connected (see Non-U.S. Holders Income or Gains Effectively Connected with a U.S. Trade or Business below). |
The portfolio interest exemption, reduction of the withholding rate pursuant to the terms of an applicable income tax treaty and several of the special rules for non-U.S. holders described below apply only if the holder certifies its nonresident status. A non-U.S. holder can meet this certification requirement by providing a properly executed IRS Form W-8BEN, IRS Form W-8BEN-E or appropriate substitute form to us or our
194
paying agent prior to the payment. If the non-U.S. holder holds the new note through a financial institution or other agent acting on the holders behalf, the holder will be required to provide appropriate documentation to the agent, which may in turn be required to provide certification to other intermediaries or to us.
Sale, Exchange, Redemption or Other Disposition of Notes
Non-U.S. holders generally will not be subject to U.S. federal income or withholding tax on any gain realized on the sale, exchange (other than this exchange offer), redemption or other taxable disposition of new notes (other than with respect to payments attributable to accrued interest, which will be taxed as described under Non-U.S. Holders Taxation of Interest above), unless:
| the gain is effectively connected with the conduct by the non-U.S. holder of a U.S. trade or business (or, generally, if an income tax treaty applies, the gain is attributable to a U.S. permanent establishment maintained by the non-U.S. holder), in which case the gain would be subject to tax as described below under Non-U.S. Holders Income or Gains Effectively Connected with a U.S. Trade or Business; or |
| the non-U.S. holder is an individual who is present in the United States for 183 days or more in the year of disposition and certain other conditions apply, in which case, except as otherwise provided by an applicable income tax treaty, the gain (possibly offset by certain losses) generally would be subject to a flat 30% tax, even though the individual is not considered a resident of the United States. |
Income or Gains Effectively Connected With a U.S. Trade or Business
If any interest on the new notes, or gain from the sale, exchange (other than this exchange offer), redemption or other taxable disposition of the new notes is effectively connected with a U.S. trade or business conducted by the non-U.S. holder, then the income or gain generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates and in a similar manner as if such non-U.S. holder were a U.S. holder. However, if the non-U.S. holder is eligible for the benefits of a tax treaty between the United States and the holders country of residence, any income or gain generally will be subject to U.S. federal income tax only if it is attributable to a permanent establishment or fixed base maintained by such holder in the United States. Payments of interest that are effectively connected with a U.S. trade or business (or, if a tax treaty applies, attributable to a permanent establishment or fixed base), and therefore included in the gross income of a non-U.S. holder, will not be subject to 30% withholding, provided that the holder claims exemption from withholding by timely filing a properly executed IRS Form W-8ECI or appropriate substitute form. If the non-U.S. holder is a corporation (or an entity treated as a corporation for U.S. federal income tax purposes), that portion of its earnings and profits that is effectively connected with its U.S. trade or business may also be subject to a branch profits tax at a rate of 30% (subject to reduction by an applicable income tax treaty).
Backup Withholding and Information Reporting
The applicable withholding agent must report annually to the IRS and to each non-U.S. holder the amount of interest on the new notes paid to that holder and the tax, if any, withheld with respect to that interest. These information reporting requirements apply even if withholding was not required. Pursuant to an applicable tax treaty or other agreement, copies of the information returns reporting that interest and withholding may also be made available to the tax authorities in the country in which the non-U.S. holder resides.
Backup withholding generally will not apply to payments of interest on the new notes provided the non-U.S. holder furnishes to the applicable withholding agent the required certification of its non-U.S. status (generally a IRS Form W-8BEN, IRS Form W-8BEN-E or IRS Form W-8ECI) or otherwise establishes an exemption.
Payment to a non-U.S. holder of the proceeds of a sale or other disposition of the new notes by or through a U.S. office of a broker generally is subject to both information reporting and backup withholding
195
unless the non-U.S. holder certifies to the payor in the manner required as to its non-U.S. status under penalties of perjury (such as by providing a IRS Form W-8BEN or IRS Form W-8BEN-E) or otherwise establishes an exemption. As a general matter, information reporting and backup withholding will not apply to a payment to a non-U.S. holder of the proceeds of a sale or other disposition of the new notes by or through a non-U.S. office of a non-U.S. broker. However, information reporting requirements, but not backup withholding, generally will apply to payment of the proceeds of a sale or other disposition of the new notes by or through a non-U.S. office of a broker if that broker is:
| a U.S. person, |
| a non-U.S. person that derives 50% or more of its gross income for specified periods from the conduct of a trade or business in the United States, |
| a controlled foreign corporation as defined in the Code, or |
| a non-U.S. partnership that at any time during its tax year either (1) has one or more U.S. persons that, in the aggregate, own more than 50% of the income or capital interests in the partnership or (2) is engaged in the conduct of a trade or business in the United States. |
Information reporting requirements will not apply to the payment of the proceeds of a sale or other disposition of the new notes if the broker receives a statement from the non-U.S. holder, signed under penalty of perjury, certifying such non-U.S. holders non-U.S. status or an exemption is otherwise established (generally, such certification is made on IRS Form W-8BEN). Non-U.S. holders should consult their own tax advisors regarding the application of the information reporting and backup withholding rules to them.
Amounts withheld under the backup withholding rules do not constitute an additional U.S. federal income tax. Rather, any amounts withheld under the backup withholding rules will be refunded or allowed as a credit against the holders U.S. federal income tax liability, if any, provided the required information and appropriate claim for refund or credit is timely filed with the IRS.
Foreign Account Tax Compliance Act
Sections 1471 through 1474 of the Code and the Treasury regulations promulgated thereunder, which are commonly referred as the Foreign Account Tax Compliance Act or FATCA, generally impose withholding at a rate of 30% on (i) interest payable on, and (ii) after December 31, 2016, gross proceeds from a sale, exchange (other than this exchange offer), redemption or other taxable disposition held by or through certain financial institutions (including investment funds), unless such institution (y) enters into, and complies with, an agreement with the IRS to report, on an annual basis, information with respect to interests in, and accounts maintained by, the institution that are owned by certain U.S. persons or by certain non-U.S. entities that are wholly or partially owned by U.S. persons and to withhold on certain payments or (z) if required under an intergovernmental agreement between the United States and an applicable foreign country, reports such information to its local tax authority, which will exchange such information with the U.S. authorities. An intergovernmental agreement between the United States and applicable foreign country may modify these requirements. Accordingly, the entity through which the notes are held will affect the determination of whether such withholding is required. Similarly, (i) interest payable on the notes, and (ii) after December 31, 2016, gross proceeds from a sale, exchange (other than this exchange offer), redemption or other taxable disposition held by an investor that is a non-financial non-U.S. entity that does not qualify under certain exemptions generally will be subject to withholding at a rate of 30%, unless such entity either (y) certifies that such entity does not have any substantial United States owners or (z) provides certain information regarding the entitys substantial United States owners, which will in turn be provided to the United States Department of the Treasury. A non-U.S. Holder should consult its tax adviser regarding the possible implications of these rules on an investment in the notes.
196
Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes where such old notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the expiration date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of new notes by broker-dealers. New notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such new notes. Any broker-dealer that resells new notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such new notes may be deemed to be an underwriter within the meaning of the Securities Act and any profit on any such resale of new notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act.
For a period of 180 days after the expiration date, the Company will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. The Company has agreed to pay all expenses incident to the exchange offer (including the expenses of one counsel for the holders of the notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.
197
The validity of the new notes will be passed upon for the Company by Alston & Bird LLP.
The consolidated and combined financial statements of Halyard Health, Inc. and subsidiaries as of December 31, 2014 and 2013, and for each of the three years ended December 31, 2014, 2013 and 2012 included in this prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein, which report expresses an unqualified opinion on the financial statements and includes an explanatory paragraph referring to the inclusion of certain allocated expenses from Kimberly-Clark, as discussed in Note 1 to the financial statements. Such financial statements have been so included in reliance on the report of such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-4 to register the new notes. This prospectus, which forms part of the registration statement, does not contain all of the information included in that registration statement. For further information about us and the new notes offered in this prospectus, you should refer to the registration statement and its exhibits. You can read a copy of the registration statement, including its exhibits and schedules, at the SECs public reference room located at 100 F Street, N.E., Washington, D.C. 20549. You can obtain information about the operation of the SECs public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains information we have filed electronically with the SEC, which you can access at www.sec.gov.
We are subject to the information and periodic reporting requirements of the Exchange Act and, in accordance with those requirements, we file periodic reports, proxy statements and other information with the SEC. We expect that those periodic reports, proxy statements and other information will be available for inspection and copying at the SECs public reference room and the SECs website.
We make available free of charge on our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. We make all of these documents available free of charge on our website, www.halyardhealth.com, and will provide them free of charge to any holders of the notes requesting copies in writing to: Halyard Health, Inc., Attn: Corporate Secretary, 5405 Windward Parkway, Suite 100 South, Alpharetta, Georgia 30004. The information on our website is not, and shall not be deemed to be, a part of this prospectus or incorporated into any filings we make with the SEC.
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Audited Annual Financial Statements: |
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F-2 | ||||
F-3 | ||||
Consolidated and Combined Balance Sheet as of December 31, 2014 and 2013 |
F-4 | |||
F-5 | ||||
F-6 | ||||
F-7 | ||||
Report of Independent Registered Public Accounting Firm, Deloitte & Touche LLP |
F-37 |
Unaudited Interim Financial Statements: |
||||
Unaudited Condensed Consolidated Income Statement for the Three Months Ended March 31, 2015 and 2014 |
F-38 | |||
F-39 | ||||
Condensed Consolidated Balance Sheet as of March 31, 2015 (unaudited) and December 31, 2014 |
F-40 | |||
F-41 | ||||
Notes to the Unaudited Condensed Consolidated Financial Statements |
F-42 |
F-1
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED INCOME STATEMENT
(in millions, except per share amounts)
Year Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Net Sales (including related party sales of $78.7, $91.3 and $92.6, respectively) |
$ | 1,672.1 | $ | 1,677.5 | $ | 1,684.0 | ||||||
Cost of products sold (including related party purchases of $72.5, $82.8 and $84.0, respectively |
1,123.5 | 1,065.3 | 1,081.5 | |||||||||
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|
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|
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Gross Profit |
548.6 | 612.2 | 602.5 | |||||||||
Research and development |
33.6 | 37.9 | 33.0 | |||||||||
Selling and general expenses |
424.5 | 351.4 | 343.0 | |||||||||
Other (income) and expense, net |
(3.8 | ) | (2.4 | ) | (1.5 | ) | ||||||
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|
|
|
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Operating Profit |
94.3 | 225.3 | 228.0 | |||||||||
Interest income |
2.9 | 2.6 | 2.6 | |||||||||
Interest expense |
(6.0 | ) | (0.1 | ) | (0.8 | ) | ||||||
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|
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Income Before Income Taxes |
91.2 | 227.8 | 229.8 | |||||||||
Provision for income taxes |
(64.1 | ) | (73.2 | ) | (77.2 | ) | ||||||
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Net Income |
$ | 27.1 | $ | 154.6 | $ | 152.6 | ||||||
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Per Share Basis |
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Basic |
$ | 0.58 | $ | 3.32 | $ | 3.28 | ||||||
Diluted |
$ | 0.58 | $ | 3.32 | $ | 3.28 |
See Notes to Consolidated and Combined Financial Statements.
F-2
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
Year Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Net Income |
$ | 27.1 | $ | 154.6 | $ | 152.6 | ||||||
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Other Comprehensive Income (Loss), Net of Tax |
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Defined benefit plans |
(0.4 | ) | | | ||||||||
Unrealized currency translation adjustments |
(14.0 | ) | (22.6 | ) | 6.9 | |||||||
Cash flow hedges |
3.6 | (7.1 | ) | 6.6 | ||||||||
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Total Other Comprehensive (Loss) Income, Net of Tax |
(10.8 | ) | (29.7 | ) | 13.5 | |||||||
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Comprehensive Income |
$ | 16.3 | $ | 124.9 | $ | 166.1 | ||||||
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See Notes to Consolidated and Combined Financial Statements.
F-3
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED BALANCE SHEET
(in millions, except share data)
December 31, | ||||||||
2014 | 2013 | |||||||
ASSETS |
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Current Assets |
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Cash and cash equivalents |
$ | 149.0 | $ | 44.1 | ||||
Accounts receivable, net of allowances |
233.9 | 203.3 | ||||||
Inventories |
283.1 | 285.6 | ||||||
Prepaid and other current assets |
16.8 | 6.5 | ||||||
Current deferred income taxes |
2.1 | 45.6 | ||||||
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Total Current Assets |
684.9 | 585.1 | ||||||
Property, Plant and Equipment, net |
277.8 | 324.9 | ||||||
Assets Held for Sale |
2.6 | | ||||||
Goodwill |
1,426.1 | 1,430.1 | ||||||
Other Intangible Assets, net |
108.3 | 141.2 | ||||||
Other Assets |
27.9 | 2.7 | ||||||
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TOTAL ASSETS |
$ | 2,527.6 | $ | 2,484.0 | ||||
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LIABILITIES AND EQUITY |
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Current Liabilities |
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Debt payable within one year |
$ | 3.9 | $ | 2.8 | ||||
Related party debt |
| 9.1 | ||||||
Trade accounts payable |
168.7 | 118.5 | ||||||
Accrued expenses |
183.4 | 180.0 | ||||||
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Total Current Liabilities |
356.0 | 310.4 | ||||||
Long-Term Debt |
632.3 | | ||||||
Other Long-Term Liabilities |
48.1 | 94.5 | ||||||
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Total Liabilities |
1,036.4 | 404.9 | ||||||
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Commitments and Contingencies |
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Stockholders Equity |
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Preferred stock$0.01 par valueauthorized 20,000,000 shares, none issued |
| | ||||||
Common stock$0.01 par valueauthorized 300,000,000 shares in 2014; 46,535,951 outstanding at December 31, 2014 |
0.5 | | ||||||
Additional paid-in capital |
1,502.5 | | ||||||
Kimberly-Clarks net investment |
| 2,098.7 | ||||||
Retained earnings |
7.3 | | ||||||
Accumulated other comprehensive income (loss) |
(19.1 | ) | (19.6 | ) | ||||
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Total Stockholders Equity |
1,491.2 | 2,079.1 | ||||||
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 2,527.6 | $ | 2,484.0 | ||||
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See Notes to Consolidated and Combined Financial Statements.
F-4
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF STOCKHOLDERS EQUITY
(in millions, shares in thousands)
Common Stock
Issued |
Additional
Paid-in Capital |
Kimberly-
Clarks Net Investment |
Retained
Earnings |
Accumulated
Other Comprehensive Income (Loss) |
Total
Stockholders Equity |
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Shares | Amount | |||||||||||||||||||||||||||
Balance at December 31, 2011 |
| $ | | $ | | $ | 2,000.9 | $ | | $ | (3.4 | ) | $ | 1,997.5 | ||||||||||||||
Net income |
| | | 152.6 | | | 152.6 | |||||||||||||||||||||
Change in Kimberly-Clarks investment, net |
| | | (107.9 | ) | | | (107.9 | ) | |||||||||||||||||||
Other comprehensive income, net of tax |
| |||||||||||||||||||||||||||
Unrealized translation |
| | | | | 6.9 | 6.9 | |||||||||||||||||||||
Cash flow hedges, net of tax of $0.3 |
| | | | | 6.6 | 6.6 | |||||||||||||||||||||
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Balance at December 31, 2012 |
| | | 2,045.6 | | 10.1 | 2,055.7 | |||||||||||||||||||||
Net income |
| | | 154.6 | | | 154.6 | |||||||||||||||||||||
Change in Kimberly-Clarks investment, net |
| | | (101.5 | ) | | | (101.5 | ) | |||||||||||||||||||
Other comprehensive income, net of tax |
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Unrealized translation |
| | | | | (22.6 | ) | (22.6 | ) | |||||||||||||||||||
Cash flow hedges, net of tax of $1.7 |
| | | | | (7.1 | ) | (7.1 | ) | |||||||||||||||||||
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Balance at December 31, 2013 |
| | | 2,098.7 | | (19.6 | ) | 2,079.1 | ||||||||||||||||||||
Net income |
| | | 19.8 | 7.3 | | 27.1 | |||||||||||||||||||||
Change in Kimberly-Clarks investment, net |
| | | 61.9 | | 11.3 | 73.2 | |||||||||||||||||||||
Spin-off cash distribution to Kimberly-Clark |
| | | (680.0 | ) | | | (680.0 | ) | |||||||||||||||||||
Issuance of common stock and consummation of Spin-off |
46,536 | 0.5 | 1,499.9 | (1,500.4 | ) | | | | ||||||||||||||||||||
Stock-based compensation expense |
| | 2.6 | | | | 2.6 | |||||||||||||||||||||
Other comprehensive income, net of tax |
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Defined benefit plans |
| | | | | (0.4 | ) | (0.4 | ) | |||||||||||||||||||
Unrealized currency translation adjustments |
| | | | | (14.0 | ) | (14.0 | ) | |||||||||||||||||||
Cash flow hedges, net of tax of $0.7 |
| | | | | 3.6 | 3.6 | |||||||||||||||||||||
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Balance at December 31, 2014 |
46,536 | $ | 0.5 | $ | 1,502.5 | $ | | $ | 7.3 | $ | (19.1 | ) | $ | 1,491.2 | ||||||||||||||
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See Notes to Consolidated and Combined Financial Statements.
F-5
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED CASH FLOW STATEMENT
(in millions)
Year Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Operating Activities |
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Net income |
$ | 27.1 | $ | 154.6 | $ | 152.6 | ||||||
Depreciation and amortization |
85.4 | 69.2 | 57.6 | |||||||||
Share-based compensation |
7.9 | 6.0 | 5.3 | |||||||||
Provision for losses on accounts receivable and inventories |
2.8 | 2.5 | (11.1 | ) | ||||||||
Deferred income taxes |
(35.0 | ) | (0.9 | ) | (11.6 | ) | ||||||
Asset impairments |
41.9 | | | |||||||||
Amortization of debt issue costs and debt discount |
0.4 | | | |||||||||
Net losses on asset dispositions |
6.7 | 3.4 | 0.1 | |||||||||
Changes in operating assets and liabilities, net of acquisition |
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Accounts receivable |
15.1 | (19.5 | ) | 26.4 | ||||||||
Inventories |
(2.9 | ) | 14.3 | (15.1 | ) | |||||||
Prepaid expenses and other assets |
(4.8 | ) | 2.0 | (0.9 | ) | |||||||
Accounts payable |
4.5 | 15.1 | 8.0 | |||||||||
Accrued expenses |
0.9 | (23.8 | ) | (8.8 | ) | |||||||
Other |
(2.1 | ) | 0.9 | 0.1 | ||||||||
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Cash Provided by Operating Activities |
147.9 | 223.8 | 202.6 | |||||||||
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Investing Activities |
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Capital expenditures |
(78.5 | ) | (49.0 | ) | (40.8 | ) | ||||||
Cash outflows for acquisitions |
| (2.2 | ) | | ||||||||
Deposit received on pending sale of assets |
7.8 | | | |||||||||
Proceeds from dispositions of property |
| 0.3 | 0.5 | |||||||||
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Cash Used in Investing Activities |
(70.7 | ) | (50.9 | ) | (40.3 | ) | ||||||
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Financing Activities |
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Debt proceeds |
638.0 | 4.0 | 7.1 | |||||||||
Debt issuance costs |
(11.8 | ) | | | ||||||||
Debt repayments |
(13.8 | ) | (67.9 | ) | (31.2 | ) | ||||||
Spin-off cash distribution to Kimberly-Clark |
(680.0 | ) | | | ||||||||
Net transfers from (to) Kimberly-Clark |
93.3 | (119.3 | ) | (113.7 | ) | |||||||
Other |
3.5 | 3.2 | 3.9 | |||||||||
|
|
|
|
|
|
|||||||
Cash Provided by (Used in) Financing Activities |
29.2 | (180.0 | ) | (133.9 | ) | |||||||
|
|
|
|
|
|
|||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
(1.5 | ) | 3.3 | (0.6 | ) | |||||||
|
|
|
|
|
|
|||||||
Increase (Decrease) in Cash and Cash Equivalents |
104.9 | (3.8 | ) | 27.8 | ||||||||
Cash and Cash Equivalents - Beginning of Year |
44.1 | 47.9 | 20.1 | |||||||||
|
|
|
|
|
|
|||||||
Cash and Cash Equivalents - End of Year |
$ | 149.0 | $ | 44.1 | $ | 47.9 | ||||||
|
|
|
|
|
|
|||||||
Supplemental Cash Flow Disclosure: |
||||||||||||
Cash paid for income taxes |
$ | 87.6 | $ | 74.2 | $ | 94.3 |
See Notes to Consolidated and Combined Financial Statements.
F-6
HALYARD HEALTH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Note 1. | Accounting Policies |
Background and Basis of Presentation
Halyard Health, Inc. is a global business which seeks to advance health and healthcare by preventing infection, eliminating pain and speeding recovery. We have two business segments: Surgical and Infection Prevention (S&IP) and Medical Devices. Our products and solutions are designed to address some of todays most important healthcare needs, namely, preventing infections and reducing the use of narcotics while helping patients move from surgery to recovery. We market and support the efficacy, safety and economic benefit of our products with a significant body of clinical evidence.
References to Halyard, we, our and us refer to Halyard Health, Inc. and its consolidated subsidiaries, and references to Kimberly-Clark mean Kimberly-Clark Corporation, a Delaware corporation, and its subsidiaries, unless the context otherwise requires.
In November 2013, Kimberly-Clark announced its intention to evaluate a potential tax-free spin-off of its health care business (the Spin-off). Halyard Health, Inc. was incorporated in Delaware on February 25, 2014 for the purpose of holding the health care business following the separation. The Spin-off was completed on October 31, 2014 and Kimberly-Clarks health care business became Halyard Health, Inc. See Note 2, Separation from Kimberly-Clark for further discussion.
The consolidated and combined financial statements represent the global operations of Halyard and its subsidiaries as an independent publicly-traded company beginning on November 1, 2014, and a combined reporting entity comprising the financial position, results of operations and cash flows of Kimberly-Clarks health care business prior to November 1, 2014. The consolidated and combined financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Certain prior period amounts have been conformed to current presentation.
Our consolidated and combined financial statements include certain expenses prior to the Spin-off which Kimberly-Clark allocated to us. These expenses were charged to us on the basis of direct usage when identifiable, with the remainder allocated on the relative percentage of net sales or headcount. We consider the expense allocation methodology and results to be reasonable for all periods presented. However, these allocations may not be indicative of the actual expenses we would have incurred as a separate, stand-alone public company or of the costs we will incur in the future. The total amount of these allocations from Kimberly-Clark was approximately $74 million through the Spin-off date in 2014 and $95 million in 2013 and 2012. See Note 18, Related Party Transactions, for additional information. Following the Spin-off, we expect Kimberly-Clark will continue to provide many of these services on a transitional basis for a fee. See Note 2, Separation from Kimberly-Clark.
Kimberly-Clark maintains a number of benefit and stock-based compensation programs at a corporate level. Our employees participated in those programs prior to the Spin-off, and as such, we were charged a portion of the expenses associated with these programs. However, our consolidated and combined balance sheet does not include any Kimberly-Clark net benefit plan obligations or Kimberly-Clark equity related to the stock-based compensation programs. Any benefit plan net liabilities that are our direct obligation, such as certain pension and post-retirement plans, are reflected in our consolidated and combined balance sheet as well as within our operating expenses. See Note 13, Stock-Based Compensation, and Note 11, Employee Defined Benefit Plans, for further description of these stock-based compensation and defined benefit programs.
Kimberly-Clarks net investment balance represents the cumulative net investment in us by Kimberly-Clark through the Spin-off date, including any prior net income or loss and allocations or other transactions with Kimberly-Clark. Prior to the Spin-off, current domestic income tax liabilities were deemed to be remitted in cash to Kimberly-Clark in the period the related income tax expense was recorded.
F-7
Prior to the Spin-off, Kimberly-Clark provided financing, cash management and other treasury services to us. In North America, our cash balances were swept daily by Kimberly-Clark, and we received funding from Kimberly-Clark for most of our investing and financing cash needs. Prior to the Spin-off, cash transferred to and from Kimberly-Clark was recorded as intercompany receivables and payables. Those intercompany receivables and payables with Kimberly-Clark are reflected within Kimberly-Clarks net investment in the accompanying consolidated and combined financial statements.
Principles of Combination
The consolidated and combined financial statements include our net assets and results of our operations as described above. All intercompany transactions and accounts after the Spin-off within our consolidated and combined businesses have been eliminated. Prior to the Spin-off, the consolidated and combined financial statements were prepared on a stand-alone basis derived from Kimberly-Clarks consolidated financial statements and accounting records.
Prior to the Spin-off, all intercompany transactions between Kimberly-Clark and us have been included in the combined financial statements prior to the Spin-off. Intercompany transactions with Kimberly-Clark or its affiliates are reflected in the combined statement of cash flow as the change in Kimberly-Clarks net investment within financing activities and in the consolidated combined balance sheet within Kimberly-Clarks net investment prior to the Spin-off.
Use of Estimates
We prepare our consolidated and combined financial statements in accordance with GAAP, which requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Estimates are used in accounting for, among other things, distributor rebate accruals, future cash flows associated with impairment testing for goodwill and long-lived assets, loss contingencies, and deferred tax assets and potential income tax assessments. Actual results could differ from these estimates, and the effect of the change could be material to our financial statements. Changes in these estimates are recorded when known.
Cash Equivalents
Cash equivalents are short-term investments with an original maturity date of three months or less.
Inventories and Distribution Costs
For financial reporting purposes, most U.S. inventories are valued at the lower of cost, using the Last-In, First-Out (LIFO) method, or market. The balance of the U.S. and non-U.S. inventories are valued at the lower of cost (determined on the First-In, First-Out (FIFO) or weighted-average cost methods) or market. Distribution costs are classified as cost of products sold.
Property, Plant and Equipment and Depreciation
For financial reporting purposes, property, plant and equipment are stated at cost and depreciated on the straight-line method. Buildings are depreciated over their estimated useful lives, primarily 40 years. Machinery and equipment are depreciated over their estimated useful lives, primarily ranging from 16 to 20 years. Leasehold improvements are depreciated over the assets estimated useful lives, or the remaining lease term, whichever is shorter. Purchases of computer software, including external costs and certain internal costs (including payroll and payroll-related costs of employees) directly associated with developing significant computer software applications for internal use, are capitalized. Computer software costs are amortized on the straight-line method over the estimated useful life of the software, which is generally three to five years. Depreciation expense is recorded in cost of products sold, research and development and selling and general expenses.
F-8
Estimated useful lives are periodically reviewed, and when warranted, changes are made to them. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss would be indicated when estimated undiscounted future cash flows from the use and eventual disposition of an asset group, which are identifiable and largely independent of the cash flows of other asset groups, are less than the carrying amount of the asset group. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset group over its fair value. Fair value is measured using discounted cash flows or independent appraisals, as appropriate. When property is sold or retired, the cost of the property and the related accumulated depreciation are removed from the consolidated and combined balance sheet and any gain or loss on the transaction is included in income.
Goodwill and Other Intangible Assets
Goodwill is tested for impairment annually and whenever events and circumstances indicate that impairment may have occurred. For 2014, we completed the required annual testing of goodwill for impairment for all reporting units using the beginning of the third quarter of 2014 as the measurement date. The fair value for all reporting units was in excess of the book value. The fair value of our Medical Devices unit exceeded the carrying value of its net assets by 76%; the fair value of our S&IP unit exceeded the carrying value of its net assets by 6% primarily because of the incremental corporate and ongoing costs that we will incur as a stand-alone public company.
The evaluation of goodwill involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. We considered the market approach and used a discounted cash flow model to estimate the current fair value of our reporting units. The fair value determination utilized key assumptions regarding the growth of the business and stand-alone public company corporate and ongoing costs, each of which required significant management judgment, including estimated future sales volumes, selling prices and costs, changes in working capital and investments in property and equipment. These assumptions and estimates were based upon our historical experience and projections of future activity. In addition, the selection of the discount rate used to determine fair value was based upon current market rates and our current cost of financing. There can be no assurance that the assumptions and estimates made for purposes of the annual goodwill impairment test will prove to be accurate. Volatility in the equity and debt markets, or increases in interest rates, could result in a higher discount rate. Changes in sales volumes, selling prices and costs of goods sold, additional stand-alone public company costs, and increases in interest rates could cause changes in our forecasted cash flows. Unfavorable changes in any of the factors described above could result in a goodwill impairment charge in the future.
Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Estimated useful lives range from 7 to 30 years for trademarks, 7 to 17 years for patents and acquired technologies, and 2 to 16 years for other intangible assets. An impairment loss would be indicated when estimated undiscounted future cash flows from the use of the asset are less than its carrying amount. An impairment loss would be measured as the difference between the fair value (based on discounted future cash flows) and the carrying amount of the asset.
Acquired in-process research and development (IPR&D) is an indefinite-lived intangible asset until the research and development project is complete. IPR&D is measured at fair value upon acquisition and reviewed for impairment annually, or whenever events or circumstances indicate that impairment may have occurred. IPR&D is written off entirely if the project is abandoned. Upon project completion, IPR&D costs are amortized over an estimated useful life, which is generally 10 to 15 years. For 2014 we have completed the required annual testing for impairment and found no indications of impairment.
Revenue Recognition and Accounts Receivable
Sales revenue is recognized at the time of product shipment or delivery, depending on when title passes, to unaffiliated customers, and when all of the following have occurred: a firm sales agreement is in place, pricing is
F-9
fixed or determinable, and collection is reasonably assured. Sales are reported net of returns, rebates and freight allowed. Distributor rebates are estimated based on the historical cost difference between list prices and average end user contract prices and the quantity of products expected to be sold to specific end users. We maintain liabilities at the end of each period for the estimated rebate costs incurred but unpaid for these programs. Differences between estimated and actual rebate costs are normally not material and are recognized in earnings in the period such differences are determined. Taxes imposed by governmental authorities on our revenue-producing activities with customers, such as sales taxes and value-added taxes, are excluded from net sales.
Net sales to one customer accounted for 19%, 19% and 21%, respectively, of net sales in 2014, 2013 and 2012. No other customer accounted for more than 10% of net sales in any of the periods presented herein. As of December 31, 2014 and 2013, we had three and two customers, respectively, who individually accounted for more than 10% of our consolidated and combined accounts receivable balance.
Upon the Spin-off, Kimberly-Clark retained outstanding accounts receivable (See Note 2, Separation from Kimberly-Clark). The allowances for doubtful accounts and sales discounts was $1 million as of each year ended December 31, 2014 and 2013, respectively. The provision for doubtful accounts was not material for the years ended December 31, 2014, 2013 and 2012.
Related Party Sales
Prior to the Spin-off, sales to other Kimberly-Clark subsidiaries and affiliates of supplies and other finished products have been reflected as related party sales in our combined financial statements. These sales have historically been transacted under cost-plus pricing arrangements, which is consistent with Kimberly-Clarks global transfer pricing policies. We entered into manufacturing and supply agreements with Kimberly-Clark prior to the Spin-off pursuant to which we or Kimberly-Clark, as the case may be, manufacture, label and package products for the other party. The manufacturing and supply agreements replaced our historical intercompany arrangements and reflect new pricing. Following the Spin-off, such sales are reflected as third party sales.
Foreign Currency Translation
The income statements of foreign operations are translated into U.S. dollars at rates of exchange in effect each month. Prior to the Spin-off, the balance sheets of these operations are translated at period-end exchange rates, and the differences from historical exchange rates are reflected in invested equity as unrealized translation adjustments. Following the Spin-off, the differences from historical exchange rates are reflected as unrealized translation adjustments in other comprehensive income.
Derivative Instruments and Hedging
All derivative instruments are recorded as assets or liabilities on the balance sheet at fair value. Changes in the fair value of derivatives are either recorded in the income statement or other comprehensive income, as appropriate. The effective portion of the gain or loss on derivatives designated as cash flow hedges is included in other comprehensive income in the period that changes in fair value occur, and is reclassified to income in the same period that the hedged item affects income. Any ineffective portion of cash flow hedges is immediately recognized in income. Certain foreign-currency derivative instruments not designated as hedging instruments have been entered into to manage a portion of our foreign currency transactional exposures. The gain or loss on these derivatives is included in income in the period that changes in their fair values occur. Our policies allow the use of derivatives for risk management purposes and prohibit their use for speculation. Our policies also prohibit the use of any leveraged derivative instrument. Consistent with our policies, foreign currency derivative instruments are entered into with major financial institutions. At inception we formally designate certain derivatives as cash flow hedges and establish how the effectiveness of these hedges will be assessed and measured. This process links the derivatives to the transactions they are hedging. See Note 15, Objectives and Strategies for Using Derivatives, for disclosures about derivative instruments and hedging activities.
F-10
Research and Development
Research and development expenses are expensed as incurred. Research and development expenses include any impairment for acquired IPR&D.
Stock-Based Compensation
Prior to the Spin-off, our employees participated in Kimberly-Clarks stock-based compensation plans. Stock-based compensation expense was charged to us based on the awards and terms previously granted to our employees. Subsequent to the Spin-off, we have a stock-based Equity Participation Plan and an Outside Directors Compensation Plan, under which we can grant stock options, restricted shares and restricted share units to employees and outside directors. Stock-based compensation is initially measured at the fair value of the awards on the grant date and is recognized in the financial statements over the period the employees are required to provide services in exchange for the awards. The fair value of option awards is measured on the grant date using a Black-Scholes option-pricing model. The fair value of performance-based restricted share awards is based on the Kimberly-Clark or Halyard stock price at the grant date and the assessed probability of meeting future performance targets. See Note 13, Stock-Based Compensation.
Income Taxes
Prior to the Spin-off, our income taxes were calculated on a separate tax return basis, although operations have been included in Kimberly-Clarks U.S. federal, state and foreign tax returns. Our income tax results as presented were not necessarily indicative of future performance and did not necessarily reflect the results that we would have generated as an independent publicly traded company for the periods presented.
Following the Spin-off, we account for income taxes under the asset and liability method of accounting, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Under this method, changes in tax rates and laws are recognized in income in the period such changes are enacted. The provision for federal, state, and foreign income taxes is calculated on income before income taxes based on current tax law and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provision differs from the amounts currently payable because certain items of income and expense are recognized in different reporting periods for financial reporting purposes than for income tax purposes. Recording the provision for income taxes requires management to make significant judgments and estimates for matters whose ultimate resolution may not become known until the final resolution of an examination by the Internal Revenue Service (IRS) or state and foreign agencies. If it is more likely than not that some portion, or all, of a deferred tax asset will not be realized, a valuation allowance is recognized.
Recording liabilities for uncertain tax positions involves significant judgment in evaluating our tax positions and developing the best estimate of the taxes ultimately expected to be paid. We include any related tax penalties and interest in income tax expense.
Employee Defined Benefit Plans
We recognize the funded status of our defined benefit and post-retirement plans as an asset or a liability on our balance sheet. Actuarial gains or losses are a component of our other comprehensive income, which is then included in our accumulated other comprehensive income. Pension and post-retirement benefit expenses are recognized over the period in which the employee renders service and becomes eligible to receive benefits. We make significant assumptions (including the discount rate, expected rate of return on plan assets and health care trend rates) in computing the pension and post-retirement benefits expense and obligations.
F-11
Recent Pronouncements
In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-15, Disclosure of Uncertainties About an Entitys Ability to Continue as a Going Concern, which will require management to assess an entitys ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. In connection with each annual and interim period, management will assess if there is substantial doubt about an entitys ability to continue as a going concern within one year after the issuance date. Substantial doubt exists if it is probable that the entity will be unable to meet its obligations within one year after the issuance date. The new standard defines substantial doubt and provides example indicators. Disclosures will be required if conditions give rise to substantial doubt. However, management will need to assess if its plans will alleviate substantial doubt to determine the specific disclosures. This standard is effective for public entities for annual periods ending after December 15, 2016. Earlier application of this standard is permitted. This standard is not expected to have a material effect on our financial position, results of operations and cash flows.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers , which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The standard is effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. The guidance permits two implementation approaches, one requiring application of the standard retrospectively to each prior period presented or a simplified retrospective method with the cumulative effect of initially applying the standard recognized in retained earnings with footnote disclosure of the effects on each financial statement line item. The effect of this standard on our financial position, results of operations and cash flows is not yet known.
Note 2. | Separation from Kimberly-Clark |
Separation from Kimberly-Clark
Prior to the Spin-off, Halyard had no operations other than those related to the preparation to receive the health care business of Kimberly-Clark. Following the Spin-off, we became a separate public company, and Kimberly-Clark has no continuing stock ownership in us.
Prior to the Spin-off, we entered into a distribution agreement and various other agreements with Kimberly-Clark to effect the separation of our business from Kimberly-Clarks other businesses and set forth our contractual relationships with Kimberly-Clark after the Spin-off. These agreements provide for the allocation, between us and Kimberly-Clark, of Kimberly-Clarks assets, liabilities, employees and obligations (including Kimberly-Clarks investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after the Spin-off. The various other agreements include a transition services agreement, a tax matters agreement, an employee matters agreement, intellectual property agreements and manufacturing and supply agreements.
Using $250 million of proceeds from 6.25% senior unsecured notes and $390 million from a senior secured term loan (see Note 9, Debt) and cash on hand we made a cash distribution to Kimberly-Clark equal to $680 million.
Non-Cash Activities Related to the Separation from Kimberly-Clark
Non-cash activities related to the Spin-off, net of amounts retained or contributed by Kimberly-Clark, are as follows (in millions):
Current assets |
$ | 81.7 | ||
Property retained by Kimberly-Clark |
26.5 | |||
Accounts payable |
(74.0 | ) | ||
Accrued liabilities |
(7.4 | ) | ||
Non-current liabilities |
(1.3 | ) | ||
AOCI and other |
5.9 | |||
|
|
|||
Total |
$ | 31.4 | ||
|
|
F-12
Through the Spin-off date, we incurred $89 million ($88 million after tax) of transaction costs related to the separation from Kimberly-Clark and $12 million ($8 million after tax) of post Spin-off transition costs.
Note 3. | Manufacturing Footprint Strategic Changes |
In 2014, Kimberly-Clark initiated a plan to exit one of the disposable glove facilities in Thailand and outsource the related production to improve the underlying profitability and return on invested capital of our S&IP business. In conjunction with this plan, we evaluated the impacted asset group, which includes all of our facilities in Thailand, for impairment, and we re-evaluated the remaining useful lives of the assets involved in the impacted asset group. The plan resulted in a reduction of our workforce by approximately 2,500 positions and cumulative charges of $57 million ($47 million after-tax) through the Spin-off date that were recognized in cost of sales. The charges consisted of non-cash asset impairment of $42 million, accelerated depreciation of $10 million and workforce reduction and other exit cash costs of $5 million. Accelerated depreciation represents the incremental depreciation over and above the depreciation for the original established useful life.
The asset impairment charge was based on the excess of the carrying value of the impacted asset group of about $94 million over its fair value of $52 million. The fair value was measured using discounted cash flows expected over the time the asset group would remain in use. The use of the discounted cash flows represents a level 3 measure under the fair value hierarchy.
Following the Spin-off, we incurred additional costs of $3 million ($2 million net of tax) primarily for accelerated depreciation through December 8, 2014. Payments of $5 million were made for severance and other costs in 2014 and there were no remaining accrued expenses related to the sale as of December 31, 2014.
On December 8, 2014, we entered into a definitive agreement to sell the disposable glove facility to a third party. We received advance cash payments of $8 million before the end of 2014, which is included in Accrued Expenses in the accompanying consolidated and combined balance sheet. The net book value of the disposable glove facility was $3 million and was classified as Assets Held for Sale in the accompanying balance sheet. The sale closed in January 2015, resulting in a gain on sale of $12 million, which was recorded in the first quarter of 2015.
Note 4. | Inventories |
Inventories at the lower of cost (determined on the LIFO/FIFO or weighted-average cost methods) or market consists of the following (in millions):
As of December 31, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
LIFO |
Non-
LIFO |
Total | LIFO |
Non-
LIFO |
Total | |||||||||||||||||||
Raw Materials |
$ | 48.4 | $ | 1.3 | $ | 49.7 | $ | 40.2 | $ | 2.4 | $ | 42.6 | ||||||||||||
Work in process |
47.7 | 0.3 | 48.0 | 64.8 | 0.4 | 65.2 | ||||||||||||||||||
Finished goods |
157.8 | 37.5 | 195.3 | 148.7 | 42.3 | 191.0 | ||||||||||||||||||
Supplies and other |
| 11.8 | 11.8 | | 13.6 | 13.6 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
253.9 | 50.9 | 304.8 | 253.7 | 58.7 | 312.4 | |||||||||||||||||||
Excess of FIFO or weighted-average cost over LIFO cost |
(21.7 | ) | | (21.7 | ) | (26.8 | ) | | (26.8 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 232.2 | $ | 50.9 | $ | 283.1 | $ | 226.9 | $ | 58.7 | $ | 285.6 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-13
Note 5. | Property, Plant and Equipment |
Property, plant and equipment consists of the following (in millions):
As of December 31, | ||||||||
2014 | 2013 | |||||||
Land |
$ | 2.3 | $ | 4.5 | ||||
Buildings |
67.9 | 104.3 | ||||||
Machinery and equipment |
436.3 | 617.2 | ||||||
Construction in progress |
62.2 | 46.5 | ||||||
|
|
|
|
|||||
568.7 | 772.5 | |||||||
Less accumulated depreciation |
(290.9 | ) | (447.6 | ) | ||||
|
|
|
|
|||||
Total |
$ | 277.8 | $ | 324.9 | ||||
|
|
|
|
The decrease in property, plant and equipment from 2013 is primarily due to the manufacturing footprint strategic changes related to the glove facility in Thailand (see Note 3). Property, plant and equipment includes $1 million of capitalized interest in the year ended December 31, 2014. As of December 31, 2014, there was $22 million of capital expenditures in accounts payable, primarily related to building facilities necessary for us to operate as a stand-alone company. In the prior year, capital expenditures in accounts payable was not material.
As of December 31, 2014 and 2013, we held $156 million and $137 million, respectively, of net property, plant and equipment in the United States.
Depreciation expense was $53 million, $40 million and $38 million, respectively, in the years ended December 31, 2014, 2013 and 2012.
Note 6. | Goodwill and Intangible Assets |
The changes in the carrying amount of goodwill by business segment are as follows (in millions):
Medical
Devices |
S&IP | Total | ||||||||||
Balance at December 31, 2012 |
$ | 684.6 | $ | 749.5 | $ | 1,434.1 | ||||||
Acquisitions |
2.7 | | 2.7 | |||||||||
Currency changes |
(1.0 | ) | (5.7 | ) | (6.7 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2013 |
686.3 | 743.8 | 1,430.1 | |||||||||
Currency changes |
(4.7 | ) | 0.7 | (4.0 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2014 |
$ | 681.6 | $ | 744.5 | $ | 1,426.1 | ||||||
|
|
|
|
|
|
At December 31, 2014 and 2013, we had IPR&D included in intangible assets of $7 million for both periods. The IPR&D is not subject to amortization until the project is complete.
F-14
Intangible assets subject to amortization consist of the following (in millions):
As of December 31, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying Amount |
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying Amount |
|||||||||||||||||||
Trademarks |
$ | 126.6 | $ | (86.1 | ) | $ | 40.5 | $ | 126.6 | $ | (82.2 | ) | $ | 44.4 | ||||||||||
Patents and acquired technologies |
149.1 | (99.3 | ) | 49.8 | 149.9 | (76.1 | ) | 73.8 | ||||||||||||||||
Other |
48.3 | (37.0 | ) | 11.3 | 49.2 | (32.9 | ) | 16.3 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 324.0 | $ | (222.4 | ) | $ | 101.6 | $ | 325.7 | $ | (191.2 | ) | $ | 134.5 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets was $32 million, $29 million and $19 million for the years ended December 31, 2014, 2013 and 2012, respectively. We estimate amortization expense for the next five years and beyond will be as follows (in millions):
For the years ending December 31, | ||||
2015 |
$ | 25.4 | ||
2016 |
20.2 | |||
2017 |
14.9 | |||
2018 |
11.1 | |||
2019 |
6.9 | |||
Thereafter |
23.1 | |||
|
|
|||
Total |
$ | 101.6 | ||
|
|
Note 7. | Accrued Liabilities |
Current Liabilities
Accrued liabilities consist of the following (in millions):
December 31, | ||||||||
2014 | 2013 | |||||||
Accrued rebates |
$ | 82.2 | $ | 81.9 | ||||
Accrued salaries and wages |
46.4 | 37.3 | ||||||
Accruals for estimated litigation matters |
| 25.7 | ||||||
Accrued taxes - income and other |
23.4 | 12.2 | ||||||
Deposit received on pending sale of assets |
7.8 | | ||||||
Other |
23.6 | 22.9 | ||||||
|
|
|
|
|||||
Total |
$ | 183.4 | $ | 180.0 | ||||
|
|
|
|
Other Long-Term Liabilities
Other long-term liabilities consist of the following (in millions):
December 31, | ||||||||
2014 | 2013 | |||||||
Deferred income taxes |
$ | 27.9 | $ | 90.5 | ||||
Taxes payable |
1.6 | 1.3 | ||||||
Other |
18.6 | 2.7 | ||||||
|
|
|
|
|||||
Total |
$ | 48.1 | $ | 94.5 | ||||
|
|
|
|
F-15
Note 8. | Fair Value Information |
The following fair value information is based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels in the hierarchy used to measure fair value are:
Level 1Unadjusted quoted prices in active markets accessible at the reporting date for identical assets and liabilities.
Level 2Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or similar assets and liabilities in markets that are not considered active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3Prices or valuations that require inputs that are significant to the valuation and are unobservable.
A financial instruments level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
During 2014 and 2013, there were no transfers among Level 1, 2 or 3 fair value determinations.
The derivative liabilities for foreign exchange contracts as of December 31, 2014 and 2013 were $0 million and $5 million, respectively, and are included in the consolidated and combined balance sheet in accrued expenses. These derivatives are classified as Level 2 of the fair value hierarchy. The fair values of derivatives used to manage foreign currency risk is based on published quotations of spot currency rates and forward points, which are converted into implied forward currency rates. Additional information on our use of derivative instruments is contained in Note 15, Objectives and Strategies for Using Derivatives.
The following table includes the fair value of our financial instruments for which disclosure of fair value is required (in millions):
December 31, 2014 | December 31, 2013 | |||||||||||||||||||
Fair Value
Hierarchy Level |
Carrying
Amount |
Estimated
Fair Value |
Carrying
Amount |
Estimated
Fair Value |
||||||||||||||||
Assets |
||||||||||||||||||||
Cash and cash equivalents |
1 | $ | 149.0 | $ | 149.0 | $ | 44.1 | $ | 44.1 | |||||||||||
Liabilities |
||||||||||||||||||||
Debt |
2 | 636.2 | 644.0 | 11.9 | 11.9 |
Cash equivalents are recorded at cost, which approximates fair value due to their short-term nature.
As of December 31, 2013, short-term debt included $9 million of debt owed to wholly-owned subsidiaries of Kimberly-Clark. The carrying value approximated fair value due to the short-term nature of the debt.
Long-term debt at December 31, 2014 includes the carrying amount of our senior secured term loan (including current portion) and our senior unsecured notes (See Note 9, Debt). Fair value for the debt was based on observed trading prices in a secondary market.
F-16
Note 9. | Debt |
As of December 31, 2014 and 2013, our debt balances were as follows (in millions):
Weighted-
Average Interest Rate |
Maturities | December 31, | ||||||||||||||
2014 | 2013 | |||||||||||||||
Senior Secured Term Loan |
4.00 | % | 2021 | $ | 386.2 | $ | | |||||||||
Senior Unsecured Notes |
6.25 | % | 2022 | 250.0 | | |||||||||||
Debt due to Kimberly-Clark |
0.50 | % | 2014 | | 9.1 | |||||||||||
Bank loans and other financings in various currencies |
0.60 | % | 2014 | | 2.8 | |||||||||||
|
|
|
|
|||||||||||||
Total long-term debt |
636.2 | 11.9 | ||||||||||||||
Less debt payable within one year |
3.9 | 11.9 | ||||||||||||||
|
|
|
|
|||||||||||||
Long-term portion |
$ | 632.3 | $ | | ||||||||||||
|
|
|
|
As of December 31, 2014, we were in compliance with all of our debt covenants, which are further described below. As of December 31, 2014, the scheduled principal payments on our long-term debt are $4 million each year for the next five years.
Senior Unsecured Notes
Prior to the Spin-off, we issued $250 million of senior unsecured notes (the Notes). The Notes will mature on October 15, 2022 and interest will accrue at a rate of 6.25% per annum from October 17, 2014 and will be payable semi-annually in arrears on April 15 and October 15 of each year, beginning on April 15, 2015.
The agreement governing the Notes contains covenants that, among other things, limit our ability and the ability of certain of our subsidiaries to:
| incur additional indebtedness, guarantee indebtedness or issue disqualified stock or, in the case of our restricted subsidiaries, preferred stock; |
| pay dividends on, repurchase or make distributions in respect of our capital stock; |
| make certain investments or acquisitions; |
| sell, transfer or otherwise convey certain assets; |
| create liens; |
| enter into agreements restricting certain subsidiaries ability to pay dividends or make other intercompany transfers; |
| consolidate, merge, sell or otherwise dispose of all or substantially all of our and our subsidiaries assets; |
| enter into transactions with affiliates; and |
| prepay certain kinds of indebtedness. |
Senior Secured Term Loan and Revolving Credit Facility
Prior to the Spin-off, we entered into a credit agreement establishing credit facilities in aggregate principal amount of $640 million, including a five-year senior secured revolving credit facility allowing borrowings of up to $250 million, with a letter of credit sub-facility in an amount of $75 million and a swingline sub-facility in an amount of $25 million (the Revolving Credit Facility), and a seven-year senior secured term loan of $390 million (the Term Loan Facility).
F-17
The Term Loan Facility is secured by substantially all of our assets located in the United States and a certain percentage of our foreign subsidiaries capital stock. The credit agreement contains covenants similar to those described above. Pursuant to the restrictive covenants that limit our ability to pay dividends, we have the ability to pay dividends, repurchase stock and make investments up to an Available Amount, as defined in the credit agreement governing the Term Loan Facility and the Revolving Credit Facility, provided that we are in compliance with all required covenants, there are no events of default and upon meeting certain financial ratios.
In conjunction with the credit agreements described above, we paid $12 million in financing fees and the loan was issued at a discount of $4 million, which amounts were deferred and will be amortized to interest expense over the life of the credit agreement using the effective interest method.
Borrowings under the Term Loan Facility will bear interest, at Halyards option, at either (i) a reserve-adjusted LIBOR rate, subject to a floor of 0.75%, plus 3.25%, or (ii) a base rate, subject to a floor of 0.75%, (calculated as the greatest of (1) the prime rate, (2) the U.S. federal funds effective rate plus 0.50% or (3) the one month LIBOR Rate plus 1.00%) plus 2.25%. The Term Loan Facility requires quarterly amortization payments equal to 0.25% of the aggregate principal amount of the term loans outstanding on the closing date. As of December 31, 2014, the interest rate in effect for the Term Loan Facility was 4.00%.
Borrowings under the Revolving Credit Facility will bear interest, at Halyards option, at either (i) a reserve-adjusted LIBOR rate, plus a margin initially equal to 2.25% and then, following Halyards delivery under the credit agreement of Halyards financial statements for Halyards fiscal quarter ending March 31, 2015, ranging between 1.75% to 2.50% per annum, depending on Halyards consolidated total leverage ratio, or (ii) the base rate plus a margin initially equal to 1.25% and then, following Halyards delivery of those financial statements, ranging between 0.75% to 1.50% per annum, depending on Halyards consolidated total leverage ratio. The unused portion of Halyards Revolving Credit Facility will be subject to a commitment fee equal to (i) 0.25% per annum, when Halyards consolidated total leverage ratio is less than 2.25 to 1.00 and (ii) 0.40% per annum, otherwise. As of December 31, 2014, we had no borrowings and letters of credit of $2 million outstanding under the Revolving Credit Facility, leaving $248 million available for borrowing.
In the prior year, the debt due to Kimberly-Clark was subject to repayment upon demand, and accordingly was classified in current liabilities on the combined and consolidated balance sheet. The debt due to Kimberly-Clark of $9 million as of December 31, 2013 was repaid in the Spin-off.
In the prior year, the bank loan operated as a short-term revolver, and the balance owed at December 31, 2013 of $3 million was repaid in March 2014.
Note 10. | Income Taxes |
Prior to the Spin-off, our income taxes were calculated on a separate tax return basis, although operations have been included in Kimberly-Clarks U.S. federal, state and foreign tax returns. Kimberly-Clarks global tax model has been developed based on its entire portfolio of businesses. Accordingly, our income tax results as presented are not necessarily indicative of future performance and do not necessarily reflect the results that we would have generated as an independent publicly traded company for the periods presented. Following the Spin-off, our income taxes are calculated using the asset and liability method of accounting, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.
The provision for income taxes includes federal, state and foreign taxes currently payable and those deferred because of net operating losses and temporary differences between the Consolidated and Combined Financial Statements and tax bases of assets and liabilities.
F-18
The components of income (loss) before income taxes, and the provision (benefit) for income taxes are as follows (in millions):
Year Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Income before income taxes |
||||||||||||
United States |
$ | 91.8 | $ | 136.8 | $ | 119.3 | ||||||
Foreign |
(0.6 | ) | 91.0 | 110.5 | ||||||||
|
|
|
|
|
|
|||||||
Total |
91.2 | 227.8 | 229.8 | |||||||||
|
|
|
|
|
|
|||||||
Income tax provision (benefit): |
||||||||||||
Current: |
||||||||||||
United States |
71.2 | 41.4 | 49.8 | |||||||||
State |
5.5 | 8.2 | 10.6 | |||||||||
Foreign |
18.0 | 23.7 | 30.8 | |||||||||
|
|
|
|
|
|
|||||||
Total |
94.7 | 73.3 | 91.2 | |||||||||
|
|
|
|
|
|
|||||||
Deferred: |
||||||||||||
United States |
(9.8 | ) | (0.4 | ) | (10.0 | ) | ||||||
State |
(1.4 | ) | 0.2 | (1.5 | ) | |||||||
Foreign |
(19.4 | ) | 0.1 | (2.5 | ) | |||||||
|
|
|
|
|
|
|||||||
Total |
(30.6 | ) | (0.1 | ) | (14.0 | ) | ||||||
|
|
|
|
|
|
|||||||
Total income tax provision |
$ | 64.1 | $ | 73.2 | $ | 77.2 | ||||||
|
|
|
|
|
|
Major differences between the federal statutory rate and the effective tax rate are as follows:
Year Ended December 31, |
||||||||||||
2014 | 2013 | 2012 | ||||||||||
Federal statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
Rate of state income taxes, net of federal tax benefit |
3.0 | 2.3 | 4.6 | |||||||||
Statutory rate other than U.S. statutory rate |
(0.3 | ) | (3.2 | ) | (3.5 | ) | ||||||
Thailand repatriation related to the Spin-off |
15.5 | | | |||||||||
Non-deductible expenses related to the Spin-off |
17.6 | | | |||||||||
Change in valuation allowances |
2.1 | 0.6 | (1.9 | ) | ||||||||
Other, net |
(2.6 | ) | (2.6 | ) | (0.6 | ) | ||||||
|
|
|
|
|
|
|||||||
Effective tax rate |
70.3 | % | 32.1 | % | 33.6 | % | ||||||
|
|
|
|
|
|
The following is a summary of the significant components of the Companys deferred tax assets and liabilities (in millions):
As of December 31, |
||||||||
2014 | 2013 | |||||||
Deferred tax assets |
||||||||
Inventories |
$ | | $ | 23.8 | ||||
Intangibles, net |
13.8 | | ||||||
Accrued liabilities |
16.7 | 14.8 | ||||||
Other |
2.7 | 15.3 | ||||||
|
|
|
|
|||||
33.2 | 53.9 | |||||||
Valuation allowance |
(0.8 | ) | (4.3 | ) | ||||
|
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|
|
|||||
Total deferred assets |
32.4 | 49.6 | ||||||
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|
F-19
As of December 31, |
||||||||
2014 | 2013 | |||||||
Deferred tax liabilities |
||||||||
Inventories |
$ | 17.4 | $ | | ||||
Property, plant and equipment, net |
27.5 | 45.8 | ||||||
Intangibles, net |
| 47.2 | ||||||
Other |
1.2 | 0.1 | ||||||
|
|
|
|
|||||
Total deferred tax liabilities |
46.1 | 93.1 | ||||||
|
|
|
|
|||||
Net deferred tax liabilities |
$ | 13.7 | $ | 43.5 | ||||
|
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|
|
Valuation allowances increased $1 million during the first ten months of 2014 impacting earnings by the same amount. Valuation allowances decreased by $5 million due to the Spin-off. This activity did not impact earnings. During the two month post spin period, valuation allowances increased $1 million impacting earnings by the same amount. Valuation allowances at the end of 2014 and 2013 primarily relate to tax credits and income tax loss carryforwards.
Realization of income tax loss carryforwards is dependent on generating sufficient taxable income prior to expiration of these carryforwards. Although realization is not assured, we believe it is more likely than not that all of the deferred tax assets, net of applicable valuation allowances, will be realized. The amount of the deferred tax assets considered realizable could be reduced or increased due to changes in the tax environment or if estimates of future taxable income change during the carryforward period.
At December 31, 2014, U.S. income taxes and foreign withholding taxes have not been provided on $73 million of current and prior year undistributed earnings of subsidiaries operating outside the U.S. These earnings, which are considered to be invested indefinitely, would become subject to income tax if they were remitted as dividends, were lent to one of our U.S. entities or if we were to sell our stock in the subsidiaries. Determination of the amount of unrecognized deferred U.S. income tax liability on these unremitted earnings is not practicable because of the complexities associated with this hypothetical calculation. We do not expect restrictions or taxes on repatriation of cash held outside of the United States to have a material adverse effect on our overall liquidity, financial condition or results of operations for the foreseeable future.
A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows (in millions):
As of December 31, |
||||||||
2014 | 2013 | |||||||
Beginning of year |
$ | 19.5 | $ | 18.1 | ||||
Gross increases for income tax positions taken during current period |
0.2 | 1.3 | ||||||
Gross increases for tax positions of prior years |
| 5.8 | ||||||
Gross decreases for tax positions of prior years |
(0.9 | ) | (4.2 | ) | ||||
Decreases for tax positions retained by Kimberly-Clark as a result of the Spin-off |
(16.6 | ) | | |||||
Decreases for settlements with taxing authorities |
(0.5 | ) | (1.4 | ) | ||||
Decreases for lapse of the applicable statute of limitations |
(0.1 | ) | (0.1 | ) | ||||
|
|
|
|
|||||
End of year |
$ | 1.6 | $ | 19.5 | ||||
|
|
|
|
The amount, if recognized, that would affect our effective tax rate at December 31, 2014 and 2013 is $1 million and $14 million, respectively.
F-20
We classify interest and penalties on uncertain tax benefits as income tax expense. At December 31, 2014 and 2013, before any tax benefits, we had $1 million and $5 million, respectively, of accrued interest and penalties on unrecognized tax benefits.
During the next twelve months, we do not expect the resolution of any tax audits which could potentially reduce unrecognized tax benefits by a material amount. In addition, no expiration of the statute of limitations for a tax year in which we have recorded uncertain tax benefits will occur in the next twelve months.
State income tax returns are generally subject to examination for a period of three to five years after filing of the respective returns. The state effect of any changes to filed federal positions remains subject to examination by various states for a period of up to two years after formal notification to the states. We have various state income tax return positions in the process of examination, administrative appeals or litigation.
Note 11. | Employee Defined Benefit Plans |
International Pension Plans
Certain plans in our international operations are our direct obligation, and therefore, the related funded status has been recorded within our consolidated and combined balance sheet. These plans are unfunded and the aggregated projected benefit obligation as of December 31, 2014 and 2013 was $5 million and $2 million, respectively. Net periodic pension cost for the years ended December 31, 2014, 2013 and 2012 was $3 million, $1 million and $1 million, respectively. Over the next ten years, we do not expect gross benefit payments to be material in the years 2015 through 2019, and $3 million in total for the years 2020 through 2024.
Defined Contribution Pension Plans
Eligible employees participate in our defined contribution plans. Our 401(k) plan and supplemental plan provide for a matching contribution of a U.S. employees contributions and accruals, subject to predetermined limits. Halyard also has defined contribution pension plans for certain employees outside the U.S. in which eligible employees may participate. Following the Spin-off, costs charged to expense in our cost of products sold, research and development and selling and general expenses in our consolidated and combined income statement for contributions made were $1 million in the period from November 1, 2014 to December 31, 2014.
Participation in Kimberly-Clarks Pension and Other Postretirement Benefit Plans
Prior to the Spin-off, eligible employees participated in defined benefit pension and postretirement healthcare plans sponsored by Kimberly-Clark. Certain employees in North America were covered by these defined benefit pension plans, and substantially all U.S. employees had access to unfunded healthcare and life insurance benefit plans. Participants from Kimberly-Clarks other businesses also participated in these plans and therefore, our participation in the plans was accounted for on a multi-employer basis. As a result, the assets or liabilities associated with these plans are not reported in our consolidated and combined balance sheet. All liability relating to Kimberly-Clarks defined benefit pension plan was retained by Kimberly-Clark.
Prior to the Spin-off, expense allocations for these benefits were determined based on a review of personnel by business unit and are recorded in our condensed and combined income statement within cost of products sold, research and development and selling and general expenses, as applicable. These costs are funded through transactions with Kimberly-Clark. Our allocated expenses for the defined benefit pension plans were $2 million, $2 million and $2 million for the years ended December 31, 2014, 2013 and 2012, respectively. Our allocated expenses for the postretirement healthcare plans were $3 million, $4 million and $6 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Prior to the Spin-off, our eligible employees participated in Kimberly-Clarks defined contribution plans. Costs charged to expense in our cost of products sold, research and development and selling and general expenses for contributions made by Kimberly-Clark on our behalf were $9 million, $10 million and $10 million for the years ended December 31, 2014, 2013 and 2012, respectively.
F-21
Note 12. | Accumulated Other Comprehensive Income |
The changes in the components of Accumulated Other Comprehensive Income (AOCI), net of tax, are as follows (in millions):
Year Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Unrealized translation |
$ | (14.0 | ) | $ | (22.6 | ) | $ | 6.9 | ||||
Defined benefit pension plans |
(0.4 | ) | | | ||||||||
Cash flow hedges |
4.3 | (5.4 | ) | 6.9 | ||||||||
|
|
|
|
|
|
|||||||
(10.1 | ) | (28.0 | ) | 13.8 | ||||||||
Tax effect |
(0.7 | ) | (1.7 | ) | (0.3 | ) | ||||||
|
|
|
|
|
|
|||||||
Change in AOCI |
$ | (10.8 | ) | $ | (29.7 | ) | $ | 13.5 | ||||
|
|
|
|
|
|
Note 13. | Stock-Based Compensation |
The Halyard Health, Inc. Equity Participation Plan and the Halyard Health, Inc. Outside Directors Compensation Plan (together, the Plans) provide for awards of stock options, stock appreciation rights, restricted stock (and in certain limited cases, unrestricted stock), restricted stock units, performance units and cash awards to eligible employees (including officers who are employees), directors, advisors and consultants of Halyard or its subsidiaries. A maximum of 4,900,000 shares of Halyard common stock may be issued under the Plans, and there are 3,914,330 shares remaining available for issuance as of December 31, 2014.
Aggregate stock-based compensation expense under the Plans was $3 million for the period ended December 31, 2014, which reflects expense incurred for awards granted after the Spin-off.
Stock Options
Stock options are granted at an exercise price equal to the fair market value of Halyards common stock on the date of grant. Stock options are generally subject to graded vesting whereby options vest 30% at the end of each of the first two 12-month periods following the grant and 40% at the end of the third 12-month period and have a term of 10 years.
Any unvested options awarded by Kimberly-Clark held by the Halyard employees under the age of 55 at the time of the Spin-off were forfeited on the Spin-off date. Certain awards granted to employees to replace Kimberly-Clark awards forfeited at the time of Spin-off have shorter vesting periods.
The fair value of stock option awards was determined using a Black-Scholes option-pricing model utilizing a range of assumptions related to volatility, risk-free interest rate, expected term and dividend yield. Expected volatility was based on historical weekly closing stock price volatility for a peer group of companies. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant. The expected term was based on historical observed settlement behavior. The dividend yield was based on the expectation that no dividends are expected to be paid on our common stock.
The weighted-average fair value of options granted was $10.01 based on an assumed volatility of 25% to 27%, risk-free interest rates of 0.8% to 1.6%, an expected term of three to five years and no dividend yield. Stock-based compensation expense related to stock options was $1 million for the period from the Spin-off date through December 31, 2014.
F-22
A summary of stock option activity is presented below:
Shares
(in thousands) |
Weighted-
Average Exercise Price |
Weighted-
Average Remaining Contractual Term (Years) |
Aggregate
Intrinsic Value (in millions) |
|||||||||||||
Outstanding at December 31, 2013 |
| $ | | |||||||||||||
Granted |
616 | $ | 34.94 | |||||||||||||
Forfeitures |
(5 | ) | $ | 34.98 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Outstanding at December 31, 2014 |
611 | $ | 34.94 | 8.9 | $ | 6.4 | ||||||||||
|
|
|
|
|
|
|
|
There were no options vested or exercisable as of December 31, 2014.
The following table summarizes information about options outstanding as of December 31, 2014:
Options Outstanding | ||||||||
Range of Exercise Prices |
Shares (in thousands) |
Weighted-Average
Remaining Contractual Term (Years) |
||||||
$25.00 to $30.00 |
87 | 7.3 | ||||||
$30.00 to $35.00 |
175 | 8.3 | ||||||
$35.00 to $40.00 |
349 | 9.5 | ||||||
|
|
|
|
|||||
611 | 8.9 | |||||||
|
|
|
|
There were no vested and exercisable options outstanding as of December 31, 2014, and there was no exercise activity from the Spin-off date through December 31, 2014. For stock options outstanding at December 31, 2014, we expect to recognize an additional $5 million of expense over the remaining average service period of one year.
Restricted Share Units
Restricted shares, time-vested restricted share units and performance-based restricted share units granted to employees and directors are valued at the closing market price of our common stock on the grant date with vesting conditions determined upon approval of the award. The fair value of restricted share units is based on our closing stock price on the date of grant.
Any unvested restricted share units awarded by Kimberly-Clark held by the Halyard employees under the age of 55 at the time of the Spin-off were forfeited on the Spin-off date. Certain awards granted to employees to replace Kimberly-Clark awards forfeited at the time of Spin-off have shorter vesting periods.
Stock-based compensation expense related to restricted stock units was $2 million for the period from the Spin-off date through December 31, 2014. A summary of restricted share unit activity is presented below:
Shares
(in thousands) |
Weighted
Average Fair Value |
|||||||
Outstanding at December 31, 2013 |
| $ | | |||||
Granted |
377 | $ | 37.88 | |||||
Forfeited |
(2 | ) | $ | 37.88 | ||||
|
|
|
|
|||||
Outstanding at December 31, 2014 |
375 | $ | 37.88 | |||||
|
|
|
|
|||||
Vested at December 31, 2014 |
6 | $ | 37.88 | |||||
|
|
|
|
For restricted share units outstanding at December 31, 2014, we expect to recognize an additional $12 million of expense over the remaining average service period of 1.2 years.
F-23
Expense under Kimberly-Clark Equity Incentive Plans
Kimberly-Clark maintains several equity incentive plans in which our executives and employees participated prior to the Spin-off. All awards granted under Kimberly-Clarks plans were based on common shares of Kimberly-Clark stock and, as such, were reflected in Kimberly-Clarks consolidated statements of equity and not in our combined statement of invested equity. Prior to the Spin-off, Kimberly-Clark allocated stock-based compensation expense to Halyard for employees of Kimberly-Clarks health care business that became Halyard employees upon the Spin-off. Stock-based compensation expense allocated to us by Kimberly-Clark under their incentive plans was $5 million through the Spin-off date in 2014, $6 million in 2013 and $5 million in 2012.
Note 14. | Commitments and Contingencies |
Legal Matters
We are subject to various legal proceedings, claims and governmental inspections, audits or investigations pertaining to issues such as contract disputes, product liability, tax matters, patents and trademarks, advertising, governmental regulations, employment and other matters, including the matters described below. Under the terms of the distribution agreement we entered into with Kimberly-Clark prior to the Spin-off, legal proceedings, claims and other liabilities that are primarily related to our business are our responsibility and we are obligated to indemnify and hold Kimberly-Clark harmless for such matters. The only exception to this general obligation relates to the pain pump litigation referenced in the next paragraph below. Although the results of litigation and claims cannot be predicted with certainty, we believe that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, individually or in the aggregate, on our business, financial condition, results of operations or cash flows.
We are one of several manufacturers of continuous infusion medical devices, such as our ON-Q PAINBUSTER pain pumps, that are involved in several different pending or threatened litigation matters from multiple plaintiffs alleging that use of the continuous infusion device to deliver anesthetics directly into a synovial joint after surgery resulted in postarthroscopic glenohumeral chondrolysis, or a disintegration of the cartilage covering the bones in the joint (typically, in the shoulder). Plaintiffs generally seek monetary damages and attorneys fees. While Kimberly-Clark retained the liabilities related to these matters that were asserted prior to the Spin-off, the distribution agreement between us and Kimberly-Clark provided that we indemnify Kimberly-Clark for any such claims or causes of actions arising after the Spin-off.
Operating Leases
We have entered into operating leases for principal executive offices, located in Alpharetta, Georgia, as well as certain warehouse, manufacturing and distribution facilities. The future minimum obligations under operating leases having a non-cancelable term in excess of one year are as follows (in millions):
Year |
Amount | |||
2015 |
$ | 11.5 | ||
2016 |
9.5 | |||
2017 |
9.0 | |||
2018 |
8.1 | |||
2019 |
6.2 | |||
Thereafter |
35.2 | |||
|
|
|||
Future minimum obligations |
$ | 79.5 | ||
|
|
Rental expense under operating leases was $17 million, $17 million and $13 million in 2014, 2013 and 2012, respectively.
F-24
Note 15. | Objectives and Strategies for Using Derivatives |
As a multinational enterprise, we are exposed to financial risks, such as changes in foreign currency exchange rates, interest rates and commodity prices. We employ a number of practices to manage these risks, including operating activities and, where appropriate, the use of derivative instruments. We use derivative instruments, such as forward swap contracts, to hedge a limited portion of our exposure to market risk arising from changes in prices of certain commodities. These derivatives are designated as cash flow hedges of specific quantities of the underlying commodity expected to be purchased in future months. In addition, we enter into derivative instruments for certain of our non-U.S. operations to hedge a portion of forecasted cash flows for raw materials, imports of intercompany finished goods and other intercompany goods and services denominated in U.S. dollars. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instruments is recognized in earnings in the same period that the hedged exposure affects earnings.
We enter into derivative instruments to hedge a portion of forecasted cash flows denominated in Thai baht for purchases of raw materials denominated in U.S. dollars made by our affiliates in Thailand. The derivative instruments used to manage these exposures are designated and qualify as cash flow hedges. The foreign currency exposure on certain non-functional currency denominated monetary assets and liabilities, primarily intercompany loans and accounts payable, is primarily hedged with undesignated derivative instruments.
Translation adjustments result from translating foreign entities financial statements into U.S. dollars from their functional currencies. The risk to any particular entitys net assets is reduced to the extent that the entity is financed with local currency borrowing. Translation exposure, which results from changes in translation rates between functional currencies and the U.S. dollar, is not hedged.
The derivative assets for foreign exchange contracts were not material as of December 31, 2014. The derivative liabilities for foreign exchange contracts as of December 31, 2013 were $5 million and are included in the consolidated and combined balance sheet in accrued expenses.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is initially recorded in AOCI, net of related income taxes, and recognized in earnings in the same period that the hedged exposure affects earnings. These gains or losses recognized to earnings were not significant in each of the three years ended December 31, 2014. As of December 31, 2014, the aggregate notional value of outstanding foreign exchange derivative contracts designated as cash flow hedges was approximately $36 million. Cash flow hedges resulted in no significant ineffectiveness in each of the three years ended December 31, 2014. For each of the three years ended December 31, 2014, no gains or losses were reclassified into earnings as a result of the discontinuance of cash flow hedges due to the original forecasted transaction no longer being probable of occurring. At December 31, 2014, amounts to be reclassified from AOCI during the next year are not expected to be significant. The maximum maturity of cash flow hedges in place at December 31, 2014 is December 2015.
Gains or losses on undesignated foreign exchange hedging instruments are immediately recognized in other (income) and expense, net. These gains or losses have not been significant for each of the three years ended December 31, 2014. The effect on earnings from the use of these non-designated derivatives is substantially neutralized by the transactional gains and losses recorded on the underlying assets and liabilities. At December 31, 2014, the notional amount of these undesignated derivative instruments was approximately $83 million.
Note 16. | Earnings Per Share (EPS) |
Basic EPS is based on the weighted average number of common shares outstanding during each period. Diluted earnings per share is based on the weighted average number of common shares outstanding and the effect of all dilutive common stock equivalents outstanding during each period, as determined using the treasury stock
F-25
method. The contribution of Kimberly-Clarks Health Care business to us was treated as a reorganization of entities under common control under Kimberly-Clark. Consequently, we are retrospectively reporting EPS for all periods presented. For all periods prior to the Spin-off, the same number of weighted average shares outstanding of 46,536 was used for basic and diluted EPS as no Halyard common stock or dilutive stock-based compensation awards were authorized or outstanding.
The average number of common shares outstanding is reconciled to those used in the basic and diluted EPS computations as follows as of December 31, 2014 (thousands of shares):
Basic weighted average shares outstanding |
46,536 | |||
Dilutive effect of stock options and restricted share unit awards |
2 | |||
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Diluted weighted average shares outstanding |
46,538 | |||
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Note 17. | Business Segment Information |
We are organized into two operating segments based on product groupings: S&IP and Medical Devices. These operating segments, which are also our reportable global business segments, were determined in accordance with how our executive managers develop and execute global strategies to drive growth and profitability. These strategies include global plans for branding and product positioning, technology, research and development programs, cost reductions including supply chain management, and capacity and capital investments for each of these businesses. Segment management is evaluated on several factors, including operating profit. Segment operating profit excludes other (income) and expense, net.
The principal sources of revenue in each global business segment are described below:
| S&IP provides healthcare supplies and solutions that target the prevention and management of healthcare-associated infections. This segment has recognized brands across its portfolio of product offerings, including sterilization wrap, surgical drapes and gowns, facial protection, protective apparel and medical exam gloves. This business is also a global leader in education to prevent healthcare-associated infections. |
| Medical Devices provides a portfolio of innovative product offerings focused on pain management and respiratory and digestive health to improve patient outcomes and reduce the cost of care. These products include post-operative pain management solutions, minimally invasive interventional (or chronic) pain therapies, closed airway suction systems and enteral feeding tubes. |
Information concerning combined operations by business segment is presented in the following table (in millions):
Year Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Net Sales |
||||||||||||
S&IP |
$ | 1,139.3 | $ | 1,153.1 | $ | 1,185.1 | ||||||
Medical Devices |
501.7 | 499.0 | 477.6 | |||||||||
Corporate and Other |
31.1 | 25.4 | 21.3 | |||||||||
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Total Net Sales (a) |
1,672.1 | 1,677.5 | 1,684.0 | |||||||||
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Operating Profit |
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S&IP |
166.3 | 151.2 | 155.2 | |||||||||
Medical Devices |
104.6 | 85.6 | 88.8 | |||||||||
Corporate and Other (b) |
(180.4 | ) | (13.9 | ) | (17.5 | ) | ||||||
Other income (expense), net |
3.8 | 2.4 | 1.5 | |||||||||
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Total Operating Profit |
94.3 | 225.3 | 228.0 | |||||||||
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F-26
Year Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Interest income |
$ | 2.9 | $ | 2.6 | $ | 2.6 | ||||||
Interest expense |
(6.0 | ) | (0.1 | ) | (0.8 | ) | ||||||
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Income before Income Taxes |
$ | 91.2 | $ | 227.8 | $ | 229.8 | ||||||
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(a) | Net sales in the United States to third parties totaled $1.1 billion in each of the last three years ended December 31, 2014, 2013 and 2012, respectively. |
(b) | Corporate and Other for the year ended December 31, 2014 includes $60 million associated with the disposal of one of our disposable glove facilities in Thailand (see Note 3, Manufacturing Footprint Strategic Changes), $89 million of transaction costs associated with the Spin-off (see Note 2, Separation from Kimberly-Clark) and $12 million of post Spin-off transition costs. |
Within the S&IP segment, surgical drapes and gowns, medical exam gloves and sterilization wrap have accounted for 24%, 20% and 10% of total net sales, respectively, in each of the past three years. Within the Medical Devices segment, no category of products accounted for 10% or more of total net sales in any of the last three years.
Depreciation, amortization and capital expenditures by segment are as follows (in millions):
Year Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Depreciation and Amortization |
||||||||||||
S&IP |
$ | 41.4 | $ | 31.0 | $ | 28.7 | ||||||
Medical Devices |
40.4 | 36.2 | 26.9 | |||||||||
Corporate and Other |
3.6 | 2.0 | 2.0 | |||||||||
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Total Depreciation and Amortization |
$ | 85.4 | $ | 69.2 | $ | 57.6 | ||||||
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Capital Expenditures |
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S&IP |
$ | 46.3 | $ | 20.4 | $ | 28.5 | ||||||
Medical Devices |
19.1 | 13.4 | 11.5 | |||||||||
Corporate and Other |
13.1 | 15.2 | 0.8 | |||||||||
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Total Capital Expenditures |
$ | 78.5 | $ | 49.0 | $ | 40.8 | ||||||
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Information concerning assets by business segment is presented in the following table (in millions):
As of December 31, | ||||||||
2014 | 2013 | |||||||
Assets |
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S&IP |
$ | 1,235.2 | $ | 1,357.2 | ||||
Medical Devices |
1,042.2 | 1,055.5 | ||||||
Corporate and Other |
250.2 | 71.3 | ||||||
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Total Assets |
$ | 2,527.6 | $ | 2,484.0 | ||||
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Note 18. | Related Party Transactions |
A portion of our net sales results from sales to Kimberly-Clark subsidiaries and affiliates. Included in our consolidated and combined financial statements are net sales to Kimberly-Clark subsidiaries and affiliates of $79 million through the Spin-off date in 2014, $91 million in 2013 and $93 million in 2012.
F-27
Prior to the Spin-off, we utilized manufacturing facilities and resources managed by affiliates of Kimberly-Clark to conduct our business. The expenses associated with these transactions, which primarily relate to production of semi-finished goods for our surgical and infection prevention business, are included in cost of products sold in our combined income statement.
Our consolidated and combined financial statements include certain expenses of Kimberly-Clark which were allocated to us for certain functions, including general expenses related to supply chain, finance, legal, information technology, human resources, compliance, shared services, insurance, employee benefits and incentives and stock-based compensation. These expenses have been allocated to us on the basis of direct usage when identifiable, with the remainder allocated on the relative percentage of net sales or headcount. The total amount of these allocations from Kimberly-Clark was approximately as follows (in millions):
Year Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Cost of products sold |
$ | 22 | $ | 25 | $ | 25 | ||||||
Selling and general expenses |
41 | 60 | 60 | |||||||||
Research expenses |
11 | 10 | 10 | |||||||||
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Total |
$ | 74 | $ | 95 | $ | 95 | ||||||
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We consider the expense allocation methodology and results to be reasonable for all periods presented. However, these allocations may not be indicative of the actual expenses we would have incurred as a separate, stand-alone public company or of the costs we will incur in the future.
Prior to the Spin-off, Kimberly-Clark has provided financing, cash management and other treasury services to us. In North America, our cash balances were swept by Kimberly-Clark, and prior to the Spin-off, we received funding from Kimberly-Clark for most of our operating and investing cash needs. Such cash transferred to and from Kimberly-Clark was recorded as intercompany cash. Intercompany cash, receivables and payables with Kimberly-Clark are reflected within parent company investment in the accompanying consolidated and combined financial statements.
Note 19. | Supplemental Guarantor Financial Information |
In October 2014, Halyard Health, Inc. (referred to below as the Parent) issued the Notes (described in Note 9, Debt). The Notes are guaranteed, jointly and severally by each of our domestic subsidiaries that guarantee the Revolving Credit Facility and the Term Loan Facility (each, a Guarantor Subsidiary and collectively, the Guarantor Subsidiaries). The guarantees are full and unconditional, subject to certain customary release provisions, as defined in the Indenture dated October 17, 2014. Each Guarantor Subsidiary is directly or indirectly 100%-owned by Halyard Health, Inc. Each of the guarantees of the Notes is a general unsecured obligation of each Guarantor and ranks equally in right of payment with all existing and future indebtedness and all other obligations (except subordinated indebtedness) of each Guarantor.
The following condensed consolidating balance sheets as of December 31, 2014 and 2013 and the condensed consolidating statements of income and cash flows for each of the three years ended December 31, 2014, 2013 and 2012 provide condensed consolidating information for Halyard Health, Inc. (Parent), the Guarantor Subsidiaries on a combined basis, the Non-Guarantor subsidiaries on a combined basis and the Parent and its subsidiaries on a consolidated and combined basis.
The Parent and the Guarantor Subsidiaries use the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated upon consolidation. Eliminating entries in the following condensed consolidating financial information represent adjustments to (i) eliminate intercompany transactions between or among the Parent, the Guarantor Subsidiaries and the non-guarantor subsidiaries and (ii) eliminate the investments in subsidiaries.
F-28
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS
(in millions)
Year Ended December 31, 2014 | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-
Guarantor Subsidiaries |
Eliminations |
Consolidated
and Combined |
||||||||||||||||
Net Sales |
$ | | $ | 1,455.0 | $ | 619.8 | $ | (402.7 | ) | $ | 1,672.1 | |||||||||
Cost of products sold |
| 979.6 | 546.6 | (402.7 | ) | 1,123.5 | ||||||||||||||
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Gross Profit |
| 475.4 | 73.2 | | 548.6 | |||||||||||||||
Research and development expenses |
| 33.6 | | | 33.6 | |||||||||||||||
Selling and general expenses |
3.0 | 363.0 | 58.5 | | 424.5 | |||||||||||||||
Other expense (income), net |
0.1 | | (3.9 | ) | | (3.8 | ) | |||||||||||||
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Operating (Loss) Profit |
(3.1 | ) | 78.8 | 18.6 | | 94.3 | ||||||||||||||
Interest income |
| 2.6 | 0.3 | | 2.9 | |||||||||||||||
Interest expense |
(5.2 | ) | (0.7 | ) | (0.1 | ) | | (6.0 | ) | |||||||||||
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(Loss) Income Before Income Taxes |
(8.3 | ) | 80.7 | 18.8 | | 91.2 | ||||||||||||||
Provision for income taxes |
| (62.8 | ) | (1.3 | ) | | (64.1 | ) | ||||||||||||
Equity in earnings of consolidated subsidiaries |
(6.2 | ) | 13.8 | | (7.6 | ) | | |||||||||||||
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Net (Loss) Income |
(14.5 | ) | 31.7 | 17.5 | (7.6 | ) | 27.1 | |||||||||||||
Total other comprehensive loss, net of tax |
| (0.9 | ) | (9.9 | ) | | (10.8 | ) | ||||||||||||
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Comprehensive (Loss) Income |
$ | (14.5 | ) | $ | 30.8 | $ | 7.6 | $ | (7.6 | ) | $ | 16.3 | ||||||||
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F-29
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS
(in millions)
Year Ended December 31, 2013 | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-
Guarantor Subsidiaries |
Eliminations |
Consolidated
and Combined |
||||||||||||||||
Net Sales |
$ | | $ | 1,429.9 | $ | 663.6 | $ | (416.0 | ) | $ | 1,677.5 | |||||||||
Cost of products sold |
| 974.9 | 506.4 | (416.0 | ) | 1,065.3 | ||||||||||||||
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Gross Profit |
| 455.0 | 157.2 | | 612.2 | |||||||||||||||
Research and development expenses |
| 37.9 | | | 37.9 | |||||||||||||||
Selling and general expenses |
| 295.4 | 56.0 | | 351.4 | |||||||||||||||
Other income, net |
| (1.0 | ) | (1.4 | ) | | (2.4 | ) | ||||||||||||
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Operating Profit |
| 122.7 | 102.6 | | 225.3 | |||||||||||||||
Interest income |
| 2.5 | 0.1 | | 2.6 | |||||||||||||||
Interest expense |
| | (0.1 | ) | | (0.1 | ) | |||||||||||||
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Income Before Income Taxes |
| 125.2 | 102.6 | | 227.8 | |||||||||||||||
Provision for income taxes |
| (52.3 | ) | (20.9 | ) | | (73.2 | ) | ||||||||||||
Equity in earnings of consolidated subsidiaries |
| 71.9 | | (71.9 | ) | | ||||||||||||||
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Net Income |
| 144.8 | 81.7 | (71.9 | ) | 154.6 | ||||||||||||||
Total other comprehensive loss |
| (4.2 | ) | (25.5 | ) | | (29.7 | ) | ||||||||||||
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Comprehensive Income |
$ | | $ | 140.6 | $ | 56.2 | $ | (71.9 | ) | $ | 124.9 | |||||||||
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F-30
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS
(in millions)
Year Ended December 31, 2012 | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-
Guarantor Subsidiaries |
Eliminations |
Consolidated
and Combined |
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Net Sales |
$ | | $ | 1,426.5 | $ | 671.0 | $ | (413.5 | ) | $ | 1,684.0 | |||||||||
Cost of products sold |
| 972.0 | 523.0 | (413.5 | ) | 1,081.5 | ||||||||||||||
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Gross Profit |
| 454.5 | 148.0 | | 602.5 | |||||||||||||||
Research and development expenses |
| 35.8 | (2.8 | ) | | 33.0 | ||||||||||||||
Selling and general expenses |
| 288.8 | 54.2 | | 343.0 | |||||||||||||||
Other income, net |
| (1.1 | ) | (0.4 | ) | | (1.5 | ) | ||||||||||||
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Operating Profit |
| 131.0 | 97.0 | | 228.0 | |||||||||||||||
Interest income |
| 2.4 | 0.2 | | 2.6 | |||||||||||||||
Interest expense |
| | (0.8 | ) | | (0.8 | ) | |||||||||||||
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Income Before Income Taxes |
| 133.4 | 96.4 | | 229.8 | |||||||||||||||
Provision for income taxes |
| (54.4 | ) | (22.8 | ) | | (77.2 | ) | ||||||||||||
Equity in earnings of consolidated subsidiaries |
63.8 | | (63.8 | ) | | |||||||||||||||
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Net Income |
| 142.8 | 73.6 | (63.8 | ) | 152.6 | ||||||||||||||
Total other comprehensive income |
| 4.2 | 9.3 | | 13.5 | |||||||||||||||
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Comprehensive Income |
$ | | $ | 147.0 | $ | 82.9 | $ | (63.8 | ) | $ | 166.1 | |||||||||
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F-31
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATING BALANCE SHEETS
(in millions)
As of December 31, 2014 | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations |
Consolidated
and Combined |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
$ | 101.2 | $ | 3.9 | $ | 43.9 | $ | | $ | 149.0 | ||||||||||
Accounts receivable, net |
45.4 | 366.4 | 229.8 | (407.7 | ) | 233.9 | ||||||||||||||
Inventories |
| 244.1 | 39.0 | | 283.1 | |||||||||||||||
Current deferred income taxes and other current assets |
5.4 | 12.5 | 1.0 | | 18.9 | |||||||||||||||
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Total Current Assets |
152.0 | 626.9 | 313.7 | (407.7 | ) | 684.9 | ||||||||||||||
Property, Plant and Equipment, Net |
| 216.7 | 61.1 | | 277.8 | |||||||||||||||
Assets Held for Sale |
| | 2.6 | | 2.6 | |||||||||||||||
Investment in Consolidated Subsidiaries |
2,144.6 | 241.6 | | (2,386.2 | ) | | ||||||||||||||
Goodwill |
| 1,373.6 | 52.5 | | 1,426.1 | |||||||||||||||
Other Intangible Assets, net |
| 108.3 | | | 108.3 | |||||||||||||||
Other Assets |
10.1 | 0.2 | 17.6 | | 27.9 | |||||||||||||||
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TOTAL ASSETS |
$ | 2,306.7 | $ | 2,567.3 | $ | 447.5 | $ | (2,793.9 | ) | $ | 2,527.6 | |||||||||
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LIABILITIES AND EQUITY |
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Current Liabilities |
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Debt payable within one year |
$ | 3.9 | $ | | $ | | $ | | $ | 3.9 | ||||||||||
Trade accounts payable |
165.2 | 325.6 | 85.6 | (407.7 | ) | 168.7 | ||||||||||||||
Accrued expenses |
12.6 | 137.4 | 33.4 | | 183.4 | |||||||||||||||
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Total Current Liabilities |
181.7 | 463.0 | 119.0 | (407.7 | ) | 356.0 | ||||||||||||||
Long-Term Debt |
632.3 | | | | 632.3 | |||||||||||||||
Other Long-Term Liabilities |
1.5 | 42.2 | 4.4 | | 48.1 | |||||||||||||||
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Total Liabilities |
815.5 | 505.2 | 123.4 | (407.7 | ) | 1,036.4 | ||||||||||||||
Total Equity |
1,491.2 | 2,062.1 | 324.1 | (2,386.2 | ) | 1,491.2 | ||||||||||||||
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TOTAL LIABILITIES AND EQUITY |
$ | 2,306.7 | $ | 2,567.3 | $ | 447.5 | $ | (2,793.9 | ) | $ | 2,527.6 | |||||||||
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F-32
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATING BALANCE SHEETS
(in millions)
As of December 31, 2013 | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations |
Consolidated
and Combined |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
$ | | $ | 3.1 | $ | 41.0 | $ | | $ | 44.1 | ||||||||||
Accounts receivable, net |
| 159.2 | 60.9 | (16.8 | ) | 203.3 | ||||||||||||||
Inventories |
| 236.9 | 48.7 | | 285.6 | |||||||||||||||
Current deferred income taxes and other current assets |
| 50.2 | 1.9 | | 52.1 | |||||||||||||||
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Total Current Assets |
| 449.4 | 152.5 | (16.8 | ) | 585.1 | ||||||||||||||
Property, Plant and Equipment, Net |
| 193.8 | 131.1 | | 324.9 | |||||||||||||||
Investment in Consolidated Subsidiaries |
| 716.4 | | (716.4 | ) | | ||||||||||||||
Goodwill |
| 1,372.8 | 57.3 | | 1,430.1 | |||||||||||||||
Other Intangible Assets, net |
| 124.1 | 17.1 | | 141.2 | |||||||||||||||
Other Assets |
| 1.1 | 1.6 | | 2.7 | |||||||||||||||
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|
|
|
|
|
|
|
|
|||||||||||
TOTAL ASSETS |
$ | | $ | 2,857.6 | $ | 359.6 | $ | (733.2 | ) | $ | 2,484.0 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities |
||||||||||||||||||||
Debt payable within one year |
$ | | $ | 2.9 | $ | 9.0 | $ | | $ | 11.9 | ||||||||||
Trade accounts payable |
| 113.6 | 21.7 | (16.8 | ) | 118.5 | ||||||||||||||
Accrued expenses |
| 140.5 | 39.5 | | 180.0 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Current Liabilities |
| 257.0 | 70.2 | (16.8 | ) | 310.4 | ||||||||||||||
Other Long-Term Liabilities |
| 87.6 | 6.9 | | 94.5 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Liabilities |
| 344.6 | 77.1 | (16.8 | ) | 404.9 | ||||||||||||||
Total Equity |
| 2,513.0 | 282.5 | (716.4 | ) | 2,079.1 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL LIABILITIES AND EQUITY |
$ | | $ | 2,857.6 | $ | 359.6 | $ | (733.2 | ) | $ | 2,484.0 | |||||||||
|
|
|
|
|
|
|
|
|
|
F-33
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)
Year Ended December 31, 2014 | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations |
Consolidated
and Combined |
||||||||||||||||
Operating Activities |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Provided by Operating Activities |
$ | | $ | 41.9 | $ | 106.0 | $ | | $ | 147.9 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Investing Activities |
||||||||||||||||||||
Capital expenditures |
| (70.8 | ) | (7.7 | ) | | (78.5 | ) | ||||||||||||
Deposit received on pending sale of assets |
| | 7.8 | | 7.8 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash (Used in) Provided by Investing Activities |
| (70.8 | ) | 0.1 | | (70.7 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Financing Activities |
||||||||||||||||||||
Intercompany contributions |
66.7 | (48.4 | ) | (18.3 | ) | | | |||||||||||||
Debt proceeds |
636.1 | | 1.9 | | 638.0 | |||||||||||||||
Debt issuance costs |
(11.8 | ) | | | | (11.8 | ) | |||||||||||||
Debt repayments |
| (2.9 | ) | (10.9 | ) | | (13.8 | ) | ||||||||||||
Spin-off cash distribution to Kimberly-Clark |
(680.0 | ) | | | | (680.0 | ) | |||||||||||||
Net transfers from (to) Kimberly-Clark |
90.2 | 77.4 | (74.3 | ) | | 93.3 | ||||||||||||||
Other |
| 3.5 | | | 3.5 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Provided by (Used in) Financing Activities |
101.2 | 29.6 | (101.6 | ) | | 29.2 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of Exchange Rate on Cash and Cash Equivalents |
| 0.1 | (1.6 | ) | | (1.5 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Increase in Cash and Cash Equivalents |
101.2 | 0.8 | 2.9 | | 104.9 | |||||||||||||||
Cash and Cash Equivalents, Beginning of Period |
| 3.1 | 41.0 | | 44.1 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and Cash Equivalents, End of Period |
$ | 101.2 | $ | 3.9 | $ | 43.9 | $ | | $ | 149.0 | ||||||||||
|
|
|
|
|
|
|
|
|
|
F-34
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)
Year Ended December 31, 2013 | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations |
Consolidated
and Combined |
||||||||||||||||
Operating Activities |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Provided by Operating Activities |
$ | | $ | 114.6 | $ | 109.2 | $ | | $ | 223.8 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Investing Activities |
||||||||||||||||||||
Capital expenditures |
| (36.0 | ) | (13.0 | ) | | (49.0 | ) | ||||||||||||
Cash outflows for acquisitions |
| (2.2 | ) | | | (2.2 | ) | |||||||||||||
Proceeds from dispositions of property |
| 0.2 | 0.1 | | 0.3 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Used in Investing Activities |
| (38.0 | ) | (12.9 | ) | | (50.9 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Financing Activities |
||||||||||||||||||||
Debt proceeds |
| | 4.0 | | 4.0 | |||||||||||||||
Debt repayments |
| (6.4 | ) | (61.5 | ) | | (67.9 | ) | ||||||||||||
Net transfers to Kimberly-Clark |
| (76.7 | ) | (42.6 | ) | | (119.3 | ) | ||||||||||||
Other |
| 3.2 | | | 3.2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Used in Financing Activities |
| (79.9 | ) | (100.1 | ) | | (180.0 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of Exchange Rate on Cash and Cash Equivalents |
| 0.9 | 2.4 | | 3.3 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Decrease in Cash and Cash Equivalents |
| (2.4 | ) | (1.4 | ) | | (3.8 | ) | ||||||||||||
Cash and Cash Equivalents, Beginning of Period |
| 5.5 | 42.4 | | 47.9 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and Cash Equivalents, End of Period |
$ | | $ | 3.1 | $ | 41.0 | $ | | $ | 44.1 | ||||||||||
|
|
|
|
|
|
|
|
|
|
F-35
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)
Year Ended December 31, 2012 | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations |
Consolidated
and Combined |
||||||||||||||||
Operating Activities |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Provided by Operating Activities |
$ | | $ | 120.4 | $ | 82.2 | $ | | $ | 202.6 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Investing Activities |
||||||||||||||||||||
Capital expenditures |
| (30.3 | ) | (10.5 | ) | | (40.8 | ) | ||||||||||||
Proceeds from the dispositions of property |
| 0.3 | 0.2 | | 0.5 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Used in Investing Activities |
| (30.0 | ) | (10.3 | ) | | (40.3 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Financing Activities |
||||||||||||||||||||
Debt proceeds |
| | 7.1 | | 7.1 | |||||||||||||||
Debt repayments |
| (10.2 | ) | (21.0 | ) | | (31.2 | ) | ||||||||||||
Net transfers to Kimberly-Clark |
| (79.7 | ) | (34.0 | ) | | (113.7 | ) | ||||||||||||
Other |
| 3.9 | | | 3.9 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash Used in Financing Activities |
| (86.0 | ) | (47.9 | ) | | (133.9 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of Exchange Rate on Cash and Cash Equivalents |
| 0.4 | (1.0 | ) | | (0.6 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Increase in Cash and Cash Equivalents |
| 4.8 | 23.0 | | 27.8 | |||||||||||||||
Cash and Cash Equivalents, Beginning of Period |
| 0.7 | 19.4 | | 20.1 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and Cash Equivalents, End of Period |
$ | | $ | 5.5 | $ | 42.4 | $ | | $ | 47.9 | ||||||||||
|
|
|
|
|
|
|
|
|
|
F-36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Halyard Health, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated and combined balance sheets of Halyard Health, Inc. and subsidiaries (the Company) as of December 31, 2014 and 2013, and the related consolidated and combined statements of income, comprehensive income, stockholders equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion . An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated and combined financial statements present fairly, in all material respects, the financial position of Halyard Health, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the financial statements, the financial statements include the allocation of certain expenses from Kimberly-Clark Corporation. These allocated expenses may not be reflective of the actual level of costs which would have been incurred had the Company operated as a separate entity apart from Kimberly-Clark Corporation.
/s/ D ELOITTE & T OUCHE LLP |
Deloitte & Touche LLP |
Atlanta, Georgia |
March 13, 2015, except for Note 19, as to which the date is July 22, 2015 |
F-37
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENT
(in millions, except per share amounts)
(Unaudited)
Three Months Ended March 31, |
||||||||
2015 | 2014 | |||||||
Net Sales (including related party sales of $0 and $21.3) |
$ | 394.2 | $ | 410.7 | ||||
Cost of products sold (including related party purchases of $0 and $19.4) |
262.1 | 255.7 | ||||||
|
|
|
|
|||||
Gross Profit |
132.1 | 155.0 | ||||||
Research and development expenses |
6.0 | 8.3 | ||||||
Selling and general expenses |
97.2 | 85.5 | ||||||
Other income, net |
(12.0 | ) | (0.5 | ) | ||||
|
|
|
|
|||||
Operating Profit |
40.9 | 61.7 | ||||||
Interest income |
0.1 | 1.0 | ||||||
Interest expense |
(8.3 | ) | | |||||
|
|
|
|
|||||
Income Before Income Taxes |
32.7 | 62.7 | ||||||
Provision for income taxes |
(11.0 | ) | (21.3 | ) | ||||
|
|
|
|
|||||
Net Income |
$ | 21.7 | $ | 41.4 | ||||
|
|
|
|
|||||
Per Share Basis |
||||||||
Basic |
$ | 0.47 | $ | 0.89 | ||||
Diluted |
0.46 | 0.89 |
See Notes to Condensed Consolidated Financial Statements.
F-38
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME
(in millions)
(Unaudited)
Three Months Ended March 31, |
||||||||
2015 | 2014 | |||||||
Net Income |
$ | 21.7 | $ | 41.4 | ||||
|
|
|
|
|||||
Other Comprehensive (Loss) Income, Net of Tax |
||||||||
Unrealized currency translation adjustments |
(6.8 | ) | 2.6 | |||||
Cash flow hedges |
0.3 | 2.4 | ||||||
|
|
|
|
|||||
Total Other Comprehensive (Loss) Income, Net of Tax |
(6.5 | ) | 5.0 | |||||
|
|
|
|
|||||
Comprehensive Income |
$ | 15.2 | $ | 46.4 | ||||
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
F-39
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions, except share data)
(Unaudited)
March 31,
2015 |
December 31,
2014 |
|||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 166.2 | $ | 149.0 | ||||
Accounts receivable, net |
226.5 | 233.9 | ||||||
Inventories |
293.0 | 283.1 | ||||||
Current deferred income taxes and other current assets |
17.4 | 18.9 | ||||||
|
|
|
|
|||||
Total Current Assets |
703.1 | 684.9 | ||||||
Property, Plant and Equipment, Net |
281.8 | 277.8 | ||||||
Assets Held for Sale |
| 2.6 | ||||||
Goodwill |
1,422.1 | 1,426.1 | ||||||
Other Intangible Assets |
101.8 | 108.3 | ||||||
Other Assets |
27.6 | 27.9 | ||||||
|
|
|
|
|||||
TOTAL ASSETS |
$ | 2,536.4 | $ | 2,527.6 | ||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current Liabilities |
||||||||
Debt payable within one year |
$ | 3.9 | $ | 3.9 | ||||
Trade accounts payable |
192.1 | 168.7 | ||||||
Accrued expenses |
145.0 | 183.4 | ||||||
|
|
|
|
|||||
Total Current Liabilities |
341.0 | 356.0 | ||||||
Long-Term Debt |
631.4 | 632.3 | ||||||
Other Long-Term Liabilities |
52.2 | 48.1 | ||||||
|
|
|
|
|||||
Total Liabilities |
1,024.6 | 1,036.4 | ||||||
|
|
|
|
|||||
Commitments and Contingencies |
||||||||
Stockholders Equity |
||||||||
Preferred stock - $0.01 par value - authorized 20,000,000 shares, none issued |
| | ||||||
Common stock - $0.01 par value - authorized 300,000,000 shares, 46,535,951 outstanding as of March 31, 2015 and December 31, 2014 |
0.5 | 0.5 | ||||||
Additional paid-in capital |
1,507.9 | 1,502.5 | ||||||
Retained earnings |
29.0 | 7.3 | ||||||
Accumulated other comprehensive loss |
(25.6 | ) | (19.1 | ) | ||||
|
|
|
|
|||||
Total Stockholders Equity |
1,511.8 | 1,491.2 | ||||||
|
|
|
|
|||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 2,536.4 | $ | 2,527.6 | ||||
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
F-40
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
(in millions)
(Unaudited)
Three Months Ended March 31, |
||||||||
2015 | 2014 | |||||||
Operating Activities |
||||||||
Net income |
$ | 21.7 | $ | 41.4 | ||||
Depreciation and amortization |
16.4 | 17.3 | ||||||
Stock-based compensation expense |
5.4 | 0.7 | ||||||
Net (gain) loss on asset dispositions |
(12.1 | ) | 1.5 | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
7.5 | 5.4 | ||||||
Inventories |
(9.9 | ) | (2.1 | ) | ||||
Prepaid expenses and other assets |
1.3 | 0.6 | ||||||
Accounts payable |
36.5 | (7.9 | ) | |||||
Accrued expenses |
(26.5 | ) | (34.0 | ) | ||||
Other |
(0.6 | ) | 2.7 | |||||
|
|
|
|
|||||
Cash Provided by Operating Activities |
39.7 | 25.6 | ||||||
|
|
|
|
|||||
Investing Activities |
||||||||
Capital expenditures |
(27.7 | ) | (7.5 | ) | ||||
Proceeds from property dispositions |
7.7 | | ||||||
|
|
|
|
|||||
Cash Used in Investing Activities |
(20.0 | ) | (7.5 | ) | ||||
|
|
|
|
|||||
Financing Activities |
||||||||
Debt proceeds |
| 0.3 | ||||||
Debt repayments |
(1.0 | ) | (2.9 | ) | ||||
Change in Kimberly-Clarks net investment |
| (24.4 | ) | |||||
Other |
| 0.9 | ||||||
|
|
|
|
|||||
Cash Used in Financing Activities |
(1.0 | ) | (26.1 | ) | ||||
|
|
|
|
|||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
(1.5 | ) | (0.3 | ) | ||||
|
|
|
|
|||||
Increase (Decrease) in Cash and Cash Equivalents |
17.2 | (8.3 | ) | |||||
Cash and Cash Equivalents - Beginning of Period |
149.0 | 44.1 | ||||||
|
|
|
|
|||||
Cash and Cash Equivalents - End of Period |
$ | 166.2 | $ | 35.8 | ||||
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
F-41
HALYARD HEALTH, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. | Accounting Policies |
Background and Basis of Presentation
Halyard Health, Inc. is a global business which seeks to advance health and healthcare by preventing infection, eliminating pain and speeding recovery. Our products and solutions are designed to address some of todays most important healthcare needs, namely, preventing infections and reducing the use of narcotics while helping patients move from surgery to recovery. We market and support the efficacy, safety and economic benefit of our products with a significant body of clinical evidence. We operate in two business segments: Surgical and Infection Prevention (S&IP) and Medical Devices.
References to Halyard, we, our and us refer to Halyard Health, Inc. References to Kimberly-Clark mean Kimberly-Clark Corporation, a Delaware corporation, and its subsidiaries, other than Halyard, unless the context otherwise requires.
In November 2013, Kimberly-Clark announced its intention to evaluate a potential tax-free spin-off of its health care business (the Spin-off). Halyard Health, Inc. was incorporated in Delaware in February 2014 for the purpose of holding the health care business following the separation. The Spin-off was completed on October 31, 2014 and Kimberly-Clarks health care business became Halyard Health, Inc.
The condensed consolidated financial statements for the three months ended March 31, 2015 represent our financial position, results of operations and cash flows as an independent publicly-traded company. The condensed combined financial statements for the three months ended March 31, 2014 represent the results of operations and cash flows of Kimberly-Clarks health care business.
Interim Financial Statements
We prepared the accompanying condensed consolidated financial statements according to accounting principles generally accepted in the United States (GAAP) for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Accordingly, the condensed consolidated financial statements in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014. Our unaudited interim condensed consolidated financial statements contain all material adjustments which are of a normal and recurring nature necessary to fairly state our financial condition, results of operations and cash flows for the periods presented. Certain prior period amounts have been conformed to current presentation.
Use of Estimates
Preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Estimates are used in accounting for, among other things, distributor rebate accruals, future cash flows associated with impairment testing for goodwill and long-lived assets, loss contingencies, and deferred tax assets and potential income tax assessments. Actual results could differ from these estimates, and the effect of the change could be material to our financial statements. Changes in these estimates are recorded when known.
As described in our Annual Report on Form 10-K, we completed the required annual testing of goodwill for impairment for all reporting units using the beginning of the third quarter of 2014 as the measurement date and our analysis indicated that we had no impairment of goodwill. During the three months ended March 31, 2015, we determined that there were no conditions or changes that would indicate that our goodwill may be impaired.
F-42
New Accounting Standards
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. This ASU addresses the different balance sheet presentation requirements for debt issuance costs, discounts and premiums under the FASB Accounting Standards Codification (ASC) Subtopic 835-30, Interest - Imputation of Interest . Currently, GAAP recognizes debt issuance costs as a deferred charge (i.e., an asset), which conflicts with FASB Concepts Statement No. 6, Elements of Financial Statements , which says that debt issuance costs are similar to debt discounts and reduce the proceeds of borrowing, thereby increasing the effective interest rate. Accordingly, ASU No. 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU will become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption will be permitted for financial statements that have not been previously issued. Application of this ASU will result in the reclassification of our debt issuance costs of approximately $10 million as of each quarter ended March 31, 2016 and December 31, 2015 from other assets to long-term debt.
In January 2015, the FASB issued ASU No. 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU No. 2015-01 eliminates ASC Subtopic 225-20, Income Statement - Extraordinary and Unusual Items , which, until now, required that an entity separately classify, present, and disclose transactions and events that were determined to be both unusual and infrequent as extraordinary items. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments (i) prospectively or (ii) retrospectively to all prior periods presented in the financial statements. The application of this ASU is not expected to have a material effect on our financial position, results of operations and cash flows.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entitys Ability to Continue as a Going Concern, which will require management to assess an entitys ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. In connection with each annual and interim period, management will assess if there is substantial doubt about an entitys ability to continue as a going concern within one year after the issuance date. Substantial doubt exists if it is probable that the entity will be unable to meet its obligations within one year after the issuance date. The new standard defines substantial doubt and provides example indicators. Disclosures will be required if conditions give rise to substantial doubt. However, management will need to assess if its plans will alleviate substantial doubt to determine the specific disclosures. This ASU will become effective for annual periods ending after December 15, 2016. Earlier application is permitted. The application of this ASU is not expected to have a material effect on our financial position, results of operations and cash flows.
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers , which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Adoption prior to interim periods beginning after December 15, 2016 is not permitted. The guidance permits two implementation approaches, one requiring retrospective application of the new ASU with restatement of prior years and one requiring prospective application of the new ASU with disclosure of results under old standards. The effects of this ASU on our financial position, results of operations and cash flows are not yet known.
Note 2. | Spin-Off Transition Costs |
Completion of the Sale of Disposable Glove Facility
In June 2014, Kimberly-Clark initiated a plan to exit one of the disposable glove facilities in Thailand and outsource the related production to improve the competitive position of the S&IP business. In December 2014, we entered into a definitive agreement to sell the disposable glove facility to a third party. We received advance cash payments of $8 million before the end of 2014, which was included in Accrued Expenses in the
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accompanying condensed consolidated balance sheet as of December 31, 2014. The net book value of the disposable glove facility was $3 million and was classified as Assets Held for Sale in the accompanying condensed consolidated balance sheet as of December 31, 2014. We received the remaining $8 million of the sale price when the sale closed in January 2015. The sale resulted in a net gain of $12 million, which was recorded in Other income, net in the accompanying condensed consolidated income statement. There were no remaining accrued expenses related to this plan as of March 31, 2015.
Manufacturing Alignment, Marketing and Rebranding and Incremental Transition Services from Kimberly-Clark
As a result of the Spin-off, we are making changes to our plant and equipment, primarily in North America to align with our manufacturing requirements. These changes will include modifications to certain equipment and the movement of health-care equipment from Kimberly-Clark locations to Halyard facilities.
We are undertaking efforts to ensure our customers transition from the Kimberly-Clark brand to our Halyard-branded products. We have entered into a royalty agreement under which we have access to use the Kimberly-Clark brand for up to 24 months as we manage the packaging changes with global regulatory bodies. Royalties are required to be paid for products sold bearing the Kimberly-Clark brand only. In addition to royalty expense, we expect to incur costs for packaging, marketing and regulatory approval in order to complete this transition.
While building our own capabilities as a stand-alone company, we have entered into transition service agreements with Kimberly-Clark to provide temporary supporting services until we have the necessary resources and infrastructure in place.
In the three months ended March 31, 2015 we have incurred $11 million ($7 million, net of tax) for the above programs.
Note 3. | Supplemental Balance Sheet Information |
Accounts Receivable
Accounts receivable consist of the following (in millions):
March 31,
2015 |
December 31,
2014 |
|||||||
Accounts receivable |
$ | 227.7 | $ | 234.9 | ||||
Allowance for sales discounts and doubtful accounts |
(1.2 | ) | (1.0 | ) | ||||
|
|
|
|
|||||
Accounts receivable, net |
$ | 226.5 | $ | 233.9 | ||||
|
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|
|
Inventories
Inventories at the lower of cost (determined on the LIFO/FIFO or weighted-average cost methods) or market consist of the following (in millions):
March 31, 2015 | December 31, 2014 | |||||||||||||||||||||||
LIFO |
Non-
LIFO |
Total | LIFO |
Non-
LIFO |
Total | |||||||||||||||||||
Raw materials |
$ | 51.3 | $ | 0.7 | $ | 52.0 | $ | 48.4 | $ | 1.3 | $ | 49.7 | ||||||||||||
Work in process |
54.9 | 0.5 | 55.4 | 47.7 | 0.3 | 48.0 | ||||||||||||||||||
Finished goods |
157.6 | 36.9 | 194.5 | 157.8 | 37.5 | 195.3 | ||||||||||||||||||
Supplies and other |
| 12.0 | 12.0 | | 11.8 | 11.8 | ||||||||||||||||||
|
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|
|
|
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|
|
|
|
|
|||||||||||||
263.8 | 50.1 | 313.9 | 253.9 | 50.9 | 304.8 | |||||||||||||||||||
Excess of FIFO or weighted-average cost over LIFO cost |
(20.9 | ) | | (20.9 | ) | (21.7 | ) | | (21.7 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 242.9 | $ | 50.1 | $ | 293.0 | $ | 232.2 | $ | 50.9 | $ | 283.1 | ||||||||||||
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|
|
|
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|
|
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Property, Plant and Equipment
Property, plant and equipment consists of the following (in millions):
March 31, 2015 | December 31, 2014 | |||||||
Land |
$ | 2.3 | $ | 2.3 | ||||
Buildings |
83.8 | 67.9 | ||||||
Machinery and equipment |
451.8 | 436.3 | ||||||
Construction in progress |
43.3 | 62.2 | ||||||
|
|
|
|
|||||
581.2 | 568.7 | |||||||
Less accumulated depreciation |
(299.4 | ) | (290.9 | ) | ||||
|
|
|
|
|||||
Total |
$ | 281.8 | $ | 277.8 | ||||
|
|
|
|
Depreciation expense was $10 million and $9 million for the three months ended March 31, 2015 and 2014, respectively.
Goodwill and Intangible Assets
The changes in the carrying amount of goodwill by business segment are as follows (in millions):
S&IP |
Medical
Devices |
Total | ||||||||||
Balance at December 31, 2014 |
$ | 744.5 | $ | 681.6 | $ | 1,426.1 | ||||||
Currency translation adjustment |
(2.2 | ) | (1.8 | ) | (4.0 | ) | ||||||
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|
|
|
|||||||
Balance at March 31, 2015 |
$ | 742.3 | $ | 679.8 | $ | 1,422.1 | ||||||
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|
|
As of March 31, 2015 and December 31, 2014, we had intangible assets with indefinite useful lives of $7 million related to acquired in-process research and development.
Intangible assets subject to amortization consist of the following (in millions):
March 31, 2015 | December 31, 2014 | |||||||||||||||||||||||
Gross
Carrying Amount |
Accumulated
Amortization |
Net Carrying
Amount |
Gross
Carrying Amount |
Accumulated
Amortization |
Net Carrying
Amount |
|||||||||||||||||||
Trademarks |
$ | 126.6 | $ | (87.2 | ) | $ | 39.4 | $ | 126.6 | $ | (86.1 | ) | $ | 40.5 | ||||||||||
Patents and acquired technologies |
149.1 | (103.8 | ) | 45.3 | 149.1 | (99.3 | ) | 49.8 | ||||||||||||||||
Other |
48.3 | (37.9 | ) | 10.4 | 48.3 | (37.0 | ) | 11.3 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 324.0 | $ | (228.9 | ) | $ | 95.1 | $ | 324.0 | $ | (222.4 | ) | $ | 101.6 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets was $6 million and $8 million for the three months ended March 31, 2015 and 2014, respectively. We estimate amortization expense for the remainder of 2015 and the following four years and beyond will be as follows (in millions):
For the years ending December 31, | ||||
2015 |
$ | 18.9 | ||
2016 |
20.2 | |||
2017 |
14.9 | |||
2018 |
11.1 | |||
2019 |
6.9 | |||
Thereafter |
23.1 | |||
|
|
|||
Total |
$ | 95.1 | ||
|
|
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Accrued Expenses
Accrued expenses consist of the following (in millions):
March 31, 2015 | December 31, 2014 | |||||||
Accrued rebates |
$ | 68.3 | $ | 82.2 | ||||
Accrued salaries and wages |
27.4 | 46.4 | ||||||
Accrued taxes - income and other |
23.8 | 23.4 | ||||||
Deposit received on pending sale of assets |
| 7.8 | ||||||
Other |
25.5 | 23.6 | ||||||
|
|
|
|
|||||
Total |
$ | 145.0 | $ | 183.4 | ||||
|
|
|
|
Other Long-Term Liabilities
Other long-term liabilities consist of the following (in millions):
March 31, 2015 | December 31, 2014 | |||||||
Deferred income taxes |
$ | 27.8 | $ | 27.9 | ||||
Taxes payable |
1.6 | 1.6 | ||||||
Other |
22.8 | 18.6 | ||||||
|
|
|
|
|||||
Total |
$ | 52.2 | $ | 48.1 | ||||
|
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|
|
Note 4. | Long-Term Debt |
As of March 31, 2015 and December 31, 2014, our debt balances were as follows (in millions):
Weighted-
Average Interest Rate |
Maturities |
March 31,
2015 |
December 31,
2014 |
|||||||||||||
Senior Secured Term Loan |
4.00 | % | 2021 | $ | 385.3 | $ | 386.2 | |||||||||
Senior Unsecured Notes |
6.25 | % | 2022 | 250.0 | 250.0 | |||||||||||
|
|
|
|
|||||||||||||
Total long-term debt |
635.3 | 636.2 | ||||||||||||||
Less debt payable within one year |
3.9 | 3.9 | ||||||||||||||
|
|
|
|
|||||||||||||
Long-term portion |
$ | 631.4 | $ | 632.3 | ||||||||||||
|
|
|
|
Senior Unsecured Notes
The senior unsecured notes (the Notes) will mature on October 15, 2022 and interest will accrue at a rate of 6.25% per annum and will be payable semi-annually in arrears on April 15 and October 15 of each year.
Senior Secured Term Loan and Revolving Credit Facility
The senior secured term loan is under a credit agreement that established credit facilities in an aggregate principal amount of $640 million, including a five-year senior secured revolving credit facility allowing borrowings of up to $250 million, with a letter of credit sub-facility in an amount of $75 million and a swingline sub-facility in an amount of $25 million (the Revolving Credit Facility), and a seven-year senior secured term loan of $390 million (the Term Loan Facility). The Term Loan Facility is secured by substantially all of our assets located in the United States and a certain percentage of our foreign subsidiaries capital stock.
F-46
On April 30, 2015, we made a $50 million principal payment on our senior secured term loan without prepayment penalties pursuant to the terms of the governing loan agreement. We recognized a charge of $1 million in the second quarter of 2015 related to the write-off of related debt issuance costs and original issue discount.
Borrowings under the Term Loan Facility will bear interest, at Halyards option, at either (i) a reserve-adjusted LIBOR rate, subject to a floor of 0.75%, plus 3.25%, or (ii) a base rate, subject to a floor of 0.75%, (calculated as the greatest of (1) the prime rate, (2) the U.S. federal funds effective rate plus 0.50% or (3) the one month LIBOR rate plus 1.00%) plus 2.25%. The Term Loan Facility requires quarterly amortization payments equal to 0.25% of the aggregate principal amount of the term loans outstanding on the closing date. As of March 31, 2015, the interest rate in effect for the Term Loan Facility was 4.00%.
Borrowings under the Revolving Credit Facility will bear interest, at Halyards option, at either (i) a reserve-adjusted LIBOR rate, plus a margin initially equal to 2.25% and then, following Halyards delivery under the credit agreement of Halyards financial statements for Halyards fiscal quarter ending March 31, 2015, ranging between 1.75% to 2.50% per annum, depending on Halyards consolidated total leverage ratio, or (ii) the base rate plus a margin initially equal to 1.25% and then, following Halyards delivery of those financial statements, ranging between 0.75% to 1.50% per annum, depending on Halyards consolidated total leverage ratio. The unused portion of Halyards Revolving Credit Facility will be subject to a commitment fee equal to (i) 0.25% per annum, when Halyards consolidated total leverage ratio is less than 2.25 to 1.00 and (ii) 0.40% per annum, otherwise. As of March 31, 2015, we had no borrowings and letters of credit of $3 million outstanding under the Revolving Credit Facility, leaving $247 million available for borrowing.
Note 5. | Derivative Financial Instruments |
The derivative liabilities for foreign exchange contracts as of March 31, 2015 and December 31, 2014 were $1 million and $1 million, respectively, and are included in the condensed consolidated balance sheet in accrued expenses. The derivative assets for foreign exchange contracts as of March 31, 2015 and December 31, 2014 were not significant.
For derivative instruments that are designated and qualify as cash flow hedges, gains or losses recognized to earnings were not significant in the three months ended March 31, 2015 and 2014. As of March 31, 2015, the aggregate notional values of outstanding foreign exchange derivative contracts designated as cash flow hedges were $39 million. Cash flow hedges resulted in no significant ineffectiveness in the three months ended March 31, 2015 and 2014. For the three months ended March 31, 2015 and 2014, no gains or losses were reclassified into earnings as a result of the discontinuance of cash flow hedges due to the original forecasted transaction no longer being probable of occurring. At March 31, 2015, amounts to be reclassified from AOCI during the next twelve months are not expected to be significant. The maximum maturity of cash flow hedges in place at March 31, 2015 is March 2016.
Gains or losses on undesignated foreign exchange hedging instruments are immediately recognized in other income and expense, net. These gains or losses have not been significant for the three months ended March 31, 2015 and 2014. The effect on earnings from the use of these non-designated derivatives is substantially neutralized by the transactional gains and losses recorded on the underlying assets and liabilities. As of March 31, 2015, the notional amount of these undesignated derivative instruments was $70 million.
Note 6. | Fair Value Information |
The following fair value information is based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels in the hierarchy used to measure fair value are:
Level 1Unadjusted quoted prices in active markets accessible at the reporting date for identical assets and liabilities.
F-47
Level 2Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or similar assets and liabilities in markets that are not considered active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3Prices or valuations that require inputs that are significant to the valuation and are unobservable.
A financial instruments level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
In the three months ended March 31, 2015, there were no transfers among Level 1, 2 or 3 fair value determinations.
The derivative liabilities for foreign exchange contracts were $1 million as of both March 31, 2015 and December 31, 2014 and are included in the condensed consolidated balance sheet in accrued expenses. These derivatives are classified as Level 2 of the fair value hierarchy. The fair values of derivatives used to manage foreign currency risk is based on published quotations of spot currency rates and forward points, which are converted into implied forward currency rates.
The following table includes the fair value of our financial instruments for which disclosure of fair value is required (in millions):
March 31, 2015 | December 31, 2014 | |||||||||||||||||||
Fair Value
Hierarchy Level |
Carrying
Amount |
Estimated
Fair Value |
Carrying
Amount |
Estimated
Fair Value |
||||||||||||||||
Assets |
||||||||||||||||||||
Cash and cash equivalents |
1 | $ | 166.2 | $ | 166.2 | $ | 149.0 | $ | 149.0 | |||||||||||
Liabilities |
||||||||||||||||||||
Debt |
2 | 635.3 | 656.2 | 636.2 | 644.0 |
Cash equivalents are recorded at cost, which approximates fair value due to their short-term nature.
Note 7. | Accumulated Other Comprehensive Income |
The changes in the components of Accumulated Other Comprehensive Income (AOCI) are as follows (in millions):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Unrealized translation |
$ | (6.8 | ) | $ | 2.6 | |||
Cash flow hedges |
0.5 | 2.9 | ||||||
|
|
|
|
|||||
(6.3 | ) | 5.5 | ||||||
Tax effect |
(0.2 | ) | (0.5 | ) | ||||
|
|
|
|
|||||
Change in AOCI |
$ | (6.5 | ) | $ | 5.0 | |||
|
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|
|
Note 8 . | Stock-Based Compensation |
Aggregate stock-based compensation expense for the three months ended March 31, 2015 was $5 million, which reflects expense incurred for stock option and restricted stock unit awards granted under the Halyard Health, Inc. Equity Participation Plan and the Halyard Health, Inc. Outside Directors Compensation Plan (together, the Plans). Aggregate stock-based compensation expense for the three months ended March 31, 2014 was $1 million and reflects expense allocated to us for awards granted under Kimberly-Clarks equity incentive plans.
F-48
Stock Options
Stock-based compensation expense related to stock options was $1 million for the three months ended March 31, 2015. A summary of stock option activity under the Plans is presented below:
Shares
(in thousands) |
Weighted-
Average Exercise Price |
Weighted-
Average Remaining Contractual Term (Years) |
Aggregate
Intrinsic Value (in millions) |
|||||||||||||
Outstanding at December 31, 2014 |
611 | $ | 34.94 | |||||||||||||
Granted |
336 | 45.51 | ||||||||||||||
Forfeitures |
(21 | ) | 35.52 | |||||||||||||
|
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|
|
|
|
|
|
|||||||||
Outstanding at March 31, 2015 |
926 | $ | 38.76 | 9.1 | $ | 9.7 | ||||||||||
|
|
|
|
|
|
|
|
The following table summarizes information about options outstanding as of March 31, 2015:
Stock Options Outstanding | ||||||||
Range of Exercise Prices |
Shares
(in thousands) |
Weighted-
Average Remaining Contractual Term (Years) |
||||||
$25 to $35 |
252 | 7.8 | ||||||
$35 to $45 |
339 | 9.3 | ||||||
$45+ |
335 | 9.9 | ||||||
|
|
|
|
|||||
926 | 9.1 | |||||||
|
|
|
|
There were no vested and exercisable options outstanding at March 31, 2015.
Restricted Share Units
Stock-based compensation expense related to restricted share units was $4 million for the three months ended March 31, 2015. A summary of restricted share unit activity is presented below:
Shares
(in thousands) |
Weighted-
Average Fair Value |
|||||||
Outstanding at December 31, 2014 |
375 | $ | 37.88 | |||||
Granted |
103 | 45.63 | ||||||
Forfeitures |
(8 | ) | 37.88 | |||||
|
|
|
|
|||||
Outstanding at March 31, 2015 |
470 | $ | 39.59 | |||||
|
|
|
|
|||||
Vested at March 31, 2015 |
27 | $ | 44.32 | |||||
|
|
|
|
Prior Year Expense under Kimberly-Clark Equity Incentive Plans
Kimberly-Clark maintains several equity incentive plans in which our executives and employees participated prior to the Spin-off. All awards granted under Kimberly-Clarks plans were based on common shares of Kimberly-Clark stock and, as such, were reflected in Kimberly-Clarks consolidated statements of equity and not in our combined statement of invested equity. Prior to the Spin-off, Kimberly-Clark allocated stock-based compensation expense to Halyard for employees of Kimberly-Clarks health care business that became Halyard employees upon the Spin-off. Stock-based compensation expense charged to us by Kimberly-Clark under their incentive plans was $1 million for the three months ended March 31, 2014.
F-49
Note 9. | Commitments and Contingencies |
We are subject to various legal proceedings, claims and governmental inspections, audits or investigations pertaining to issues such as contract disputes, product liability, tax matters, patents and trademarks, advertising, governmental regulations, employment and other matters, including the matters described below. Under the terms of the distribution agreement we entered into with Kimberly-Clark prior to the Spin-off, legal proceedings, claims and other liabilities that are primarily related to our business will be our responsibility and we will be obligated to indemnify and hold Kimberly-Clark harmless for such matters. The only exception to this general obligation relates to the pain pump litigation referenced in the next paragraph below. Although the results of litigation and claims cannot be predicted with certainty, we believe that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, individually or in the aggregate, on our business, financial condition, results of operations or liquidity.
We are one of several manufacturers of continuous infusion medical devices, such as our ON-Q PAINBUSTER pain pumps, that are involved in several different pending or threatened litigation matters from multiple plaintiffs alleging that use of the continuous infusion device to deliver anesthetics directly into a synovial joint after surgery resulted in postarthroscopic glenohumeral chondrolysis, or a disintegration of the cartilage covering the bones in the joint (typically, in the shoulder). Plaintiffs generally seek monetary damages and attorneys fees. While Kimberly-Clark is retaining the liabilities related to these matters, the distribution agreement between us and Kimberly-Clark provides that we will indemnify Kimberly-Clark for any such claims or causes of actions arising after the Spin-off.
We operate in an industry characterized by extensive patent litigation and competitors may claim that our products infringe upon their intellectual property. Resolution of patent litigation or other intellectual property claims is typically time consuming and costly and can result in significant damage awards and injunctions that could prevent the manufacture and sale of the affected products or require us to make significant royalty payments in order to continue selling the affected products. At any given time we are involved as either a plaintiff or a defendant in a number of patent infringement actions, the outcomes of which may not be known for prolonged periods of time.
We are subject to federal, state and local environmental protection laws and regulations with respect to our business operations and are operating in compliance with, or taking action aimed at ensuring compliance with, these laws and regulations. None of our compliance obligations with environmental protection laws and regulations, individually or in the aggregate, is expected to have a material adverse effect on our business, financial condition, results of operations or liquidity.
Note 10. | Earnings Per Share (EPS) |
Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during each period. Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding and the effect of all dilutive common stock equivalents outstanding during each period, as determined using the treasury stock method. The contribution of Kimberly-Clarks Health Care business to us was treated as a reorganization of entities under common control under Kimberly-Clark. Consequently, we are retrospectively reporting EPS for the prior year using the 46.5 million weighted average shares outstanding as of the Spin-off date for both basic and diluted EPS as no Halyard common stock or dilutive stock-based compensation awards were authorized or outstanding prior to the Spin-off.
F-50
The calculation of basic and diluted earnings per share for the three months ended March 31, 2015 and March 31, 2014 is set forth in the following table (in millions, except per share amounts):
Three Months Ended March 31, |
||||||||
2015 | 2014 | |||||||
Net income |
$ | 21.7 | $ | 41.4 | ||||
|
|
|
|
|||||
Weighted Average Shares Outstanding: |
||||||||
Basic weighted average shares outstanding |
46.5 | 46.5 | ||||||
Dilutive effect of stock options and restricted share unit awards |
0.2 | | ||||||
|
|
|
|
|||||
Diluted weighted average shares outstanding |
46.7 | 46.5 | ||||||
Earnings Per Share |
||||||||
Basic |
$ | 0.47 | $ | 0.89 | ||||
Diluted |
$ | 0.46 | $ | 0.89 |
Note 11. | Business Segment Information |
Information concerning unaudited consolidated operations by business segment is presented in the following table (in millions):
Three Months Ended March 31, |
||||||||
2015 | 2014 | |||||||
Net Sales |
||||||||
S&IP |
$ | 254.8 | $ | 275.5 | ||||
Medical Devices |
122.3 | 129.6 | ||||||
Corporate & Other (a) |
17.1 | 5.6 | ||||||
|
|
|
|
|||||
Total Net Sales |
394.2 | 410.7 | ||||||
|
|
|
|
|||||
Operating Profit |
||||||||
S&IP |
19.5 | 40.1 | ||||||
Medical Devices |
24.8 | 31.4 | ||||||
Corporate & Other (b) |
(15.4 | ) | (10.3 | ) | ||||
Other income, net (c) |
12.0 | 0.5 | ||||||
|
|
|
|
|||||
Total Operating Profit |
40.9 | 61.7 | ||||||
|
|
|
|
|||||
Interest income |
0.1 | 1.0 | ||||||
Interest expense |
(8.3 | ) | | |||||
|
|
|
|
|||||
Income before Income Taxes |
$ | 32.7 | $ | 62.7 | ||||
|
|
|
|
(a) | Corporate and Other net sales include sales of non-healthcare products to Kimberly-Clark. |
(b) | Corporate and Other for the three months ended March 31, 2015 includes $11 million of post-spin related transition expenses. Corporate and Other for the three months ended March 31, 2014 includes $7 million of spin-off related transaction costs. |
(c) | Other income, net includes a $12 million net gain on the disposal of one of our disposable glove facilities in Thailand. |
F-51
Note 12. | Related Party Transactions |
In the prior year, we utilized manufacturing facilities and resources managed by affiliates of Kimberly-Clark to conduct our business. The expenses associated with these transactions, which primarily relate to production of semi-finished goods for our S&IP business, are included in cost of products sold in our combined income statement for the three months ended March 31, 2014. Following the Spin-off, Kimberly-Clark is not considered a related party.
In the prior year, our combined financial statements include certain expenses of Kimberly-Clark which were allocated to us for certain functions, including general expenses related to supply chain, finance, legal, information technology, human resources, compliance, shared services, insurance, employee benefits and incentives and stock-based compensation. These expenses were allocated to us on the basis of direct usage when identifiable, with the remainder allocated on the relative percentage of net sales or headcount. The total amount of these allocations from Kimberly-Clark was approximately as follows (in millions):
Three Months Ended
March 31, 2014 |
||||
Cost of products sold |
$ | 6 | ||
Selling and general expenses |
16 | |||
Research expenses |
3 | |||
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Total |
$ | 25 | ||
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Note 13. | Supplemental Guarantor Financial Information |
In October 2014, Halyard Health, Inc. (referred to below as the Parent) issued the Notes (described in Note 4, Long-Term Debt). The Notes are guaranteed, jointly and severally, by each of our domestic subsidiaries that guarantees the Revolving Credit Facility and the Term Loan Facility (each, a Guarantor Subsidiary and collectively, the Guarantor Subsidiaries). The guarantees are full and unconditional, subject to certain customary release provisions, as defined in the Indenture dated October 17, 2014. Each Guarantor Subsidiary is directly or indirectly 100% owned by Halyard Health, Inc. Each of the guarantees of the Notes is a general unsecured obligation of each Guarantor and ranks equally in right of payment with all existing and future indebtedness and all other obligations (except subordinated indebtedness) of each Guarantor.
The following condensed consolidating balance sheets as of March 31, 2015 and December 31, 2014 and the condensed consolidating statements of income and cash flows for each of the three months ended March 31, 2015 and 2014 provide condensed consolidating information for Halyard Health, Inc. (Parent), the Guarantor Subsidiaries on a combined basis, the Non-Guarantor subsidiaries on a combined basis and the Parent and its subsidiaries on a consolidating basis.
The Parent and the Guarantor Subsidiaries use the equity method of accounting to reflect ownership interests in subsidiaries, which are eliminated upon consolidation. Eliminating entries in the following condensed consolidating financial information represent adjustments to (i) eliminate intercompany transactions between or among the Parent, the Guarantor Subsidiaries and the non-guarantor subsidiaries and (ii) eliminate the investments in subsidiaries.
F-52
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS
(in millions)
Three Months Ended March 31, 2015 | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net Sales |
$ | | $ | 360.3 | $ | 113.7 | $ | (79.8 | ) | $ | 394.2 | |||||||||
Cost of products sold |
| 243.6 | 98.3 | (79.8 | ) | 262.1 | ||||||||||||||
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Gross Profit |
| 116.7 | 15.4 | | 132.1 | |||||||||||||||
Research and development expenses |
| 6.0 | | | 6.0 | |||||||||||||||
Selling and general expenses |
9.1 | 73.2 | 14.9 | | 97.2 | |||||||||||||||
Other (income) expense, net |
(0.2 | ) | 2.3 | (14.1 | ) | | (12.0 | ) | ||||||||||||
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Operating (Loss) Profit |
(8.9 | ) | 35.2 | 14.6 | | 40.9 | ||||||||||||||
Interest income |
| | 0.1 | | 0.1 | |||||||||||||||
Interest expense |
(7.8 | ) | (0.3 | ) | (0.2 | ) | | (8.3 | ) | |||||||||||
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(Loss) Income Before Income Taxes |
(16.7 | ) | 34.9 | 14.5 | | 32.7 | ||||||||||||||
Provision for income taxes |
| (5.5 | ) | (5.5 | ) | | (11.0 | ) | ||||||||||||
Equity in earnings of consolidated subsidiaries |
38.4 | 13.2 | | (51.6 | ) | | ||||||||||||||
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Net Income |
21.7 | 42.6 | 9.0 | (51.6 | ) | 21.7 | ||||||||||||||
Total other comprehensive loss, net of tax |
| (0.1 | ) | (6.4 | ) | | (6.5 | ) | ||||||||||||
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Comprehensive Income |
$ | 21.7 | $ | 42.5 | $ | 2.6 | $ | (51.6 | ) | $ | 15.2 | |||||||||
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F-53
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS
(in millions)
Three Months Ended March 31, 2014 | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations |
Consolidated
and Combined |
||||||||||||||||
Net Sales |
$ | | $ | 352.2 | $ | 158.2 | $ | (99.7 | ) | $ | 410.7 | |||||||||
Cost of products sold |
| 233.7 | 121.7 | (99.7 | ) | 255.7 | ||||||||||||||
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|||||||||||
Gross Profit |
| 118.5 | 36.5 | | 155.0 | |||||||||||||||
Research and development expenses |
| 8.3 | | | 8.3 | |||||||||||||||
Selling and general expenses |
| 71.7 | 13.8 | | 85.5 | |||||||||||||||
Other income, net |
| (0.3 | ) | (0.2 | ) | | (0.5 | ) | ||||||||||||
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Operating Profit |
| 38.8 | 22.9 | | 61.7 | |||||||||||||||
Interest income |
| 0.8 | 0.2 | | 1.0 | |||||||||||||||
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Income Before Income Taxes |
| 39.6 | 23.1 | | 62.7 | |||||||||||||||
Provision for income taxes |
| (15.3 | ) | (6.0 | ) | | (21.3 | ) | ||||||||||||
Equity in earnings of consolidated subsidiaries |
| 14.4 | | (14.4 | ) | | ||||||||||||||
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Net Income |
$ | | $ | 38.7 | $ | 17.1 | $ | (14.4 | ) | $ | 41.4 | |||||||||
Total other comprehensive income, net of tax |
| 0.7 | 4.3 | | 5.0 | |||||||||||||||
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Comprehensive Income |
$ | | $ | 39.4 | $ | 21.4 | $ | (14.4 | ) | $ | 46.4 | |||||||||
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F-54
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(in millions)
As of March 31, 2015 | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 111.5 | $ | 1.1 | $ | 53.6 | $ | | $ | 166.2 | ||||||||||
Accounts receivable, net |
22.8 | 374.7 | 228.0 | (399.0 | ) | 226.5 | ||||||||||||||
Inventories |
| 254.7 | 38.3 | | 293.0 | |||||||||||||||
Current deferred income taxes and other current assets |
7.6 | 8.5 | 1.3 | | 17.4 | |||||||||||||||
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Total Current Assets |
141.9 | 639.0 | 321.2 | (399.0 | ) | 703.1 | ||||||||||||||
Property, Plant and Equipment, Net |
| 221.9 | 59.9 | | 281.8 | |||||||||||||||
Investment in Consolidated Subsidiaries |
2,180.1 | 248.6 | | (2,428.7 | ) | | ||||||||||||||
Goodwill |
| 1,373.6 | 48.5 | | 1,422.1 | |||||||||||||||
Other Intangible Assets |
| 101.8 | | | 101.8 | |||||||||||||||
Other Assets |
9.7 | 0.3 | 17.6 | | 27.6 | |||||||||||||||
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TOTAL ASSETS |
$ | 2,331.7 | $ | 2,585.2 | $ | 447.2 | $ | (2,827.7 | ) | $ | 2,536.4 | |||||||||
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LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities |
||||||||||||||||||||
Debt payable within one year |
$ | 3.9 | $ | | $ | | $ | | $ | 3.9 | ||||||||||
Trade accounts payable |
175.0 | 338.3 | 77.8 | (399.0 | ) | 192.1 | ||||||||||||||
Accrued expenses |
8.1 | 109.6 | 27.3 | | 145.0 | |||||||||||||||
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Total Current Liabilities |
187.0 | 447.9 | 105.1 | (399.0 | ) | 341.0 | ||||||||||||||
Long-Term Debt |
631.4 | | | | 631.4 | |||||||||||||||
Other Long-Term Liabilities |
1.5 | 46.8 | 3.9 | | 52.2 | |||||||||||||||
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Total Liabilities |
819.9 | 494.7 | 109.0 | (399.0 | ) | 1,024.6 | ||||||||||||||
Total Equity |
1,511.8 | 2,090.5 | 338.2 | (2,428.7 | ) | 1,511.8 | ||||||||||||||
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TOTAL LIABILITIES AND EQUITY |
$ | 2,331.7 | $ | 2,585.2 | $ | 447.2 | $ | (2,827.7 | ) | $ | 2,536.4 | |||||||||
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F-55
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATING BALANCE SHEETS
(in millions)
As of December 31, 2014 | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations |
Consolidated
and Combined |
||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 101.2 | $ | 3.9 | $ | 43.9 | $ | | $ | 149.0 | ||||||||||
Accounts receivable, net |
45.4 | 366.4 | 229.8 | (407.7 | ) | 233.9 | ||||||||||||||
Inventories |
| 244.1 | 39.0 | | 283.1 | |||||||||||||||
Current deferred income taxes and other current assets |
5.4 | 12.5 | 1.0 | | 18.9 | |||||||||||||||
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|
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Total Current Assets |
152.0 | 626.9 | 313.7 | (407.7 | ) | 684.9 | ||||||||||||||
Property, Plant and Equipment, Net |
| 216.7 | 61.1 | | 277.8 | |||||||||||||||
Assets Held for Sale |
| | 2.6 | | 2.6 | |||||||||||||||
Investment in Consolidated Subsidiaries |
2,144.6 | 241.6 | | (2,386.2 | ) | | ||||||||||||||
Goodwill |
| 1,373.6 | 52.5 | | 1,426.1 | |||||||||||||||
Other Intangible Assets, net |
| 108.3 | | | 108.3 | |||||||||||||||
Other Assets |
10.1 | 0.2 | 17.6 | | 27.9 | |||||||||||||||
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|||||||||||
TOTAL ASSETS |
$ | 2,306.7 | $ | 2,567.3 | $ | 447.5 | $ | (2,793.9 | ) | $ | 2,527.6 | |||||||||
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LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities |
||||||||||||||||||||
Debt payable within one year |
$ | 3.9 | $ | | $ | | $ | | $ | 3.9 | ||||||||||
Trade accounts payable |
165.2 | 325.6 | 85.6 | (407.7 | ) | 168.7 | ||||||||||||||
Accrued expenses |
12.6 | 137.4 | 33.4 | | 183.4 | |||||||||||||||
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Total Current Liabilities |
181.7 | 463.0 | 119.0 | (407.7 | ) | 356.0 | ||||||||||||||
Long-Term Debt |
632.3 | | | | 632.3 | |||||||||||||||
Other Long-Term Liabilities |
1.5 | 42.2 | 4.4 | | 48.1 | |||||||||||||||
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Total Liabilities |
815.5 | 505.2 | 123.4 | (407.7 | ) | 1,036.4 | ||||||||||||||
Total Equity |
1,491.2 | 2,062.1 | 324.1 | (2,386.2 | ) | 1,491.2 | ||||||||||||||
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TOTAL LIABILITIES AND EQUITY |
$ | 2,306.7 | $ | 2,567.3 | $ | 447.5 | $ | (2,793.9 | ) | $ | 2,527.6 | |||||||||
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F-56
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)
Three Months Ended March 31, 2015 | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Operating Activities |
||||||||||||||||||||
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Cash (Used in) Provided by Operating Activities |
$ | (15.2 | ) | $ | 32.5 | $ | 22.4 | $ | | $ | 39.7 | |||||||||
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Investing Activities |
||||||||||||||||||||
Capital expenditures |
| (23.3 | ) | (4.4 | ) | | (27.7 | ) | ||||||||||||
Proceeds from property dispositions |
| | 7.7 | | 7.7 | |||||||||||||||
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Cash (Used in) Provided by Investing Activities |
| (23.3 | ) | 3.3 | | (20.0 | ) | |||||||||||||
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Financing Activities |
||||||||||||||||||||
Intercompany contributions |
26.6 | (12.0 | ) | (14.6 | ) | | | |||||||||||||
Debt repayments |
(1.0 | ) | | | | (1.0 | ) | |||||||||||||
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Cash Provided by (Used in) Financing Activities |
25.6 | (12.0 | ) | (14.6 | ) | | (1.0 | ) | ||||||||||||
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Effect of Exchange Rate on Cash and Cash Equivalents |
| | (1.5 | ) | | (1.5 | ) | |||||||||||||
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Increase (Decrease) in Cash and Cash Equivalents |
10.4 | (2.8 | ) | 9.6 | | 17.2 | ||||||||||||||
Cash and Cash Equivalents, Beginning of Period |
101.1 | 3.9 | 44.0 | | 149.0 | |||||||||||||||
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Cash and Cash Equivalents, End of Period |
$ | 111.5 | $ | 1.1 | $ | 53.6 | $ | | $ | 166.2 | ||||||||||
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F-57
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)
Three Months Ended March 31, 2014 | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Eliminations |
Consolidated
and Combined |
||||||||||||||||
Operating Activities |
||||||||||||||||||||
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Cash Provided by Operating Activities |
$ | | $ | 12.4 | $ | 13.2 | $ | | $ | 25.6 | ||||||||||
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|
|||||||||||
Investing Activities |
||||||||||||||||||||
Capital expenditures |
| (6.1 | ) | (1.4 | ) | | (7.5 | ) | ||||||||||||
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Cash Used in Investing Activities |
| (6.1 | ) | (1.4 | ) | | (7.5 | ) | ||||||||||||
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|
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Financing Activities |
||||||||||||||||||||
Debt proceeds |
| | 0.3 | | 0.3 | |||||||||||||||
Debt repayments |
| (2.9 | ) | | | (2.9 | ) | |||||||||||||
Change in Kimberly-Clarks net investment |
| (5.4 | ) | (19.0 | ) | | (24.4 | ) | ||||||||||||
Other |
| 0.9 | | | 0.9 | |||||||||||||||
|
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|
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|
|
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|
|
|
|||||||||||
Cash Used in Financing Activities |
| (7.4 | ) | (18.7 | ) | | (26.1 | ) | ||||||||||||
|
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|
|||||||||||
Effect of Exchange Rate on Cash and Cash Equivalents |
| (0.1 | ) | (0.2 | ) | | (0.3 | ) | ||||||||||||
|
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|
|
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|
|
|||||||||||
Decrease in Cash and Cash Equivalents |
| (1.2 | ) | (7.1 | ) | | (8.3 | ) | ||||||||||||
Cash and Cash Equivalents, Beginning of Period |
| 3.1 | 41.0 | | 44.1 | |||||||||||||||
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Cash and Cash Equivalents, End of Period |
$ | | $ | 1.9 | $ | 33.9 | $ | | $ | 35.8 | ||||||||||
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F-58
Offer to Exchange
$250,000,000
6.25% Senior Notes due 2022
PROSPECTUS
, 2015
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Set forth below is a description of certain provisions of the formation and governing documents of the Company and the guarantors and applicable state law, as such provisions relate to the indemnification of the directors and officers of the Company and the guarantors. This description is intended only as a summary and is qualified in its entirety by reference to the formation and governing documents of the Company and the guarantors, which are filed or incorporated by reference as exhibits to this registration statement, and applicable state law.
Delaware Corporations
Section 145 of the Delaware General Corporation Law (the DGCL,) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another business entity, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. Section 145 further provides that a corporation similarly may indemnify any such person serving in any such capacity who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another business entity, against expenses (including attorneys fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the other court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper.
Section 145 also provides that, to the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in the preceding paragraph, or in defense of any claim, issue or matter therein, the director or officer shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by him or her in connection therewith.
Section 102(b)(7) of the DGCL provides that a corporation may, in its certificate of incorporation, eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability: (1) for any breach of the directors duty of loyalty to the corporation or its stockholders; (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (3) under Section 174 of the DGCL (pertaining to, among other things, liability of directors for unlawful payment of dividends or unlawful stock purchase); or (4) for any transaction from which the director derived an improper personal benefit.
1
The amended and restated certificate of incorporation of Halyard Health, Inc. generally provides that no director shall be personally liable to the corporation or its stockholders for any breach of fiduciary duty by such director as a director of the corporation, subject to certain exceptions. The certificate of incorporation also generally provides that each person who is, was or has agreed to become a director or officer of the corporation, and each person who is, was or has agreed to serve at the corporations request as a director, officer, employee or agent of another entity, shall be indemnified by the corporation to the fullest extent permitted by the DGCL, or any other applicable law, subject to certain exceptions. The certificate of incorporation also provides that the corporation shall, to the fullest extent permitted by the DGCL, advance all expenses incurred by any current or former director or officer so long as the corporation receives from such person an undertaking to repay such expenses if it is ultimately determined that such person is not entitled to be indemnified by the corporation under the DGCL.
The amended and restated by-laws of Halyard Health, Inc. generally provide that each person who is, was, or has agreed to become a director or officer of the corporation, and each person who is, was or has agreed to serve at the corporations request as a director, officer, employee or agent of another entity, and was made a party or threatened to be made a party to an action by reason of the fact that he or she was serving in such capacity, shall be indemnified by the corporation to the fullest extent permitted by the DGCL, or any other applicable law. The by-laws further provide that, to the fullest extent authorized by the DGCL, directors, officers and certain other persons shall have the right to advancement of expenses, subject to delivery of an undertaking to repay under certain circumstances. The by-laws also provide that the corporation may maintain insurance to protect directors, officers and others against any liability, whether or not the corporation would have the power to indemnify such person against such liability under the DGCL.
The amended and restated certificate of incorporation of Avent, Inc. provides that no director shall be personally liable to the corporation or its stockholders for monetary damages from breach of fiduciary duty as a director, except under certain circumstances. The certificate of incorporation further provides that, to the fullest extent permitted by applicable law, the corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and certain other persons through bylaws, agreements with such persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the DGCL.
The by-laws of Avent, Inc. generally provide that each director and officer who is, by reason of the fact that he is or was a director or officer or is or was serving at the request of the corporation as a director, officer, employee or agent of another entity, a party to an action shall be indemnified by the corporation under certain circumstances. The by-laws further provide that expenses incurred in defending an action may be paid by the corporation in advance upon receipt of an undertaking by such director or officer to repay such amount unless it shall ultimately be determined that he or she is entitled to be indemnified by the corporation. The by-laws also provide that the board may purchase insurance on behalf of any person who is or was a director, officer or certain other persons against liability asserted against him or her in such capacity, whether or not the corporation would have the power to indemnify him or her against liability.
The certificate of incorporation of Halyard Healthcare, Inc. does not contain an indemnification provision. The by-laws of Halyard Healthcare, Inc. generally provide that the corporation shall indemnify every person who is or was a party or threatened to be made a party to any action by reason of the fact that he or she is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another entity, subject to certain conditions. The by-laws further provide that expenses incurred by an officer or director in defending an action may be paid by the corporation in advance upon receipt of an undertaking by such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation. The by-laws also provide that the corporation shall have the power to purchase and maintain insurance on behalf of directors, officers and certain other persons against liability arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her.
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North Carolina Corporations
Section 55-8-51 of the North Carolina Business Corporation Act (NCBCA) provides that a corporation may indemnify an individual made a party to a proceeding because he is or was a director against liability incurred in the proceeding if: (1) he conducted himself in good faith; and (2) he reasonably believed (i) in the case of conduct in his official capacity with the corporation, that his conduct was in its best interests; and (ii) in all other cases, that his conduct was at least not opposed to its best interests; and (3) in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. A corporation may not indemnify a director (i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or (ii) in connection with any proceeding charging improper personal benefit to him, whether or not involving action in his official capacity, in which he was adjudged liable on the basis that personal benefit was improperly received by him.
Section 55-8-57 of the NCBCA permits a corporation, in its articles of incorporation or bylaws or by contract or resolution, to indemnify, or agree to indemnify, its directors, officers, employees or agents against liability and expenses (including attorneys fees) in any proceeding (including proceedings brought by or on behalf of the corporation) arising out of their status as such or their activities in such capacities, except for any liabilities or expenses incurred on account of activities that were, at the time taken, known or believed by the person to be clearly in conflict with the best interests of the corporation. Sections 55-8-52 and 55-8-56 of the NCBCA require a corporation, unless its articles of incorporation provide otherwise, to indemnify a director or officer who has been wholly successful, on the merits or otherwise, in the defense of any proceeding to which such director or officer was a party because he was or is a director or officer of the corporation against reasonable expenses incurred by the director or officer in connection with the proceeding. Section 55-8-57 of the NCBCA authorizes a corporation to purchase and maintain insurance on behalf of an individual who was or is a director, officer, employee or agent of the corporation against certain liabilities incurred by such person, whether or not the corporation is otherwise authorized by the NCBCA to indemnify that person.
The articles of incorporation of Halyard North Carolina, Inc. generally provide that no director of the corporation shall have personal liability arising out of an action for monetary damages for breach of any duty as a director, subject to certain exceptions. The articles of incorporation further provide that the personal liability of the corporations directors shall be limited or eliminated to the fullest extent permitted by applicable law.
The by-laws of Halyard North Carolina, Inc. generally provide that each person who is involved in an action by reason of the fact that he or she was a director or officer of the corporation or was serving at the request of the corporation as a director, officer, employee or agent of another entity shall be indemnified to the fullest extent authorized by the NCBCA against all expenses and liabilities reasonably incurred in connection therewith. This indemnification right includes the right to be paid by the corporation the expenses incurred in defending the action, subject to the director or officer delivering an undertaking to repay the advanced amounts absent a final adjudication that such person is entitled to be indemnified. The by-laws further provide that the corporation may maintain insurance to protect any director or officer against liability whether or not the corporation would have the power to indemnify such person against such liability under the NCBCA.
North Carolina Limited Liability Companies
Section 57D-3-31 of the North Carolina Limited Liability Company Act (the NCLLCA) provides that a limited liability company must indemnify a person who is wholly successful on the merits or otherwise in the defense of any proceeding to which the person was a party because the person is or was a member, manager, or other company official if the person also is or was an interest owner at the time to which the claim relates, acting within the persons scope of authority as a manager, member, or other company official against expenses incurred by the person in connection with the proceeding.
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A North Carolina limited liability company is required to reimburse a person who is or was a member for any payment made and indemnify the person for any obligation, including any judgment, settlement, penalty, fine, or other cost, incurred or borne in the authorized conduct of the business or preservation of the business or property, whether acting in the capacity of a manager, member, or other company official if, in making the payment or incurring the obligation, the person complied with the duties and standards of conduct (i) under Section 57D-3-21 of the NCLLCA (relating to duties of company officials and standards of conduct), as modified or eliminated by the operating agreement or (ii) otherwise imposed by applicable law.
The articles of organization of Halyard Sales, LLC do not contain an indemnification provision. The operating agreement of Halyard Sales, LLC provides that the company shall indemnify current and former managers and members and their respective affiliates, managers and members, to the fullest extent permitted by law, against all liabilities and reasonable expenses incurred by them in connection with the defense of any action in which they may be involved by reason of (1) their status as a current or former manager or member or affiliation with a current or former manager or member or (2) their conduct of the business and affairs of the company. The operating agreement further provides that, in the event a current or former manager or member or their respective affiliate, manager or member becomes involved in an action in connection with the companys business, the company shall periodically reimburse such person for reasonable expenses incurred in connection therewith upon receipt of an undertaking by such person to repay the amount if such person is determined not to be entitled to indemnification.
Insurance
We maintain insurance covering any past, present or future director or officer of the Company and its subsidiaries and certain other persons with regard to damages and costs incurred by any of them in certain stated proceedings and under certain stated conditions.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits: Reference is made to the Exhibit Index following the signature pages hereto, which Exhibit Index is hereby incorporated into this item.
(b) Financial Statement Schedules: None.
Item 22. Undertakings.
Each undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) | To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; |
(ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement; |
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(iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
2. That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
4. That, for purposes of determining any liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
5. That, for purposes of determining any liability under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
(ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
(iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
(iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
6. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
7. To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the
5
incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
8. To supply by means of post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Alpharetta, State of Georgia, on July 22, 2015.
HALYARD HEALTH, INC. | ||
By: |
/s/ Steven E. Voskuil |
|
Steven. E. Voskuil | ||
Senior Vice President and Chief Financial Officer |
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on July 22, 2015:
Name |
Title |
|||
/s/ Robert E. Abernathy |
Chairman of the Board and Chief Executive Officer and Director (principal executive officer) | |||
Robert E. Abernathy | ||||
/s/ Steven E. Voskuil |
Senior Vice President and Chief Financial Officer (principal financial officer) | |||
Steven E. Voskuil | ||||
/s/ Renato Negro |
Vice President and Controller (principal accounting officer) | |||
Renato Negro | ||||
* |
Director | |||
Gary D. Blackford | ||||
* |
Director | |||
John P. Byrnes | ||||
* |
Director | |||
Ronald W. Dollens | ||||
* |
Director | |||
Heidi K. Fields | ||||
* |
Director | |||
Patrick J. OLeary | ||||
* |
Director | |||
Maria Sainz | ||||
* |
Director | |||
Dr. Julie Shimer |
*By: |
/s/ John W. Wesley |
Attorney-In-Fact | ||||||
John W. Wesley |
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Pursuant to the requirements of the Securities Act of 1933, each registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Alpharetta, State of Georgia, on July 22, 2015.
AVENT, INC. HALYARD HEALTHCARE, INC. HALYARD NORTH CAROLINA, INC. |
||
By: |
/s/ Steven E. Voskuil |
|
Steven E. Voskuil | ||
Senior Vice President and Chief Financial Officer |
POWER OF ATTORNEY
We, the undersigned, hereby severally constitute and appoint John W. Wesley, S. Ross Mansbach and Shivani Prabhakar Kaul (with full power to act alone), our true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, and in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any other registration statement for the same offering pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on July 22, 2015:
Name |
Title |
|||
/s/ Christopher M. Lowery |
President and Director (principal executive officer) | |||
Christopher M. Lowery | ||||
/s/ Steven E. Voskuil |
Senior Vice President, Chief Financial Officer and Director (principal financial officer) | |||
Steven E. Voskuil | ||||
/s/ Renato Negro |
Assistant Treasurer (principal accounting officer) | |||
Renato Negro | ||||
/s/ Christopher G. Isenberg |
Senior Vice President and Director | |||
Christopher G. Isenberg |
2
Pursuant to the requirements of the Securities Act of 1933, each registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Alpharetta, State of Georgia, on July 22, 2015.
HALYARD SALES, LLC | ||
By: |
/s/ Steven E. Voskuil |
|
Steven E. Voskuil | ||
Senior Vice President and Chief Financial Officer |
POWER OF ATTORNEY
We, the undersigned, hereby severally constitute and appoint John W. Wesley, S. Ross Mansbach and Shivani Prabhakar Kaul (with full power to act alone), our true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, and in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any other registration statement for the same offering pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on July 22, 2015:
Name |
Title |
|||
/s/ Christopher M. Lowery |
President and Manager (principal executive officer) | |||
Christopher M. Lowery | ||||
/s/ Steven E. Voskuil |
Senior Vice President, Chief Financial Officer and Manager (principal financial officer) | |||
Steven E. Voskuil | ||||
/s/ Renato Negro |
Assistant Treasurer (principal accounting officer) | |||
Renato Negro | ||||
/s/ Christopher G. Isenberg |
Senior Vice President and Manager | |||
Christopher G. Isenberg |
3
EXHIBIT INDEX
Exhibit No. (2) | Distribution Agreement, dated October 31, 2014, by and between Halyard Heath, Inc. and Kimberly-Clark Corporation, incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K dated October 31, 2014.+ | |
Exhibit No. (3)a | Amended and Restated Certificate of Incorporation of Halyard Health, Inc., incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K dated October 31, 2014. | |
Exhibit No. (3)b | Amended and Restated By-laws of Halyard Health, Inc., incorporated by reference to Exhibit 3.2 of our Current Report on Form 8-K dated October 31, 2014. | |
Exhibit No. (3)c | Amended and Restated Certificate of Incorporation of Avent, Inc., filed herewith. | |
Exhibit No. (3)d | By-Laws of Avent, Inc., filed herewith. | |
Exhibit No. (3)e | Certificate of Incorporation of Halyard Healthcare, Inc., as amended, filed herewith. | |
Exhibit No. (3)f | By-Laws of Halyard Healthcare, Inc., filed herewith. | |
Exhibit No. (3)g | Articles of Incorporation of Halyard North Carolina, Inc., filed herewith. | |
Exhibit No. (3)h | By-Laws of Halyard North Carolina, Inc., filed herewith. | |
Exhibit No. (3)i | Articles of Organization of Halyard Sales, LLC, as amended, filed herewith. | |
Exhibit No. (3)j | Operating Agreement of Halyard Sales, LLC, as amended, filed herewith. | |
Exhibit No. (4)a | Credit Agreement, dated October 31, 2014, by and among Halyard Health, Inc., as borrower, Morgan Stanley Senior Funding, Inc., as administrative agent, Citibank, N.A., as revolver administrative agent and swing-line lender, and the other parties thereto., incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K dated October 31, 2014. | |
Exhibit No. (4)b | Indenture (including form of notes), dated October 17, 2014, between Halyard Health, Inc., as the Issuer, and Deutsche Bank Trust Company Americas, as trustee, incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K dated October 17, 2014. | |
Exhibit No. (4)c | Supplemental Indenture, dated October 31, 2014, by and among Avent, Inc., Halyard Healthcare, Inc., Halyard Sales, LLC, Halyard North Carolina, Inc., as the guaranteeing subsidiaries, Halyard Health, Inc., as issuer, and Deutsche Bank Trust Company Americas, as trustee, filed herewith. | |
Exhibit No. (4)d | Registration Rights Agreement, dated as of October 17, 2014, between Halyard Health, Inc. and Morgan Stanley & Co. LLC, incorporated by reference to Exhibit 4.2 of our Current Report on Form 8-K dated October 17, 2014. | |
Exhibit No. (5) | Opinion of Alston & Bird LLP, filed herewith. |
EX-1
Exhibit No. (10)a | Transition Services Agreement, dated October 31, 2014, by and between Halyard Heath, Inc. and Kimberly-Clark Corporation, incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K dated October 31, 2014. | |
Exhibit No. (10)b | Tax Matters Agreement, dated October 31, 2014, by and between Halyard Heath, Inc. and Kimberly-Clark Corporation, incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K dated October 31, 2014. | |
Exhibit No. (10)c | Employee Matters Agreement, dated October 31, 2014, by and between Halyard Heath, Inc. and Kimberly-Clark Corporation, incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K dated October 31, 2014. | |
Exhibit No. (10)d | Patent and Know-How License Agreement, dated October 31, 2014, between Kimberly-Clark Worldwide, Inc. and Avent, Inc., incorporated by reference to Exhibit 10.4 of our Current Report on Form 8-K dated October 31, 2014. | |
Exhibit No. (10)e | Royalty-Bearing Trademark License Agreement, dated October 31, 2014 between Kimberly-Clark Worldwide, Inc. and Avent, Inc., incorporated by reference to Exhibit 10.5 of our Current Report on Form 8-K dated October 31, 2014. | |
Exhibit No. (10)f | Non Royalty-Bearing Trademark License Agreement, dated October 31, 2014 between Kimberly-Clark Worldwide, Inc. and Avent, Inc., incorporated by reference to Exhibit 10.6 of our Current Report on Form 8-K dated October 31, 2014. | |
Exhibit No. (10)g | Short-term Trademark License Agreement between Kimberly-Clark Worldwide, Inc. and Avent, Inc., incorporated by reference to Exhibit 10.11 to the Companys Amendment No. 4 to Form 10 filed September 22, 2014. | |
Exhibit No. (10)h | Long-term Trademark License Agreement, dated October 31, 2014 between Kimberly-Clark Worldwide, Inc. and Avent, Inc., incorporated by reference to Exhibit 10.7 of our Current Report on Form 8-K dated October 31, 2014. | |
Exhibit No. (10)i | Halyard Non-Competition Agreement between Kimberly-Clark Corporation and Halyard Health, Inc., incorporated by reference to Exhibit 10.14 to the Companys Amendment No. 6 to Form 10 filed October 15, 2014. | |
Exhibit No. (10)j | Kimberly-Clark Non-Competition Agreement between Kimberly-Clark Corporation and Halyard Health, Inc., incorporated by reference to Exhibit 10.15 to the Companys Amendment No. 6 to Form 10 filed October 15, 2014. | |
Exhibit No. (10)k | Employment Offer Letter for Rhonda D. Gibby, incorporated by reference to Exhibit 10.4 to the Companys Amendment No. 3 to Form 10 filed August 27, 2014.* | |
Exhibit No. (10)l | Employment Offer Letter for Christopher M. Lowery, incorporated by reference to Exhibit 10.5 to the Companys Amendment No. 3 to Form 10 filed August 27, 2014.* |
EX-2
Exhibit No. (10)m | Employment Offer Letter for Steven Voskuil, incorporated by reference to Exhibit 10.6 to the Companys Amendment No. 3 to Form 10 filed August 27, 2014.* | |
Exhibit No. (10)n | Employment Offer Letter for John Wesley, incorporated by reference to Exhibit 10.7 to the Companys Amendment No. 3 to Form 10 filed August 27, 2014.* | |
Exhibit No. (10)o | Halyard Health, Inc. Equity Participation Plan, effective as of November 1, 2014, incorporated by reference to Exhibit 10.8 of our Current Report on Form 8-K dated October 31, 2014.* | |
Exhibit No. (10)p | Form of Award Agreement related to the Halyard Health, Inc. Equity Participation Plan, incorporated by reference to Exhibit 10.9 of our Current Report on Form 8-K dated October 31, 2014.* | |
Exhibit No. (10)q | Halyard Health, Inc. Outside Directors Compensation Plan, effective as of November 1, 2014, incorporated by reference to Exhibit 10.10 of our Current Report on Form 8-K dated October 31, 2014.* | |
Exhibit No. (10)r | Form of Terms and Conditions of Awards under the Halyard Health, Inc. Outside Directors Compensation Plan, incorporated by reference to Exhibit 10.11 of our Current Report on Form 8-K dated October 31, 2014.* | |
Exhibit No. (10)s | Halyard Health, Inc. Executive Officer Achievement Award Program, effective as of November 1, 2014, incorporated by reference to Exhibit 10.12 of our Current Report on Form 8-K dated October 31, 2014.* | |
Exhibit No. (10)t | Halyard Health, Inc. Executive Severance Plan, effective as of November 1, 2014, incorporated by reference to Exhibit 10.13 of our Current Report on Form 8-K dated October 31, 2014.* | |
Exhibit No. (12) | Computation of ratio of earnings to fixed charges, filed herewith. | |
Exhibit No. (21) | Subsidiaries of the Corporation, filed herewith. | |
Exhibit No. (23)a | Consent of Independent Registered Public Accounting Firm, filed herewith. | |
Exhibit No. (23)b | Consent of Alston & Bird LLP, included in Exhibit No. (5) | |
Exhibit No. (24) | Powers of Attorney, filed herewith and included on the signature pages hereof | |
Exhibit No. (25) | Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939, as amended, of Deutsche Bank Trust Company Americas, filed herewith. | |
Exhibit No. (99)a | Form of Letter of Transmittal | |
Exhibit No. (99)b | Form of Notice of Guaranteed Delivery | |
Exhibit No. (99)c | Form of Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner | |
Exhibit No. (101).INS | XBRL Instance Document | |
Exhibit No. (101).SCH | XBRL Taxonomy Extension Schema Document |
EX-3
Exhibit No. (101).CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
Exhibit No. (101).DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
Exhibit No. (101).LAB | XBRL Taxonomy Extension Label Linkbase Document | |
Exhibit No. (101).PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
+ | Pursuant to Item 601(b)(2) of Regulation S-K, schedules to this Agreement have been omitted because they are not material to an investment decision. Halyard Health, Inc. agrees to furnish supplementally a copy of any omitted schedule to the Securities Exchange Commission upon request. |
* | Indicates management contracts and compensating plan agreements. |
EX-4
Exhibit No. (3)c
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AVENT, INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Avent, Inc. (the Corporation ), a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the General Corporation Law ), hereby certifies as follows:
1. The name of the Corporation is Avent, Inc. The original certificate of incorporation of the Corporation was filed in accordance with the General Corporation Law on September 26, 1968. The name under which the Corporation was originally incorporated is Rojo Disposables Inc.
2. This Amended and Restated Certificate of Incorporation (this Certificate of Incorporation ) amends, restates and integrates the provisions of the certificate of incorporation of the Corporation, and has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law.
3. The text of the certificate of incorporation of the Corporation is hereby amended and restated to read in full as follows:
FIRST : The name of the corporation is Avent, Inc.
SECOND : The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, 19801. The name of its registered agent at such address is The Corporation Trust Company.
THIRD : The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.
FOURTH : The total number of shares of capital stock which the Corporation shall have authority to issue is two thousand (2,000) shares of capital stock, of which one thousand (1,000) shares shall be Class A common stock, par value $0.001 per share ( Class A Common Stock ), and one thousand (1,000) shares shall be Class B common stock, par value $0.001 per share (the Class B Common Stock ).
Each share of Class A Common Stock and Class B Common Stock will, except as otherwise provided in this Article FOURTH, be identical in all respect and will have equal rights, powers and privileges, subject to the following:
(a) The holders of the Class A Common Stock will be entitled to one vote for each share of Class A Common Stock held of record upon all matters that may be submitted to a vote of the stockholders of the Corporation.
(b) If at the time of any vote of shareholders there are shares of Class A Common Stock issued, outstanding and entitled to vote on a matter, then the holders of the Class B Common Stock will be entitled to the Class B Number of Votes for each share of Class B Common Stock held of record upon all matters that may be submitted to a vote of the stockholders of the Corporation as such record date. For this purpose, the Class B Number of Votes shall equal the number of votes required to cause the holders of the Class B Common Stock, as a class, together to have 81% of the total number of votes that the holders of all classes of voting stock of the Corporation are entitled to.
(c) If at the time of any vote of shareholders there are no shares of Class A Common Stock issued, outstanding and entitled to vote on a matter, then the holders of the Class B Common Stock will be entitled to one vote for each share of Class B Common Stock held of record upon all matters that may be submitted to a vote of the stockholders of the Corporation.
(d) The number of authorized shares of Class A Common Stock and/or Class B Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.
Effective upon the effectiveness of this Certificate of Incorporation (the Effective Time ), each share of the Corporations Common Stock, no par value (the Common Stock ) outstanding immediately prior to the Effective Time, shall be automatically exchanged for one share of Class A Common Stock. Each stock certificate previously issued for the Common Stock being exchanged pursuant to this paragraph (each, an Exchanged Certificate ) will be deemed, from and after such exchange, for all corporate purposes, to evidence the ownership of the number and shares of Class A Common Stock for which such shares of Common Stock were so exchanged until such time as such Exchanged Certificate has been surrendered to the Corporation for cancellation, and the Corporation has issued a corresponding new stock certificate for the shares of Class A Common Stock so issued.
FIFTH : The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:
(1) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the stockholders to make, alter, amend, change, add to or repeal the Bylaws of the Corporation.
(3) The number of directors of the Corporation shall be such number as from time to time is fixed by resolution of the Board of Directors in accordance with the Bylaws. Election of directors need not be by written ballot unless the Bylaws so provide.
SIXTH : No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the directors duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law, as the same exists or as that provision hereafter may be amended, supplemented or replaced, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article SIXTH to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation
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shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended. Any repeal or modification of the foregoing provisions of this Article SIXTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.
SEVENTH : To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which General Corporation Law permits the Corporation to provide indemnification) through bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law. Any amendment, repeal or modification of the foregoing provisions of this Article SEVENTH shall not adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director, officer or other agent occurring prior to, such amendment, repeal or modification.
EIGHTH : Subject to any additional vote required by this Certificate of Incorporation, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
NINTH : Meetings of the Corporation may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the General Corporation Law) at such place within or without the State of Delaware as the Corporations Bylaws may provide or as may be designated from time to time by the Board of Directors.
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4. The foregoing amendment and restatement was approved by the holders of the requisite number of shares of capital stock of the Corporation in accordance with Section 228 of the General Corporation Law.
5. The Effective Time of this Amended and Restated Certificate of Incorporation shall be 8 am Eastern Time on October 30, 2014.
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IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of the Corporation on this 23 day of October, 2014.
By: |
/s/ John W. Wesley |
|
Name: | John W. Wesley | |
Title: | Senior Vice President, General Counsel and Secretary |
Exhibit No. (3)d
AVENT, INC.
BY-LAWS
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors shall be held in the City of Neenah, State of Wisconsin, at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year 1969, shall be held on the last Tuesday in April if not a legal holiday, and if a legal holiday, then on the next secular day following, at 8:20 A.M., or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which they shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than fifty days before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the President and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than fifty days before the date of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Certificate of Incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question.
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Section 10. Each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period.
Section 11. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any provision of the statutes, the meeting and vote of stockholders may be dispensed with if all of the stockholders who would have been entitled to vote upon the action of such meeting were held shall consent in writing to such corporate action being taken; or if the Certificate of Incorporation authorizes the action to be taken with the written consent of the holders of less than all of the stock who would have been entitled to vote upon the action if a meeting were held, then on the written consent of the stockholders having not less than such percentage of the number of votes as may be authorized in the Certificate of Incorporation; provided that in no case shall the written consent be by the holders of stock having less than the minimum percentage of the vote required by statute for the proposed corporate action, and provided that prompt notice must be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous written consent.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole Board shall be not less than three nor more than five. The first Board shall consist of four directors. Thereafter, within the limits above specified, the number of directors shall be determined by resolution of the Board of Directors or by the stockholders at the annual meeting. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified, or upon earlier resignation or removal. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute.
Section 3. The business of the Corporation shall be managed by its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders.
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MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected Board of Directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected Board of Directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board.
Section 7. Special meetings of the Board may be called by the President on two days notice to each director, either personally or by mail or by telegram; special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of two directors.
Section 8. At all meetings of the Board, two directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.
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COMMITTEES OF DIRECTORS
Section 10. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors.
Section 11. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 12. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation for attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.
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ARTICLE V
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Vice-President, a Secretary and a Treasurer. The Board of Directors may also choose additional Vice-Presidents, and one or more Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide.
Section 2. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a President, one or more Vice-Presidents, a Secretary and a Treasurer.
Section 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board.
Section 4. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors.
Section 5. The officers of the Corporation shall hold office until their successors are chosen and qualify, or until earlier resignation or removal. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors.
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THE PRESIDENT
Section 6. The President shall be the chief executive officer of the Corporation, shall preside at all meetings of the stockholders and the Board of Directors, shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect.
Section 7. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.
THE VICE-PRESIDENTS
Section 8. In the absence of the President or in the event of his inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. He shall have custody of the Corporate seal of the Corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature.
Section 10. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
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THE TREASURER AND ASSISTANT TREASURERS
Section 11. The Treasurer shall have the custody of the Corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors.
Section 12. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation.
Section 13. If required by the Board of Directors, he shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation.
Section 14. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman or Vice Chairman of the Board of Directors, or the President or a Vice President and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares, the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified. During the time the
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Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
Section 2. Where a certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, or, (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.
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FIXING RECORD DATE
Section 5. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.
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ANNUAL STATEMENT
Section 3. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation.
CHECKS
Section 4. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the Corporation shall be the calendar year.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words Corporate Seal, Delaware. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 7. The Corporation shall indemnify and hold harmless each director, officer, employee and agent who is, by reason of the fact that he is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise, a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative, against any and all expenses (including attorneys fees), judgments, fines, amounts and other costs and liabilities incurred by him:
(i) In connection with any such action, suit or proceeding, other than an action by or in the right of the Corporation, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding had no reasonable cause to believe his conduct was unlawful. The termination of any such action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful; and
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(ii) In connection with the defense or settlement of any such action or suit by or in the right of the Corporation to procure a judgment in its favor, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no such indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the Court of Chancery or such other court shall deem proper.
To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in sub-sections (i) and (ii), or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by him in connection therewith.
Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this section.
The indemnification provided in this By-Law shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in any other capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.
The Board may, by resolution passed by a majority of the whole Board, purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in such capacity, or arising out of his status as such, whether or not the Corporation would have power to indemnify him against liability.
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RELIANCE ON RECORDS
Section 8. Each director and officer shall in the performance of his duties be fully protected in relying in good faith upon the books of account or other records of the Corporation or statements prepared by any of its officers, or by an independent public accountant, or by an appraiser selected with reasonable care by the Board.
INSPECTION OF BOOKS
Section 9. The directors shall determine from time to time whether and to what extent and at what times and places and under what conditions and regulations the accounts and books of the Corporation (except such as may by statute be specifically open to inspection) or any of them, shall be open to the inspection of the stockholders, and the stockholders rights in this respect are and shall be restricted and limited accordingly.
TRANSACTIONS WITH CORPORATION
Section 10. No contract or other transaction between the Corporation and one or more of its directors, officers or stockholders or between this Corporation and any other corporation, partnership, association or other organization in which one or more of its officers, directors or stockholders are officers, directors or stockholders shall be either void or voidable:
(i) if the Board or committee authorizing or ratifying the contract or transaction by a vote or approval sufficient for the purpose without counting the vote of the interested person, or
(ii) if the contract or other transaction is ratified at an annual or special meeting of stockholders, or
(iii) if the contract or other transaction is fair to the Corporation at the time it is made.
Interested directors may be counted in determining the presence of a quorum at a meeting which authorizes the contract or transaction.
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ARTICLE VIII
AMENDMENTS
Section 1. These By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the Certificate of Incorporation at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such special meeting.
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Exhibit No. (3)e
CERTIFICATE OF INCORPORATION
OF
KIMBERLY-CLARK PHC INTERNATIONAL, INC.
THE UNDERSIGNED, in order to form a corporation for the purposes hereinafter stated, under and pursuant to the provisions of the General Corporation Law of the State of Delaware, does hereby certify as follows:
FIRST: The name of the Corporation is Kimberly-Clark PHC International, Inc.
SECOND: The registered office of the Corporation is 1209 Orange Street, City of Wilmington, County of New Castle, in the State of Delaware 19801. The name of its registered agent at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation is authorized to issue is One Thousand (1,000), all of which are classified as Common Stock, without par value.
FIFTH: The name and mailing address of the incorporator are as follows:
Name |
Mailing Address |
|
Peter A. van Houwelingen |
401 North Lake Street Neenah, Wisconsin 54956 |
SIXTH: Except as required in the by-laws, no election of directors need be by written ballot.
SEVENTH: The Board of Directors shall have the power to adopt, amend, or repeal by-laws of the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this 6th day of July, 1992.
/s/ Peter A. van Houwelingen |
Peter A. van Houwelingen |
Incorporator |
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
KIMBERLY-CLARK HEALTH CARE INC.
Kimberly-Clark Health Care Inc., a corporation organized and existing under the laws of the State of Delaware (the Corporation ), hereby certifies as follows:
1. | The name of the Corporation is Kimberly-Clark Health Care Inc. |
2. | Section 1 of the Companys Certificate of Incorporation (the Certificate of Incorporation ) is hereby amended and restated in its entirety to read as follows: |
The name of this corporation is Halyard Healthcare, Inc. (the Corporation ).
3. | The foregoing amendment of the Certificate of Incorporation has been duly adopted by the Companys Board of Directors and sole stockholder in accordance with the provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware. |
4. | This amendment to the Certificate of Incorporation shall be effective as of October 31, 2014. |
IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment to be signed by Jeffrey P. Melucci, its Assistant Secretary, on 9/4, 2014.
KIMBERLY-CLARK HEALTH CARE INC. | ||
By: | /s/ Jeffrey P. Melucci | |
Jeffrey P. Melucci | ||
Assistant Secretary |
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Kimberly-Clark PHC International, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the Corporation) does hereby certify:
FIRST: That the Board of Directors of the Corporation duly adopted resolutions setting forth a proposed amendment of the Certificate of Incorporation of the Corporation. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that it is advisable that the Certificate of Incorporation of the Corporation be amended by changing the Article thereof numbered First so that, as amended, said Article shall be and read as follows:
FIRST: The name of the corporation is Kimberly-Clark Health Care Inc.
SECOND: That the sole stockholder of the Corporation voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of the Corporation shall not be reduced under or by reason of said amendment.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed this 29 th day of March, 2005.
/s/ Joanne B. Bauer |
Joanne B. Bauer |
Vice President |
CERTIFICATE OF CORRECTION FILED TO CORRECT
A CERTAIN ERROR IN THE CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON MARCH 29, 2005
Kimberly-Clark Health Care Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is Kimberly-Clark Health Care Inc.
2. That a Certificate of Amendment of Certificate of Incorporation was filed by the Secretary of State of Delaware on March 29, 2005 for the purpose of changing the name of the corporation from Kimberly-Clark PHC International, Inc. to Kimberly-Clark Health Care Inc. and that said Certificate requires correction as permitted by Section 103 of the General Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Certificate to be corrected is as follows: An Article FIFTH, establishing the effective date of the Certificate of Amendment was inadvertently omitted.
4. Article FIFTH of the Certificate is added and reads as follows:
FIFTH: The effective date of this Certificate of Amendment shall be April 1, 2005.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed this 6th day of April, 2005.
/s/ Erick R. Opsahl |
By: Erick R. Opsahl |
Secretary |
Exhibit No. (3)f
BY-LAWS
OF
KIMBERLY-CLARK PHC INTERNATIONAL, INC.
(a Delaware corporation)
TABLE OF CONTENTS
Page | ||||||
ARTICLE 1. | OFFICES | 1 | ||||
Section 1 |
Registered Office | 1 | ||||
Section 2 |
Other Offices | 1 | ||||
ARTICLE 2. | MEETINGS OF STOCKHOLDERS | 1 | ||||
Section 1 |
Place of Meeting | 1 | ||||
Section 2 |
Annual Meeting | 1 | ||||
Section 3 |
Special Meetings | 2 | ||||
Section 4 |
Notice of Meeting | 2 | ||||
Section 5 |
Adjourned Meeting | 2 | ||||
Section 6 |
Conduct of Meeting | 2 | ||||
Section 7 |
Quorum | 3 | ||||
Section 8 |
Voting | 3 | ||||
Section 9 |
List of Stockholders | 4 | ||||
Section 10 |
Inspectors of Election | 4 | ||||
Section 11 |
Action Without Meeting | 4 | ||||
ARTICLE 3. | BOARD OF DIRECTORS | 5 | ||||
Section 1 |
Number of Directors; Term of Office | 5 | ||||
Section 2 |
Vacancies | 5 | ||||
Section 3 |
Removal | 5 | ||||
Section 4 |
Resignation | 5 | ||||
Section 5 |
Powers | 6 | ||||
Section 6 |
Place of Meetings | 6 | ||||
Section 7 |
Telephone Meetings | 6 | ||||
Section 8 |
Place of Telephone Meeting | 6 | ||||
Section 9 |
Conduct of Meeting | 6 | ||||
Section 10 |
Annual Meeting | 7 | ||||
Section 11 |
Regular Meeting | 7 | ||||
Section 12 |
Special Meeting | 7 | ||||
Section 13 |
Quorum | 7 | ||||
Section 14 |
Voting | 8 | ||||
Section 15 |
Committees of the Board | 8 | ||||
Section 16 |
Procedures of Committees | 8 | ||||
Section 17 |
Powers of Committees | 9 | ||||
Section 18 |
Committee Minutes | 9 | ||||
Section 19 |
Remuneration and Expenses | 9 | ||||
Section 20 |
Action Without Meeting | 9 |
(i)
Page | ||||||
ARTICLE 4. |
OFFICERS | 10 | ||||
Section 1 |
Election and Appointment | 10 | ||||
Section 2 |
Term; Removal; Vacancies; Resignation | 10 | ||||
Section 3 |
Duties | 10 | ||||
Section 4 |
President | 10 | ||||
Section 5 |
Vice Presidents | 11 | ||||
Section 6 |
Secretary | 12 | ||||
Section 7 |
Treasurer | 12 | ||||
Section 8 |
Controller | 13 | ||||
Section 9 |
Assistant Secretaries | 13 | ||||
Section 10 |
Assistant Treasurers | 14 | ||||
ARTICLE 5. |
INDEMNIFICATION | 14 | ||||
Section 1 |
Actions, Other Than By or in the Right of the Corporation | 14 | ||||
Section 2 |
Actions By or in the Right of the Corporation | 15 | ||||
Section 3 |
Right of Indemnification | 15 | ||||
Section 4 |
Determination of Right of Indemnification | 15 | ||||
Section 5 |
Prepaid Expenses | 16 | ||||
Section 6 |
Other Rights and Remedies | 16 | ||||
Section 7 |
Insurance | 16 | ||||
Section 8 |
Rights of Heirs, Executors and Administrators | 16 | ||||
ARTICLE 6. |
CAPITAL STOCK | 16 | ||||
Section 1 |
Right to Certificate, etc. | 16 | ||||
Section 2 |
Facsimile Signature | 17 | ||||
Section 3 |
Lost or Destroyed Certificates | 17 | ||||
Section 4 |
Transfers | 17 | ||||
Section 5 |
Record Date | 18 | ||||
Section 6 |
Rights of the Corporation | 18 |
(ii)
Page | ||||||
ARTICLE 7. |
MISCELLANEOUS | 18 | ||||
Section 1 |
Dividends | 18 | ||||
Section 2 |
Voting of Stocks | 19 | ||||
Section 3 |
Transactions with the Corporation | 19 | ||||
Section 4 |
Reliance on Records | 20 | ||||
Section 5 |
Inspection of Books | 20 | ||||
Section 6 |
Ratification | 20 | ||||
Section 7 |
Type of Notice | 20 | ||||
Section 8 |
Waiver of Notice | 21 | ||||
Section 9 |
Fiscal Year | 21 | ||||
Section 10 |
Corporate Seal | 21 | ||||
Section 11 |
Amendments | 21 |
(iii)
BY-LAWS
OF
KIMBERLY-CLARK PHC INTERNATIONAL, INC.
ARTICLE 1
OFFICES
Section 1 . Registered Office . The registered office of the corporation shall be located at 1209 Orange Street in the City of Wilmington, County of New Castle, state of Delaware, and the name of the registered agent in charge thereof shall be The Corporation Trust Company.
Section 2 . Other Offices . The corporation may have offices in addition to its registered office at such places, both within and without the State of Delaware, as the Board of Directors may determine or the business of the corporation may require. The books of the corporation may be kept outside the State of Delaware.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
Section 1 . Place of Meeting . All meetings of the stockholders of the corporation shall be held at such date, time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2 . Annual Meeting . Annual meetings of stockholder shall be held at the offices of the corporation located in Roswell, Georgia at 10:00 a.m. local time on the third Thursday in April of each year, or at such other place, time and day as may be fixed by the Board of Directors. At such annual meetings the stockholders shall elect by a plurality vote directors of the corporation, and shall transact such other business as may properly be brought before the meeting.
Section 3 . Special Meetings . Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the President, such other officer as determined by the Board of Directors, or by order of the Board of Directors, and shall be called by the President or the Secretary at the request in writing of a majority of the Board of Directors or of stockholders owning a majority of the voting power of the issued and outstanding capital stock of the corporation. Such request shall state the purpose or purposes of the proposed meeting; provided, however, that any business that is properly brought before any such meeting may be transacted at such meeting.
Section 4 . Notice of Meeting . Written notice of an annual or special meeting of stockholders stating the place, date and time of the meeting, and the purpose or purposes for which the meeting is called, shall be given to each stockholder of record entitled to vote at such meeting not less than one nor more than 60 days before the date of the meeting. Notice of meeting may be given by first class United States mail or other reasonable means of delivery.
Section 5 . Adjourned Meeting . When a meeting of stockholders is adjourned to another date, time or place, notice need not be given of the adjourned meeting if the date, time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the stockholders may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting (containing the information required by Section 4 of this Article 2) shall be given to each stockholder of record entitled to vote at the meeting.
Section 6 . Conduct of Meeting . At each meeting of the stockholders, the President, or if he shall be absent therefrom, another officer of the corporation chosen as chairman of such meeting by the holders of a majority of the voting power of the issued and outstanding capital stock of the corporation entitled to vote thereat, or if all the officers of the corporation shall be absent therefrom, a stockholder holding of record shares of capital stock of the corporation so chosen, shall act as chairman of the meeting and
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preside thereat. The Secretary, or if he shall be absent from such meeting, the person whom the chairman of such meeting shall appoint shall act as secretary of such meeting and keep the minutes thereof. The order of business at each meeting of stockholders shall be determined by the chairman of such meeting, but such order of business may be changed by the vote of the holders of a majority of the voting power of the issued and outstanding capital stock of the corporation present in person or by proxy at such meeting and entitled to vote thereat. The chairman shall have the authority to conduct such meeting in a manner that maintains the decorum of such meeting and provides for the orderly transaction of business.
Section 7 . Quorum . At all meetings of stockholders, the holders of a majority of the voting power of the issued and outstanding capital stock of the corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business, except as otherwise provided by statute or the certificate of incorporation. However, if such quorum shall not be present or represented at a meeting of the stockholders, the chairman of such meeting or the holders of a majority of the voting power of the capital stock of the corporation entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting originally called.
Section 8 . Voting . Unless otherwise provided in the certificate of incorporation or in any certificate of designation, preferences, rights and limitations pursuant to which any shares of the capital stock of the corporation are issued, each stockholder shall at every meeting of stockholders be entitled to one vote in person or by proxy for each share of the capital stock of the corporation having voting power held by such stockholder. No proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Except where the transfer books of the corporation have been closed or a date has been fixed as a record date for the determination of stockholders entitled to vote, no share of capital stock shall be voted at any election for directors which has been transferred on the books of the corporation within 10 days next preceding such election of directors. When a quorum is present at any meeting, the vote of the holders of a majority of the voting power of the capital stock
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of the corporation, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which by law or the certificate of incorporation a different vote is required, in which case such provision shall govern and control the decision of such question. No vote upon any matter, except the amendment of the certificate of incorporation, is required to be by ballot unless demanded by the holders of at least 10% of the voting power of the issued and outstanding capital stock of the corporation present in person or represented by proxy and entitled to vote at the meeting. A telegram or other electronic transmission which contains the information required to be set forth in a proxy shall be deemed to be a written proxy for purposes of any meeting of stockholders.
Section 9 . List of Stockholders . A complete list of the stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order and showing the address of each stockholder and the number of shares of capital stock with voting power held by each, shall be prepared by the officer in charge of the stock ledger of the corporation and shall be filed either at a place specified in the notice of such meeting within the city or town where such meeting is to be held, or if no such place is specified, at the place where such meeting is to be held, at least 10 days before such meeting. Such list shall at all times prior to the meeting during the usual hours of business, and during the whole time of said meeting, be open to examination and inspection of any stockholder.
Section 10 . Inspectors of Election . The Board of Directors, or if the Board shall not have made the appointment, the chairman presiding at any meeting of stockholders, shall have power to appoint one or more persons to act as inspectors of election at such meeting or any adjournment thereof, but no person shall be appointed as an inspector of election at any meeting at which he is a candidate for the office of director. The inspectors of election shall decide upon the qualifications of voters, count the votes and declare the results.
Section 11 . Action Without Meeting . Unless otherwise provided by law, the certificate of incorporation or these By-Laws, any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting forth the action so taken shall be signed by the holders of shares of the issued and outstanding capital stock having not less than the minimum number of votes that would be
- 4 -
necessary to authorize or take such action at a meeting at which all shares of such capital stock entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented thereto in writing.
ARTICLE 3
BOARD OF DIRECTORS
Section 1 . Number of Directors; Term of Office . The number of directors constituting the entire Board of Directors shall be the number fixed from time to time by a majority of the entire Board of Directors. Unless otherwise provided in the certificate of incorporation, the directors shall be elected annually and each director shall continue in office until his successor shall have been elected and qualified, until his death or until he shall resign or shall have been removed. As used in these By-Laws, the terms entire Board of Directors means the total authorized number of directors that the corporation would have if there were no vacancies. Directors need not be stockholders.
Section 2 . Vacancies . Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by the affirmative vote of a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election of directors and until their successors are duly elected and shall qualify, unless sooner displaced.
Section 3 . Removal . Any one or more of the directors may be removed, with or without cause, by the affirmative vote of the holders of a majority of the voting power of the issued and outstanding capital stock of the corporation.
Section 4 . Resignation . A director may resign at any time by giving written notice to the corporation, addressed to the President or the Secretary. Such resignation shall take effect at the date of receipt of such notice or at any later time specified therein. Acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the notice.
- 5 -
Section 5 . Powers . The business and affairs of the corporation shall be managed under the direction of its Board of Directors, which may exercise all powers of the corporation and do all lawful acts and things on behalf of the corporation as are not by statute, the certificate of incorporation or these By-Laws directed or required to be exercised or done by the stockholders. The Board of Directors shall have the power to determine the rights, powers, duties, rules and procedures that affect the power of the Board of Directors to direct the business and affairs of the corporation, including the power to designate and empower committees of the Board, to elect, appoint and empower the officers and other agents of the corporation, and to determine the date, time and place of, and the notice requirements for, Board meetings, as well as quorum and voting requirements for, and the manner of taking, Board action (in each foregoing case, except as otherwise provided in these By-Laws).
Section 6 . Place of Meetings . The Board of Directors may hold meetings, both regular and special, either within or without the State of Georgia.
Section 7 . Telephone Meetings . Members of the Board of Directors, or of any committee designated by the Board of Directors, may participate in a meeting of the Board or committee (as the case may be) by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting.
Section 8 . Place of Telephone Meeting . Any meeting at which one or more of the members of the Board of Directors or of a committee designated by the Board of Directors shall participate by means of conference telephone or similar communications equipment shall be deemed to have been held at the place designated for such meeting, provided that at least one member is at such place while participating in the meeting.
Section 9 . Conduct of Meeting . Every meeting of the Board of Directors shall be presided over by a director or officer designated by the Board of Directors or, if no such person is so designated, by the President or, in his absence, the Vice-President. In the absence of such officer or director and the President, a presiding officer of a meeting shall be chosen by a majority of the directors present thereat. The Secretary of the corporation shall act as secretary of the meeting, but in his absence the presiding officer of the meeting may appoint any person to act as secretary of the meeting. The secretary of the meeting shall keep minutes of the proceeding and report the same to the Board of Directors when required.
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Section 10 . Annual Meeting . The first meeting of each newly elected Board of Directors shall be held immediately following the meeting of stockholders at which such directors were elected, or at such date, time and place as may be fixed by the vote of the holders of a majority of the voting power of the capital stock present in person or represented by proxy at such meeting of stockholders. No notice of the annual meeting of the Board of Directors shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present at such meeting. In the event such meeting is not held immediately following such meeting of stockholders, or at the date, time and place so fixed by the stockholders, the meeting may be held at such date, time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors.
Section 11 . Regular Meeting . Regular meetings of the Board of Directors shall be held without special notice on such date, at such time and at such place as shall be determined by the Board.
Section 12 . Special Meeting . Special meetings of the Board of Directors may be called by the President, another officer authorized by the Board of Directors or, on the written request of not less than two directors, the Secretary. Notice of the date, time and place of each special meeting of the Board shall be given by or at the direction of the person or persons calling the meeting by mailing the same, first class United States mail, at least three days before the meeting or by telephoning, telegraphing or personally delivering the same at least one day before the meeting to each director; provided, however, that during an emergency, as defined in Section 13 of this Article 3, notice may be given only to such of the directors as it may be feasible to reach, and by such means as may be feasible, at the time, including publications or private or public electronic means. Unless required by law, the notice need not state the purposes of the meeting. Except as otherwise specified in the notice thereof, or as required by statute, the certificate of incorporation or these By-Laws, any and all business may be transacted at any special meeting of the Board.
Section 13 . Quorum . Except during the existence of an emergency (as defined below), at any regular or special meeting of the Board of Directors a majority of the directors at the time in office (but not less than one-third of the entire Board of Directors)
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shall constitute a quorum for the transaction of business. To the extent required to constitute a quorum at any meeting of the Board during an emergency, the officers of the corporation who are present shall be deemed, in order of rank and within the same rank in order of seniority, directors for such meeting. In the absence of a quorum, a majority of the directors present may adjourn the meeting from time to time until a quorum is present. No notice of any adjourned meeting need be given. At any such adjourned meeting at which there is a quorum, any business may be transacted which might have been transacted at the meeting originally called.
An emergency for the purpose of these By-Laws shall be any emergency resulting from an attack on the United States or on a locality in which the corporation conducts its business or customarily holds meetings of its Board or its stockholders, any nuclear disaster, any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board, a committee thereof or the stockholders cannot readily be convened for action.
Section 14 . Voting . The action of a majority of the directors present at any meeting of the Board of Directors at which a quorum is present shall be the act of the Board of Directors, except as may be specifically provided otherwise by statute, the certificate of incorporation or these By-Laws.
Section 15 . Committees of the Board . The Board of Directors, by resolution passed by a majority of the entire Board of Directors, may establish one or more committees of the Board. Each such committee shall consist of two or more of the directors of the corporation appointed by the Board of Directors. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. Each member of a committee of the Board of Directors shall serve at the pleasure of the Board.
Section 16 . Procedures of Committees . Each committee of the Board of Directors shall fix its own rules of procedure, and shall meet where and as provided by such rules, the chairman of such committee or a majority of the members of such committee. The presence of a majority of the members of a committee shall be necessary to constitute a quorum for such committee unless otherwise provided by these By-Laws. In the absence or disqualification of a member or alternate member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or note he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
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Section 17 . Powers of Committees . Any committee established by the Board of Directors, to the extent provided in the resolution or resolutions of the Board of Directors establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors to direct the management of the business and affairs of the corporation; provided, however, that no such committee shall have the power or authority to recommend to the stockholders the amendment of the certificate of incorporation, adopt an agreement of merger or consolidation, recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporations property and assets, recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, amend these By-Laws or rescind or amend any action previously taken by the Board of Directors; provided further, that unless the resolution establishing such committee or the certificate of incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors.
Section 18 . Committee Minutes . Each committee of the Board of Directors shall keep regular minutes of its proceedings and report the same to the Board when required.
Section 19 . Remuneration and Expenses . Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors or committees thereof. Directors who are not employees of the corporation or any of its subsidiaries or affiliates may be authorized by the Board of Directors to be paid a fixed sum for attendance at each meeting of the Board of Directors or a committee thereof, or a stated salary as a director or member of a committee of the Board.
Section 20 . Action Without Meeting . Unless otherwise provided by law, the certificate of incorporation or these By-Laws, any action required or permitted to be taken at any annual, regular or special meeting of the Board of Directors or any committee thereof may be taken without a meeting, without prior notice and without a vote, if all members of the Board or committee (as the case may be) consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee (as the case may be).
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ARTICLE 4
OFFICERS
Section 1 . Election and Appointment . The Board of Directors, at its first meeting after each annual meeting of stockholders, shall elect such officers, with such titles and such designated powers and duties, as the Board may determine; provided, however, that at each such meeting the Board shall elect a President, a Vice President, and also shall elect a Secretary and a Treasurer. The Board of Directors may elect such other officers, and may appoint one or more Assistant Treasurers, Assistant Secretaries and such other officers and agents, as may appear to be necessary or advisable in the conduct of the affairs of the corporation. No officer need be a director. Any number of offices may be held by the same person.
Section 2 . Term; Removal; Vacancies; Resignation . The officers of the corporation shall hold office until their successors are duly elected or appointed and shall qualify. Any officer elected or appointed by the Board of Directors may be removed at any time, with or without cause, by the affirmative vote of a majority of the entire Board of Directors. Any vacancy occurring in any office of the corporation may be filled by the Board of Directors for the unexpired portion of the term. Any officer may resign at any time by giving notice to the corporation addressed to the President or the Secretary. Such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein. Acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the notice.
Section 3 . Duties . The officers shall have such powers and perform such duties as are prescribed in these By-Laws or, in the case of an officer whose powers and duties are not so prescribed, as may be assigned to him by the Board of Directors or delegated to him by or through the President.
Section 4 . President . The President, subject to the Board, shall be in general and active charge, control and supervision over the management and direction of the business, property and affairs of the corporation. He shall keep the Board fully informed, and shall freely consult the Board, concerning the business of the corporation.
Subject to these By-Laws, the President shall have authority to:
a. appoint or approve the appointment of employees to various posts and positions in the corporation bearing titles designated or approved by him, and prescribe the authority and duties of such employees, which may include the authority to appoint subordinates to various other posts and positions;
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b. remove or approve the removal of employees so appointed; and
c. sign, execute and acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, notes, debentures, stock certificates, contracts, agreements, licenses, assignments, guarantees, leases, reports and other documents and instruments, except where the signing or execution thereof by some other officer or employee of the corporation shall be expressly authorized and directed by law, the Board or these By-Laws. Unless otherwise provided by law, the Board or these By-Laws, he may authorize in a writing filed with the Secretary any officer, employee or agent of the corporation to sign, execute and acknowledge, on behalf of the corporation and in his place and stead, any or all such documents and instruments.
The President shall have such other authority and perform such other duties as are incident to the office of President or as may be prescribed by the Board of Directors or these By-Laws.
In the absence or disability of the President, or in case of an unfilled vacancy in that office, the duties thereof shall be performed, and the powers thereof shall be exercised, by another officer designated by the Board, or if there is no such designation by another elected officer determined by the order in which the officers of the corporation were listed in their election.
Section 5 . Vice Presidents . Each Vice President (if the Board of Directors has established such office) shall have such powers and perform such duties as may be assigned to him by the Board, delegated to him by the President, prescribed by these By-Laws or incident to his office.
In addition, each Vice President (if the Board of Directors has established such respective office) shall have authority to sign, execute and acknowledge on behalf of the corporation, all deeds, mortgages, bonds, notes, debentures, contracts, agreements, licenses, assignments, guarantees, leases, reports and other documents and instruments, except where the signing or execution thereof by some other officer or employee shall be expressly authorized and directed by law, the Board, the President or these By-Laws.
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Section 6 . Secretary . The Secretary shall:
a. attend and keep the minutes of all meetings of the stockholders, the Board of Directors, and such committees of the Board as the Board may direct;
b. have custody of the corporate seal and all corporate records (including transfer books and stock ledgers), contracts, papers, instruments, documents and books of the corporation except those required to be kept by another officer of the corporation;
c. sign on behalf of the corporation stock certificates, and such other documents, certificates and instruments as require his signature when approved in accordance with these By-Laws;
d. attest to the signature of officers, employees and agents of the corporation, and affix the corporate seal to documents of the corporation;
e. ensure that notices are given and records and reports are properly kept and filed by the corporation as required by law or these By-Laws; and
f. have such other powers and perform such other duties as may be assigned to him by the Board, delegated to him by the President, prescribed by these By-Laws or incident to the office of Secretary.
Section 7 . Treasurer . The Treasurer shall:
a. have responsibility for the custody and safekeeping of all funds and securities of the corporation;
b. receive and sign receipts for all moneys paid to the corporation and shall deposit the same in the name and to the credit of the corporation in authorized banks or depositories;
c. endorse for collection on behalf of the corporation all checks, drafts, notes and other obligations payable to it;
d. disburse the funds of the corporation upon proper vouchers or other proper authority and under such rules and regulations as the Board may adopt;
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e. keep full and accurate accounts of the transactions of his office in books belonging to the corporation;
f. render as the Board may direct an account of the transactions of his office;
g. sign on behalf of the corporation stock certificates, and such other documents, certificates and instruments as require his signature when approved in accordance with these By-Laws; and
h. have such other powers and perform such other duties as may be assigned to him by the Board, delegated to him by the President, prescribed by these By-Laws or incident to the office of Treasurer.
Section 8 . Controller . The Controller (if the Board of Directors has established such office) shall:
a. have custody and charge of the corporations books of account, except those required by the Treasurer in keeping records of the work in his office;
b. have supervision of such subsidiary accounting records as may be kept in locations other than his office;
c. have access to all books of account and records, including the Secretarys and the Treasurers records, for purpose of audit and for obtaining information necessary to verify or complete the records of his office;
d. have the responsibility for processing vouchers for payment by the Treasurer;
e. make periodic audits of all funds and securities of the corporation; and
f. have such other powers and perform such other duties as may be assigned to him by the Board, delegated to him by the President, prescribed by these By-Laws or incident to the office of Controller.
Section 9 . Assistant Secretaries . Assistant Secretaries (if the Board of Directors has established such office), in the order of their seniority unless otherwise determined by the Board, shall assist the Secretary in the performance of his duties and the
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exercise of his powers. In the absence or disability of the Secretary, such Assistant Secretary shall perform the duties and exercise the powers of the Secretary. Each Assistant Secretary shall have such other powers and perform such other duties as may be assigned to him by the Board, delegated to him by the President or prescribed by these By-Laws.
Section 10 . Assistant Treasurers . The Assistant Treasurers (if the Board of Directors has established such office), in the order of their seniority unless otherwise determined by the Board, shall assist the Treasurer in the performance of his duties and the exercise of his powers. In the absence or disability of the Treasurer, such Assistant Treasurer shall perform the duties and exercise the powers of the Treasurer. Each Assistant Treasurer shall have such other powers and perform such other duties as may be assigned to him by the Board, delegated to him by the President or prescribed by these By-Laws.
ARTICLE 5
INDEMNIFICATION
Section 1 . Actions Other Than by or in the Right of the Corporation . The corporation shall indemnify every person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
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Section 2 . Actions By or in the Right of the Corporation . The corporation shall indemnify every person who is or was a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of Delaware or such other court shall deem proper.
Section 3 . Right of Indemnification . To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article 5 or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by him in connection therewith.
Section 4 . Determination of Right of Indemnification . Any indemnification under Sections 1 and 2 of this Article 5 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in such Sections. Such determination shall be made by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or, if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or by the stockholders.
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Section 5 . Prepaid Expenses . Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such officer or director to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate.
Section 6 . Other Rights and Remedies . The indemnification and advancement of expenses provided by, or granted pursuant to, the other Sections of this Article 5 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors of the corporation, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.
Section 7 . Insurance . The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article 5.
Section 8 . Rights of Heirs, Executors and Administrators . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article 5 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent of the corporation and shall inure to the benefit of the heirs, executors and administrators of such person.
ARTICLE 6
CAPITAL STOCK
Section 1 . Right to Certificate, etc . Every holder of stock in the corporation shall be entitled to have a certificate in such form as the Board of Directors shall approve, signed by, or in the name of the corporation by, the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
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Secretary, certifying the number of shares of the capital stock of the corporation owned by him. If the corporation issues more than one class of stock or more than one series of any class, there shall be set forth on the face or back of each certificate issued a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof of the corporation and the qualifications, limitations or restrictions of such preferences and/or rights.
Section 2 . Facsimile Signature . Any of or all the signatures on the certificate referred to in Section 1 of this Article 6, and the corporate seal, may be a facsimile, and may be engraved, stamped or printed. In the event that any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
Section 3 . Lost or Destroyed Certificates . The Board of Directors may direct a new certificate or certificates representing shares of capital stock of the corporation to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as the Board shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed or the issuance of such new certificate.
Section 4 . Transfers . Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares of capital stock of the corporation duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.
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Section 5 . Record Date . In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, to express consent to corporate action in writing without a meeting, to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. Only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of and to vote at such meeting, to give such consent, to receive such dividend or other distribution or allotment of rights, to exercise such rights, or to take such other lawful action, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board of Directors may fix a new record date for such adjourned meeting.
Section 6 . Rights of the Corporation . The name and address of the holder of each certificate representing shares of capital stock of the corporation, the number of shares of such capital stock represented thereby, and the date of issuance thereof shall be recorded in the corporations books and records. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares of capital stock of the corporation to receive dividends and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of such shares, and shall not be bound to recognize an equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.
ARTICLE 7
MISCELLANEOUS
Section 1 . Dividends . Dividends upon shares of the capital stock of the corporation, subject to any restrictions of the certificate of incorporation, may be declared by the Board of Directors. Dividends may be paid in cash, in property or in shares of capital stock of the corporation, subject to the provisions of the
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certificate of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, for equalizing dividends, for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interests of the corporation. The directors may modify or abolish any such reserve in the manner in which it was created.
Section 2 . Voting of Stocks . Unless otherwise ordered by the Board of Directors, the President, each Vice President and any other officer designated by the Board shall have full power and authority, on behalf of the corporation, to consent to or approve of any action by, and to attend, act and vote at any meeting of stockholders of, any company in which the corporation may hold shares of stock or other interests. In giving such consent or approval or at any such meeting, each such officer shall possess and may exercise any and all rights and powers incident to the ownership of such shares or interests and which as the holder thereof the corporation might possess and exercise if personally present, and may exercise such power and authority through the execution of proxies or may delegate such power and authority to any other officer, agent or employee of the corporation.
Section 3 . Transactions with the Corporation . No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if:
a. the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum;
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b. the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or
c. the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof, or the stockholders.
Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
Section 4 . Reliance on Records . Each director and officer shall in the performance of his duties be fully protected in relying in good faith upon the books of account and other records of the corporation and statements prepared by any of its officers, or by an independent public accountant, or by an appraiser selected with reasonable care by the Board of Directors.
Section 5 . Inspection of Books . The directors shall determine from time to time whether, and to what extent, at what times and places and under what conditions and regulations, the accounts and other books and records of the corporation (except such as may by statute be specifically open to inspection) shall be open to the inspection of the stockholders, and the stockholders rights in this respect are and shall be restricted and limited accordingly.
Section 6 . Ratification . Any transaction questioned in any stockholders derivative suit on the ground of lack of authority, defective or irregular execution, adverse interest of any director, officer or stockholder, nondisclosure, miscomputation, or the application of improper principles or practices of accounting may be ratified before or after judgment by the Board of Directors, or by the stockholders in case less than a quorum of directors is qualified to act in such manner. If so ratified, such transaction shall have the same force and effect as if it had been originally duly authorized, and such ratification shall be binding upon the corporation and its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned transaction.
Section 7 . Type of Notice . Notices to directors and stockholders shall be in writing and delivered personally or by first class United States mail to the directors or stockholders at their addresses appearing on the books of the corporation. Notice by mail shall be deemed to be given when mailed. Notice to directors also may be given personally, by telegram or otherwise as provided in these By-Laws.
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Section 8 . Waiver of Notice . Whenever any notice is required to be given under the provisions of any law, the certificate of incorporation or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent thereto. No notice need be given to any person with whom communication is made unlawful by any law of the United States or any rule, regulation, proclamation or executive order issued under any such law.
Section 9 . Fiscal Year . The fiscal year of the corporation shall begin on January 1 of each year, unless otherwise determined by the Board of Directors.
Section 10 . Corporate Seal . The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words Corporate Seal, Kimberly-Clark Technical Products, Inc. The seal may be used by causing it or a facsimile thereof to be impressed, affixed, reproduced or otherwise.
Section 11 . Amendments . These By-Laws may be altered, amended or repealed by the stockholders or the Board of Directors.
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Exhibit No. (3)g
ARTICLES OF INCORPORATION
OF
HALYARD NORTH CAROLINA, INC.
Pursuant to Section 55-2-02 of the General Statutes of North Carolina, the undersigned does hereby submit these Articles of Incorporation for the purpose of forming a business corporation.
1. The name of the corporation is Halyard North Carolina, Inc. (the Corporation).
2. The purpose for which the Corporation is organized is to engage in any lawful act or activity for which corporations may be organized under the North Carolina Business Corporation Act.
3. The Corporation shall have authority to issue one thousand (1,000) shares of Common Stock, and the par value of each of such shares is $.01.
4. The name of the initial registered agent is CT Corporation System.
5. The North Carolina street address, which is also the mailing address, and county of the initial registered office of the Corporation in North Carolina is 150 Fayetteville Street, Box 1011, Wake County, North Carolina 27601.
6. The street address, which is also the mailing address, and county of the principal office of the Corporation is 351 Phelps Drive, Dallas County, Irving, TX 75038.
7. The name and address of the incorporator is John W. Wesley, PO Box 619100, Dallas, TX 75261-9100.
8. In furtherance and not in limitation of the power conferred by statute, the board of directors is expressly authorized to make, alter or repeal the bylaws of the Corporation.
9. Elections of directors need not be by written ballot unless the bylaws of the Corporation shall so provide.
10. To the full extent then permitted by the North Carolina Business Corporation Act as it may be amended from time to time, any action which is required or permitted to be taken at a meeting of the shareholders may be taken by written consent without a meeting and without prior notice by shareholders having not less than the minimum number of votes that would be necessary to take such action at a meeting at which all shares entitled to vote thereon were present and voted, except that, in accordance with Section 55-7-04(a1) of the General Statutes of North Carolina, the action of election of directors at the annual meeting may be taken without a meeting only by all the shareholders entitled to vote on such action. Such signed and dated written consent must be filed with the Secretary of the Corporation to be kept in the corporate minute book, whether done before or after the action so taken, but in no event later than sixty (60) days after the earliest dated consent delivered in accordance with this section. Delivery made to the Secretary of the Corporation shall be by hand or by certified or registered mail, return receipt requested. When corporate action is taken without a meeting by less than unanimous written consent, notice shall be given to those shareholders who have not consented in writing within ten (10) days after such action is taken. A shareholders consent to action taken without meeting may be in electronic form and delivered by electronic means.
Notwithstanding the provisions of Section 55-7-04(d) of the General Statutes of North Carolina, the Corporation is not required to give the shareholders written notice of the proposed action at least ten (10) days before the action is taken in the event that shareholder approval is required for (i) an amendment to the articles of incorporation; (ii) a plan of merger or share exchange; (iii) a plan of conversion; (iv) the sale, lease, exchange, or other disposition of all, or substantially all, of the Corporations property; or (v) a proposal for dissolution, and the approval is to be obtained through action without meeting.
11. The provisions of the North Carolina Business Corporation Act entitled The North Carolina Shareholder Protection Act and The North Carolina Control Share Acquisition Act shall not be applicable to the corporation.
12. No director of the Corporation shall have personal liability arising out of an action whether by or in the right of the Corporation or otherwise for monetary damages for breach of any duty as a director; provided, however, that the foregoing shall not limit or eliminate the personal liability of a director with respect to (i) acts or omissions that such director at the time of such breach knew or believed were clearly in conflict with the best interests of the Corporation, (ii) any liability under Section 55-8-33 of the North Carolina General Statutes or any successor provision, (iii) any transaction from which such director derived an improper personal benefit, or (iv) acts or omissions occurring prior to the date of the effectiveness of this Article. As used in this Article, the term improper personal benefit does not include a directors reasonable compensation or other reasonable incidental benefit for or on account of his or her services as a director, officer, employee, independent contractor, attorney, or consultant of the Corporation.
Furthermore, notwithstanding the foregoing provision, in the event that Section 55-2-02 or any other provision of the North Carolina General Statutes is amended or enacted to permit further limitation or elimination of the personal liability of the director, the personal liability of the Corporations directors shall be limited or eliminated to the fullest extent permitted by the applicable law.
This Article shall not affect a provision permitted under the North Carolina General Statutes in the articles of incorporation, bylaws or contract or resolution of the Corporation indemnifying or agreeing to indemnify a director against personal liability. Any repeal or modification of this Article shall not adversely affect any limitation hereunder on the personal liability of the director with respect to acts or omissions occurring prior to such repeal or modification.
The undersigned has signed these Articles of Incorporation as of this 9 day of May, 2014.
/s/ John W. Wesley |
John W. Wesley, Incorporator |
Exhibit No. (3)h
BY-LAWS
Of
HALYARD
NORTH CAROLINA, INC.
ARTICLE I
OFFICES
Section 1.1. The registered office shall be in the City of Raleigh, County of Wake, State of North Carolina.
Section 1.2. The Corporation may also have offices at such other places both within and without the State of North Carolina as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.1. All meetings of the shareholders for the election of directors shall be held at such place as may be fixed from time to time by the Board of Directors, within or without the State of North Carolina, and stated in the notice of the meeting. Meetings of shareholders for any other purpose may be held at such time and place, within or without the State of North Carolina, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2.2. Annual meetings of shareholders shall be held on the last Tuesday of April if not a legal holiday, and if a legal holiday, then on the next day following that is not a legal holiday or a weekend day, at 8:30 a.m., or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which they shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting.
Section 2.3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each shareholder entitled to vote at such meeting not less than ten nor more than fifty days before the date of the meeting.
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Section 2.4. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of shareholders, a complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present.
Section 2.5. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation, may be called by the President and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of shareholders owning a majority in amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting.
Section 2.6. Written notice of a special meeting stating the place, date and hour of the meeting, and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than fifty days before the date of the meeting, to each shareholder entitled to vote at such meeting.
Section 2.7. Business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice.
Section 2.8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by statute or by the Articles of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting.
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Section 2.9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Articles of Incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question.
Section 2.10. Each shareholder shall at every meeting of the shareholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such shareholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period.
Section 2.11. Shareholders may, unless the Articles of Incorporation otherwise provide, act by written consent to elect directors; provided, however, that if such consent is less than unanimous, such action by written consent may be in lieu of holding an annual meeting only if all of the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action.
ARTICLE III
DIRECTORS
Section 3.1. The number of directors which shall constitute the whole Board shall be not less than one nor more than five. Within the limits above specified, the number of directors shall be determined from time to time by resolution of the Board of Directors or by the shareholders at the annual meeting. The directors shall be elected at the annual meeting of the shareholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified. Directors need not be shareholders.
Section 3.2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute.
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Section 3.3. The business of the Corporation shall be managed by its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these By-Laws directed or required to be exercised or done by the shareholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 3.4. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of North Carolina.
Section 3.5. The first meeting of each newly elected Board of Directors shall be held at such time and place as shall be fixed by the vote of the shareholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the shareholders to fix the time or place of such first meeting of the newly elected Board of Directors, or in the event such meeting is not held at the time and place so fixed by the shareholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors.
Section 3.6. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board.
Section 3.7. Special meetings of the Board may be called by the President on two days notice to each director, either personally or by mail or telegram; special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of two directors.
Section 3.8. At all meetings of the board, two directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
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Section 3.9. Unless otherwise restricted by the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board or committee.
COMMITTEES OF DIRECTORS
Section 3.10. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise all the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member or such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors.
Section 3.11. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 3.12. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation for attending committee meetings.
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ARTICLE IV
NOTICES
Section 4.1. Whenever, under the provisions of the statutes or of the Articles of Incorporation or of these By-Laws, notice is required to be given to any director or shareholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or shareholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram.
Section 4.2. Whenever any notice is required to be given under the provisions of the statutes or of the Articles of Incorporation or of these By- Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 5.1. The board of directors at its first meeting after each annual meeting of shareholders shall elect a President, a Secretary and a Treasurer. From time to time the Board may also elect a Chairman of the Board, a Vice Chairman of the Board, Vice Presidents (one or more of whom may be Executive Vice Presidents and one or more who may be Senior Vice Presidents), a Comptroller, and may appoint such other officers including Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and Assistant Comptrollers, as it may deem necessary. No officer, except the Chairman of the Board, a Vice Chairman of the Board or the President need be a director. Any number of the offices may be held by the same person.
Section 5.2. The officers of the corporation shall hold office until their successors are chosen. Any officer elected or appointed by the Board of Directors may be removed at any time with or without cause by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors.
Section 5.3. The officers shall have such powers and perform such duties as are prescribed in these By-Laws, or, in the case of an officer whose powers and duties are not so prescribed, as may be assigned by the Board of Directors or delegated by or through the Chief Executive Officer.
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Section 5.4. Any officer may resign at any time by giving notice to the Chairman of the Board, the President, or the Secretary. Such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein. Acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the notice.
THE CHIEF EXECUTIVE OFFICER
Section 5.5. The Chief Executive Officer of the Corporation shall be either the Chairman of the Board or the President as shall from time to time be determined by the Board. Subject to the Board, he shall preside at all meetings of shareholders and Board of Directors and shall be in general and active charge, control and supervision over the management and direction of the business, property and affairs of the Corporation. He shall keep the Board fully informed, and shall freely consult it, concerning the business of the Corporation in his charge.
He shall, subject to these By-Laws, have authority to:
(i) appoint or approve the appointment of employees to various posts and positions in the Corporation bearing titles designated or approved by him and to prescribe their authority and duties, which may include the authority to appoint subordinates to various other posts and positions; and
(ii) remove or approve the removal of employees so appointed; and
(iii) sign, execute and acknowledge, in the name and on the behalf of the Corporation, all deeds, mortgages, bonds, notes, debentures, contracts, leases, reports and other documents and instruments, except where the signing or execution thereof by some other officer or employee of the Corporation shall be expressly authorized and directed by law, or by the Board, or by these By-Laws. Unless otherwise provided by law, or by these By-Laws, or by the Board, he may authorize in writing filed with Secretary, any officer, employee, or agent of the Corporation to sign, execute and acknowledge, in the name and on behalf of the Corporation and in his place and stead, any or all such documents and instruments.
He shall have such other authority and perform such other duties as are incident to the office of Chief Executive Officer and as may be prescribed from time to time by the Board and these By-Laws.
In the absence or disability of the Chief Executive Officer, or in case of an unfilled vacancy in that office, his duties shall be performed and his powers shall be exercised by the President if the Chief Executive Officer is the Chairman of the Board and if not by one of the Vice Presidents, including any Executive Vice President or Senior Vice President, in the order in which such Vice Presidents were listed in their election.
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THE PRESIDENT
Section 5.6. When the Chairman of the Board is the Chief Executive Officer, the President shall have authority to sign, execute and acknowledge in the name and on behalf of the Corporation, all deeds, mortgages, bonds, notes, debentures, stock certificates, contracts, leases, reports and other documents and instruments, except where the signing or execution thereof by some other officer or employee shall be expressly authorized and directed by law, or by the Board, or the Chief Executive Officer, or by these By-Laws. Unless otherwise provided by law, or by these By-Laws, or by the Board, he may authorize in writing filed with the Secretary, any officer, employee, or agent of the Corporation to sign, execute and acknowledge, in the name and on the behalf of the Corporation in his place and stead, any or all such documents and instruments.
THE VICE-PRESIDENTS
Section 5.7. Any Vice President shall have such powers and perform such duties as may be assigned to him by the Board or as may be delegated to him by the Chief Executive Officer.
Section 5.8. Any Executive Vice President shall have shall have authority to sign, execute and acknowledge in the name and on behalf of the Corporation, all deeds, mortgages, bonds, notes, debentures, stock certificates, contracts, leases, reports and other documents and instruments, except where the signing or execution thereof by some other officer or employee shall be expressly authorized and directed by law, or by the Board, or the Chief Executive Officer, or by these By-Laws.
THE SECRETARY AND ASSISTANT SECRETARY
Section 5.9. The Secretary shall:
(i) attend and keep the minutes of all meetings of the shareholders, the Board and of such committees as he may be directed by the Board; and
(ii) have custody of the corporate seal and all corporate records (including transfer books and stock ledgers), contracts, papers, instruments, documents and books of the company except those required to be kept by the Treasurer or the Comptroller; and
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(iii) sign such documents and instruments as require his signature when approved in accordance with these By-Laws, and to such documents he shall affix the corporate seal when necessary; and
(iv) see that notices are given and records and reports are properly kept and filed by the Corporation as required by these By-Laws or as required by law; and
(v) in general have such other powers and perform such other duties as are incident to the office of Secretary and as may be assigned to him from time to time by or through the Chief Executive Officer.
Section 5.10. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 5.11. The Treasurer shall:
(i) have the responsibility for the custody and safekeeping of all funds and securities of the Corporation; and
(ii) receive and have authority to sign receipts for all moneys paid to the Corporation and shall deposit the same in the name and to the credit of the Corporation in such banks or depositaries as the Board shall approve; and
(iii) when necessary or proper, endorse for collection on behalf of the Corporation all checks, drafts, notes and other obligations payable to it; and
(iv) disburse the funds of the Corporation only upon vouchers duly processed by the Comptroller or his duly authorized representative and under such rules and regulations as the Board may from time to time adopt; and
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(v) keep full and accurate accounts of the transactions of his office in books belonging to the Corporation; and
(vi) render as the Board may direct an account of his transactions; and
(vii) in general, have such other powers and perform such other duties as are incident to the office of Treasurer and as may be assigned to him from time to time by order of the Chief Executive Officer.
Section 5.12. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
THE COMPTROLLER
Section 5.13. The Comptroller shall:
(i) have custody and charge of the Corporations books of account, except those required by the Treasurer in keeping record of the work in his office; and
(ii) have supervision of such subsidiary accounting records as may be kept in divisional offices; and
(iii) have access to all books of account and records including the Secretarys and the Treasurers records, for purpose of audit and for obtaining information necessary to verify or complete the records his office; and
(iv) have the responsibility for processing vouchers for payment by the Treasurer; and
(v) make periodic audits of all Corporation funds and securities; and
(vi) in general, shall have such other powers and perform such other duties as may be assigned to him from time to time by order of the Chief Executive Officer.
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ARTICLE VI
CERTIFICATES OF STOCK
Section 6.1. Except as otherwise provided in Section 6.3 below, every holder of shares in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman or Vice Chairman of the Board of Directors, or the President or a Vice President and the Treasurer or an Assistant Treasurer, or the Secretary or and Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares, the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified. During the time the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, in lieu of the foregoing requirements, there may be set forth on the face or the back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each shareholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
Section 6.2. Where a certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, or, (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
Section 6.3. Pursuant to Section 55-6-26 of the North Carolina Business Corporation Act, the Board of Directors may provide by resolution(s) that some or all of its shares shall be uncertificated shares. Any or all of the signatures on the certificate may be a facsimile.
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LOST CERTIFICATES
Section 6.3. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 6.4. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 6.5. In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
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REGISTERED SHAREHOLDERS
Section 6.6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of North Carolina.
ARTICLE VII GENERAL
PROVISIONS
DIVIDENDS
Section 7.1. Dividends upon the capital stock of the Corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Articles of Incorporation.
Section 7.2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.
CHECKS
Section 7.3. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 7.4. The fiscal year of the Corporation shall be the calendar year.
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SEAL
Section 7.5. There will be no corporate seal.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 7.6.
(i) Right to Indemnification. Each person who was or is made a party or is threatened to be a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a proceeding), by reason of the fact that he or she or a person of whom he or she is the legal representative is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of any other corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to any employee benefit plan (hereinafter an indemnitee), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by North Carolina Business Corporation Act, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including, without limitation, attorneys fees, judgments, fines, excise taxes or penalties under the Employee Retirement Income Security Act of 1974, as amended, and amounts paid or to be paid in settlement) reasonably incurred by such indemnitee in connection therewith if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the persons conduct was unlawful; provided, however, that except as provided in subsection 7.6(iii) with respect to proceedings seeking to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors.
(ii) Right to Advancement of Expenses. The right to indemnification conferred in subsection 7.6(i) shall include the right to be paid by the Corporation the expenses (including attorneys fees) incurred in defending any such proceeding in advance of its final disposition (hereinafter an advancement of expenses); provided, however, that an advancement of expenses incurred by an indemnitee in his or her capacity as a director or
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officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an undertaking), by or on behalf of such indemnitee, to repay all amounts so advanced unless it shall ultimately be determined by final judicial decision from which all rights to appeal have been exhausted or lapsed (hereinafter a final adjudication) that such indemnitee is entitled to be indemnified for such expenses under this subsection 7.6(ii) or otherwise.
(iii) Right of Indemnitee to Bring Suit. If a claim under subsection 7.6(i) or 7.6(ii) is not paid in full by the Corporation within thirty (30) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be ten (10) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (a) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right of advancement of expenses), it shall be a defense that, and (b) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the North Carolina Business Corporation Act. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or shareholders) to have made a determination prior to the commencement of such action that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the North Carolina Business Corporation Act, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or shareholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Section 7.6 or otherwise shall be on the Corporation.
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(iv) Non-Exclusivity of Rights. The right to indemnification and the advancement of expenses conferred in this Section 7.6 shall not be exclusive of any other right with any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, provision of these By-laws, agreement, vote of shareholders or disinterested directors or otherwise.
(v) Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the North Carolina Business Corporation Act.
(vi) Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and rights to the advancement of expenses, to any employee or agent of the Corporation to the fullest extent of the provisions of this Section 7.6 with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.
(vii) Contract Rights. The rights to indemnification and to the advancement of expenses conferred in subsections 7.6(i) and 7.6(ii) shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitees heirs, executors and administrators.
RELIANCE ON RECORDS
Section 7.7. Each director and officer shall in the performance of his duties be fully protected in relying in good faith upon the books of account or other records of the Corporation or statements prepared by any of its officers, or by an independent public accountant, or by an appraiser selected with reasonable care by the Board.
INSPECTION OF BOOKS
Section 7.8. The directors shall determine from time to time whether and to what extent and at what times and places and under what conditions and regulations the accounts and books of the Corporation (except such as may by statute be specifically open to inspection) or any of them, shall be open to the inspection of the shareholders, and the shareholders rights in this respect are and shall be restricted and limited accordingly.
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TRANSACTIONS WITH CORPORATION
Section 7.9. No contract or other transaction between the Corporation and one or more of its directors, officers or shareholders or between this Corporation and any other corporation, partnership, association or other organization in which one or more of its officers, directors or shareholders are officers, directors or shareholders shall be either void or voidable:
(i) if the Board or committee authorizing or ratifying the contract or transaction by a vote or approval sufficient for the purpose without counting the vote of the interested person, or
(ii) if the contract or other transaction is ratified at an annual or special meeting of shareholders, or
(iii) if the contract or other transaction is fair to the Corporation at the time it is made.
Interested directors may be counted in determining the presence of a quorum at a meeting which authorizes the contract or transaction.
ARTICLE VIII
AMENDMENTS
Section 8.1. These by-laws may be altered, amended or repealed or new By-Laws may be adopted by the shareholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the Articles of Incorporation at any regular meeting of the shareholders or of the Board of Directors or at any special meeting of the shareholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such special meeting.
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Exhibit No. (3)i
State of North Carolina
Department of the Secretary of State
Limited Liability Company
ARTICLES OF ORGANIZATION
Pursuant to §57D-2-20 of the General Statutes of North Carolina, the undersigned does hereby submit these Articles of Organization for the purpose of forming a limited liability company.
1. | The name of the limited liability company is: K-C Healthcare Spin Sales, LLC |
(See Item 1 of the Instructions for appropriate entity designation)
2. | The name and address of each person executing these articles of organization is as follows: (State whether each person is executing these articles of organization in the capacity of a member, organizer or both. Note: This document must be signed by all persons listed. ) |
Stuart H. Johnson, Organizer
Robinson, Bradshaw & Hinson, P.A.
101 N. Tryon Street, Suite 1900
Charlotte, NC 28246
3. | The name of the initial registered agent is: C T Corporation System |
4. | The street address and county of the initial registered agent office of the limited liability company is: |
Number and Street 150 Fayetteville Street, Box 1011
City Raleigh State: NC Zip Code: 27601 County: Wake
5. | The mailing address , if different from the street address, of the initial registered agent office is: |
Number and Street
City State: NC Zip Code: County:
6 . | Principal office information: (Select either a or b.) |
a. |
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The principal office telephone number:
The street address and county of the principal office of the limited liability company is:
Number and Street 351 Phelps Drive
City Irving State: TX Zip Code: 75038 County: Dallas
CORPORATIONS DIVISION (Revised January 2014) |
P.O. Box 29622 1 |
RALEIGH, NC 27626-0622 (Form L-01) |
The mailing address , if different from the street address, of the principal office of the company is:
Number and Street
City State: Zip Code: County:
b. ¨ The limited liability company does not have a principal office.
7. | Any other provisions which the limited liability company elects to include (e.g., the purpose of the entity) are attached. |
8. | (Optional): Please provide a business e-mail address: The Secretary of States Office will e-mail the business automatically at the address provided above at no cost when a document is filed. The e-mail provided will not be viewable on the website. For more information on why this service is offered, please see the instructions for this document. |
9. | These articles will be effective upon filing, unless a future date is specified: |
This is the 14th day of March, 2014.
K-C Healthcare Spin Sales, LLC |
/s/ Stuart H. Johnson |
Signature |
Stuart H. Johnson, Organizer |
Type or Print Name and Title |
The below space to be used if more than one organizer or member is listed in Item #2 above.
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Signature |
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Type and Print Name and Title |
Type and Print Name and Title |
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Signature |
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Type and Print Name and Title |
Type and Print Name and Title |
NOTES:
1. | Filing fee is $125. This document must be filed with the Secretary of State. |
CORPORATIONS DIVISION (Revised January 2014) |
P.O. Box 29622 2 |
RALEIGH, NC 27626-0622 (Form L-01) |
State of North Carolina
Department of the Secretary of State
Limited Liability Company
AMENDMENT OF ARTICLES OF ORGANIZATION
Pursuant to §57D-2-22 of the General Statutes of North Carolina, the undersigned limited liability company hereby submits the following Articles of Amendment for the purpose of amending its Articles of Organization.
1. | The name of the limited liability company is: K-C Healthcare Spin Sales, LLC |
2. | The text of each amendment adopted is as follows (attach additional pages if necessary): |
Article 1 is hereby amended to read as follows: The name of the limited liability company is: Halyard Sales, LLC
3. | (Check either a or b, whichever is applicable) |
A. ¨ | The amendment(s) was (were) duly adopted by the majority vote of the organizers of the limited liability company prior to the identification of initial members of the limited liability company. |
B. x | The amendment(s) was (were) duly adopted by the unanimous vote of the members of the limited liability company or was (were) adopted as otherwise provided in the limited liability companys Articles of Organization or a written operating agreement. |
4. | These articles will be effective upon filing, unless a date and/or time is specified: |
This the 12th day of May, 2014.
K-C Healthcare Spin Sales, LLC |
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Name of Limited Liability Company | ||
/s/ John W. Wesley |
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Signature
John W. Wesley Senior Vice President, General Counsel and Secretary Type or Print Name and Title |
NOTES:
1. | Filing fee is $50. This document must be filed with the Secretary of State. |
CORPORATIONS DIVISION | P. O. BOX 29622 | RALEIGH, NC 27626-0622 | ||
(Revised January 2014) | (Form L-17) | |||
4825042v1 04352.01012 |
Exhibit No. (3)j
AMENDMENT
TO
OPERATING AGREEMENT
OF
HALYARD SALES, LLC
a North Carolina limited liability company
THIS AMENDMENT TO THE OPERATING AGREEMENT (this Amendment ) of Halyard Sales, LLC a North Carolina limited liability company (the Company ), made effective as of October 31, 2014 (the Effective Date ), is made by Halyard Health, Inc. constituting the sole member of the Company (the Member ) .
RECITALS
WHEREAS, the business and affairs of the Company are governed by and subject to the terms of that certain Operating Agreement effective as of May 12, 2014 (the Operating Agreement );
WHEREAS, the Member signatory hereto constitutes the sole member of the Company;
WHEREAS , on October 31, 2014, Kimberly-Clark Global Sales, LLC distributed all the outstanding membership interests of the Company to Kimberly-Clark Corporation pursuant to a Distribution Acknowledgment (the Distribution ) .
WHEREAS, immediately after the Distribution, pursuant to the terms of that certain Contribution Agreement, dated as of October 31, 2014 (the Agreement ), Kimberly-Clark, Corporation, the prior sole member of the Company, which held all of the membership interests of the Company as a result of the Distribution (the Transferor ) contributed, transferred, assigned and conveyed all of the membership interests of the Company to the Member;
WHEREAS, pursuant to Section 5.2 of the Operating Agreement, the Managers of the Company have consented to the assignment of Transferors entire membership interest in the Company to the Member;
WHEREAS, pursuant to Section 7.1 of the Operating Agreement, the Operating Agreement may be amended by written consent of the Member; and
W HEREAS , the Member now desires to amend the Operating Agreement to reflect the foregoing.
N OW , T HEREFORE , in consideration of the above premises, the Member hereby amends the Operating Agreement as follows:
1. Defined Term s . Terms used with initial capital letters herein which are not otherwise defined in this Amendment shall have the meanings given to them in the Operating Agreement.
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2. Assignment . The Transferor transferred, assigned and conveyed its entire membership interest in the Company to the Member pursuant to the Agreement.
3. Admission . The recital to the Operating Agreement is hereby amended to read in its entirety as follows:
This OPERATING AGREEMENT (this Agreement ) dated as of May 12, 2014, as amended, is by and between Halyard Sales, LLC, a North Carolina Limited Liability Company (the Company ), and Halyard Health, Inc., a Delaware corporation as the sole member of the Company (the Member ).
4. Sole Member . Member is hereby admitted to the Company as the sole member thereof, owning 100% of the membership interests in the Company, and all references to the Initial Member are hereby amended to refer to the Member.
5. Effect on the Operating Agreement and Effective Date . Except as provided in this Amendment, the Operating Agreement shall remain in full force and effect and unmodified. The provisions of this Amendment shall be effective from and after the Effective Date.
6. Counterparts . This Amendment may be executed in several counterparts, and all so executed shall constitute one instrument, binding on all of the parties hereto, notwithstanding that all of the parties are not signatory to the original or to the same counterpart.
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I N W ITNESS W HEREOF , this Amendment has been duly executed by the undersigned on the date first set forth above.
MEMBER: | ||||
Halyard Health, Inc.
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By: |
/s/ John W. Wesley |
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John W. Wesley Senior Vice President, General Counsel and Secretary |
Signature page to Amendment to Operating Agreement
OPERATING AGREEMENT
OF
HALYARD SALES, LLC
(A North Carolina Limited Liability Company)
This OPERATING AGREEMENT (this Agreement ), dated as of May 12, 2014, is by and between Halyard Sales, LLC, a North Carolina Limited Liability Company (the Company ), and Kimberly-Clark Global Sales, LLC, a Delaware limited liability company (the Initial Member ).
BACKGROUND STATEMENT
The Company was formed on March 14, 2014 by the filing of its articles of organization by the North Carolina Secretary of State. The Initial Member is the sole member of the Company. The Initial Member and the Company hereby set forth their agreement regarding the management of the Company and the respective rights and obligations of the parties hereto.
STATEMENT OF AGREEMENT
The parties hereto agree as follows:
ARTICLE I
GENERAL
1.1 Formation of Company . T he Company was formed under and shall be operated in accordance with the North Carolina Limited Liability Company Act, as amended (the Act ).
1.2 Conflict with the Articles of Organization . If this Agreement conflicts with the Companys articles of organization or the Act, this Agreement shall govern and control to the extent permitted by law.
1.3 Purposes of Company . The purpose of the Company shall be to engage in any business for which a limited liability company may be found under the Act.
1.4 Name . The business of the Company shall be conducted under the name Halyard Sales, LLC, or such other name determined by the Manager.
1.5 Principal Office . The principal office of the Company shall be maintained at 351 Phelps Drive, Irving, Texas 75038, or such other place as the Manager may designate from time to time.
1.6 Tax Status . The Initial Member intends for the Company to be disregarded as an entity for federal income tax purposes and for state income tax purposes in those states that follow federal tax classifications, unless and until there are multiple holders of membership interests in the Company. If there are multiple holders of membership interests in the Company, it is the intent of the parties hereto that the Company shall be treated as a partnership for federal income tax purposes and for state income tax purposes in those states that follow federal tax classifications.
ARTICLE II
CAPITALIZATION; ALLOCATIONS AND DISTRIBUTIONS
2.1 Identification of Member . Stuart H. Johnson, the organizer of the Company as defined in Section 57D-1-03(24) of the Act, hereby identifies the Initial Member as the sole Member of the Company.
2.2 Initial Capitalization . As of the date hereof, the Initial Member holds a 100% membership interest in the Company, which represents all of the outstanding membership interests in the Company.
2.3 Capital Contributions . So long as the Initial Member is the only member of the Company, it may make capital contributions at any time. If there are multiple holders of membership interests in the Company, no holder of a membership interest in the Company shall be permitted to make additional capital contributions to the Company without the consent of the Manager, and no holder of a membership interest in the Company shall be required to make additional capital contributions to the Company without such holders consent.
2.4 Contribution of Property In-Kind . Any capital contribution of assets other than cash shall be valued at their fair market value as of the date of contribution, as agreed by the contributing individual or entity and the Manager.
2.5 Allocations . So long as the Initial Member is the only member of the Company, all income, gain and loss of the Company shall be allocated solely to the Initial Member. If there are multiple holders of membership interests in the Company, all income, gain and loss of the Company shall be allocated among the holders of membership interests pro rata in accordance with their respective membership interests.
2.6 Distributions . The Company shall make distributions to the holders of membership interests at such times and in such amounts as determined by the Manager. So long as the Initial Member is the only holder of a membership interest in the Company, all distributions shall be made solely to the Initial Member. If there are multiple holders of membership interests in the Company, all distributions shall be made to the holders of membership interests pro rata in accordance with their respective membership interests.
ARTICLE III
MANAGEMENT OF THE COMPANY
3.1 Management of the Business . The business and affairs of the Company shall be managed by or under the direction of a board (the Board ) of three (3) managers (the Managers ). Managers shall be elected at the annual meeting of the Member. The Member hereby elects Mark A. Buthman, Nancy S. Loewe and John W. Wesley to be Managers from this date until their successors shall be duly elected in accordance with this Agreement. The execution of any and all contracts, agreements, instruments, certificates or other documents by the Managers on behalf of the Company pursuant to the management powers granted to the Managers herein shall be deemed the act of the Company, and any such contracts, agreements, instruments, certificates or other documents so executed shall be deemed authorized by the Company.
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3.2 Powers . The Board shall have the power to do any and all acts necessary, convenient or incidental to or for the furtherance of the purposes described herein, including all powers, statutory or otherwise. The Board has the authority to bind the Company.
3.3 Meetings .
(a) | Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board. |
(b) | Special meetings of the Board may be held at any time upon the request of the President or a majority of the Managers then serving. A Notification of any special meeting shall be sent to the last known address of each Manager at least two (2) days before the meeting. Notification of the time, place and purpose of such meeting may be waived in writing before or after such meeting, and shall be equivalent to the giving of a Notification. Attendance of a Manager at such meeting shall also constitute a waiver of Notification thereof; except where such Manager attends for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board need be specified in the notice or waiver of notice of such meeting. |
(c) | Meetings of the Board may be held either within or without the State of North Carolina at whatever place is specified in the call of the meeting. In the absence of specific designation, the meetings shall be held at the principal office of the Company. The Managers serving on the Board may appoint from among themselves a chairperson to preside at meetings of the Board. Any Manager shall be permitted to attend any meeting of the Board in person or by conference call. |
3.4 Quorum; Acts of the Board . At all meetings of the Board, a majority of the Managers shall constitute a quorum for the transaction of business and, except as otherwise provided in any other provision of this Agreement, the act of a majority of the Managers present at any meeting at which there is a quorum shall be the act of the Board. If a quorum shall not be present at any meeting of the Board, the Managers present at such meeting may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.
3.5 Committees of Managers . The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the Managers of the Company. The Board may designate one or more Managers as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.
3.6 Compensation of Managers; Expenses . The Board shall have the authority to fix the compensation of Managers. The Managers may be paid their expenses, if any, of attendance at meetings of the Board, which may be a fixed sum for attendance at each meeting of the Board or a stated salary as Manager. No such payment shall preclude any Manager from serving the Company in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.
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3.7 Removal of Managers . Unless otherwise restricted by law, any Manager or the entire Board of Managers may be removed, with or without cause, by the Member, and any vacancy caused by any such removal may be filled by action of the Member.
3.8 Managers as Agents . To the extent of their powers set forth in this Agreement, the Managers are agents of the Company for the purpose of the Companys business, and the actions of the Managers taken in accordance with such powers set forth in this Agreement shall bind the Company.
3.9 Other Business . The Managers may engage in or possess an interest in other business ventures (unconnected with the Company) of every kind and description, independently or with others. Neither the Company nor the Member shall have any rights in or to such independent ventures of the Managers or the income or profits therefrom by virtue of this Agreement. Nothing in this Section 3.9 shall limit the Managers from engaging in or possessing an interest in other businesses connected with the Company.
3.10 Limitation of Liability . No Manager or officer of the Company shall be personally liable to the Company, or to any other person or entity who has an interest in the Company (including the Member), for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Manager or officer, except that a Manager or officer shall be liable for any such loss, damage or claim incurred by reason of any act or omission not performed or omitted by such Manager or officer in good faith or which involves intentional misconduct or a knowing violation of law by such Manager or officer.
3.11 Appointment of Officers . The Board shall have the right to appoint officers of the Company, including a President of the Company, to assist with the day-to-day management of the business affairs of the Company. Any officer so appointed shall be subject at all times to the direction of the Board. The Board shall have the right to remove any officer of the Company, either with or without cause, at any time; provided , however, that nothing contained herein shall limit any rights of the any officer under any employment agreement which such officer may have entered into with the Company.
ARTICLE IV
DUTIES; LIABILITY; INDEMNIFICATION
4.1 Liability of Members . No member shall be liable for the obligations of the Company solely by reason of being a member or by participating in the management or control of the Companys business.
4.2 Indemnification .
(a) General . The Company shall indemnify current and former managers and members and their respective affiliates, managers and members (the Indemnitees ), to the fullest extent permitted by law, against all liabilities and reasonable expenses (including amounts paid in satisfaction of judgments, in compromise, as fines and penalties, and as attorneys fees) incurred by them in connection with the defense or disposition of any action, suit or other proceeding (including any action by or on behalf of the Company or any member), whether civil, criminal, administrative, regulatory or investigative, in which they may be involved or with which they may be or reasonably anticipate to be threatened, as a party or otherwise, by reason of (i) their status as a current or former manager or member (or affiliation therewith) or (ii) their conduct of the business and affairs of the Company.
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(b) Expenses . In the event that an Indemnitee becomes involved in any capacity in any action, proceeding or investigation in connection with or arising out of the Companys business or affairs, the Company shall periodically reimburse the Indemnitee for its reasonable expenses (including attorneys fees and costs) incurred by an Indemnitee in connection therewith and in advance of the final disposition thereof upon receipt of any undertaking by or on behalf of the Indemnitee to repay such amount if the Manager shall ultimately determine that the Indemnitee is not entitled to indemnification pursuant to this Section 4.2.
(c) No Member Liability . All indemnification owed to any Indemnitee under this Section 4.2 shall be paid solely out of the assets of the Company (or insurance proceeds payable to the Company for such purposes), and no member shall be personally liable with respect to any claim for indemnity or reimbursement from such Indemnitee.
4.3 Payment of Indemnification . The Manager shall take such action as may be necessary and appropriate to authorize the Company to pay the indemnification required by this Article IV , including, without limitation, making a determination whether indemnification is authorized by this Agreement and permissible under the circumstances and a good faith evaluation of the manner in which the claimant for indemnity acted and of the reasonable amount of indemnity due. The Manager may appoint a committee or special counsel to make such determination and evaluation.
ARTICLE V
ADDITIONAL MEMBERSHIP INTERESTS; ASSIGNMENT
5.1 Issuance of Additional Membership Interests . The Manager may issue additional membership interests in the Company to any individual or entity in exchange for such cash, property or services, and on such other terms and conditions, as the Manager shall determine. Such individual or entity shall become a member of the Company only in accordance with Section 5.4.
5.2 Assignment of Membership Interests . A member may assign all or any part of its membership interest in the Company to any individual or entity only with the consent of the Manager. The legal representative of a deceased individual holding a membership interest in the Company is hereby authorized to distribute the deceased individuals membership interest, without liquidation thereof, to the persons entitled thereto under the applicable laws of testate or intestate succession. Any assignment of a membership interest in connection with a holders death shall not require the consent of the Manager, but an assignee of a deceased individuals membership interest shall not be a member of the Company unless admitted in accordance with Section 5.4.
5.3 Rights and Obligations of Assignees . Any assignment of a membership interest to any individual or entity that is not an existing member shall be effective to give the assignee only the right to receive the allocations of income, gain and loss and distributions to which the assignor would have been entitled if the assignment had not been made and shall not be effective to admit the assignee as a member of the Company unless the requirements of Section 5.4 arc satisfied.
5.4 Admission of Assignees as Members . Any assignment of a membership interest by a member to an existing member shall be effective to make the assignee thereof a member in respect of such membership interest. Any other assignee shall be admitted as a member only if (i) the Manager approves such admittance and (ii) the assignee has executed a copy of this Agreement or delivers a written acknowledgement to the Company, in form and substance satisfactory to the Manager, whereby such assignee agrees to be a member and to be bound by the provisions of this Agreement. Notwithstanding anything to the contrary in this Agreement, if there is only one member and such member assigns its entire membership interest to another person or entity, voluntarily or involuntarily, such assignment shall be effective to make the assignee thereof a member in respect of such membership interest.
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ARTICLE VI
DISSOLUTION
6.1 Dissolution . The Company shall be dissolved upon the earlier of any of the following (each an Event of Dissolution ): (i) the determination of the Manager that the Company shall be dissolved; or (ii) as required by law but subject to any right of the Company to apply for reinstatement in the event that the Company is administratively dissolved by the North Carolina Secretary of State.
6.2 Winding Up the Company . If an Event of Dissolution occurs, the Manager shall cause the winding up of the affairs of the Company and a reasonable time shall be allowed for the orderly liquidation of the assets of the Company and the discharge of liabilities to creditors so as to enable the members to minimize the normal losses attendant upon a liquidation. In connection with winding up the affairs of the Company, the Manager shall cause the collection of the Companys assets, the disposition of those assets that will not be distributed in-kind to the members, the discharge of the Companys liabilities, the distribution of the remaining assets of the Company to the members and provide the notices and otherwise take all actions necessary to afford the Company the benefits provided by Sections 57D-6-10 and 57D-6-11 of the Act. The proceeds from liquidation of Company assets shall be applied as follows: (i) first, payment shall be made to the creditors of the Company to the extent permitted by law, (ii) second, unless otherwise determined by the Manager, to the establishment of reasonable reserves for any claims against the Company or liabilities or obligations of the Company, whether known, unknown, contingent or based on an event occurring after the filing of articles of dissolution, and (iii) third, all remaining proceeds shall be distributed to the members in accordance with Section 2.6.
ARTICLE VII
MISCELLANEOUS
7.1 Amendment . This Agreement may be amended only with approval of all of the members, and any such amendment must be in writing and specifically refer to this Agreement.
7.2 Governing Law . This Agreement shall be governed by the internal laws of the State of North Carolina, without reference to conflicts of law principles.
7.3 Third-Party Beneficiary . No provision in this Agreement is intended to be for the benefit of or enforceable by any third party, including any creditor of the Company.
7.4 Integration; Entire Operating Agreement . This Agreement, as amended hereafter from time to time in accordance with the terms hereof, sets forth the entire agreement and understanding of the parties hereto with respect to the subject matter hereof, constitutes the one and only operating agreement (as such term is defined in the Act) of the Company and supersedes all prior written and oral statements, including any prior representation, statement, condition or warranty. All agreements of the members constituting the operating agreement (as defined in the Act) of the Company must be in writing.
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7.5 Binding Provisions . This Agreement is binding upon, and inures to the benefit of, the parties hereto and their respective heirs, executors, administrators, personal and legal representatives, successors and permitted assigns.
[signatures begin on next page]
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IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the day and year first above written.
HALYARD SALES, LLC | ||||
By: |
/s/ John W. Wesley |
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Name: John W. Wesley | ||||
Title: Senior Vice President, General Counsel and Secretary
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KIMBERLY-CLARK GLOBAL SALES, LLC
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By: |
/s/ John W. Wesley |
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Name: John W. Wesley | ||||
Title: Vice President and Secretary | ||||
The following individual is executing this Agreement as the organizer of the Company for the sole purpose of identifying the Initial Member of the Company. | ||||
/s/ Stuart H. Johnson |
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Stuart H. Johnson, Organizer |
K-C Healthcare Spin Sales, LLC
Operating Agreement Signature Page
Exhibit No. 4(c)
SUPPLEMENTAL INDENTURE
Supplemental Indenture (this Supplemental Indenture ), dated as of October 31, 2014, among Avent Inc., Halyard Healthcare, Inc., Halyard Sales, LLC and Halyard North Carolina, Inc. (together, the Guaranteeing Subsidiaries and each the Guaranteeing Subsidiary ), all Subsidiaries of Halyard Health, Inc., a Delaware corporation (the Issuer ), the Issuer, and Deutsche Bank Trust Company Americas, a New York banking corporation, as trustee (the Trustee ).
W I T N E S S E T H
WHEREAS, the Issuer has heretofore executed and delivered to the Trustee an indenture (the Indenture ), dated as of October 17, 2014, providing for the issuance of an unlimited aggregate principal amount of Senior Notes due 2022 (the Notes );
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee ); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
(1) Capitalized Terms . Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
(2) Agreement to Guarantee . Each Guaranteeing Subsidiary hereby agrees as follows:
(a) Along with all Guarantors named in the Indenture, to jointly and severally unconditionally guarantee to each Holder authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Issuer hereunder or thereunder, that:
(i) the principal of and interest and premium on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Issuer to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors and each Guaranteeing Subsidiary shall be jointly and severally obligated to pay the same immediately. This is a guarantee of payment and not a guarantee of collection.
(b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, the recovery of any judgment against the Issuer, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor.
(c) The following is hereby waived: diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Issuer, any right to require a proceeding first against the Issuer, protest, notice and all demands whatsoever.
(d) This Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes, the Indenture and this Supplemental Indenture, and each Guaranteeing Subsidiary accepts all obligations of a Guarantor under the Indenture.
(e) If any Holder or the Trustee is required by any court or otherwise to return to the Issuer, the Guarantors (including each Guaranteeing Subsidiary), or any custodian, trustee, liquidator or other similar official acting in relation to either the Issuer or the Guarantors, any amount paid either to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect.
(f) As between each Guaranteeing Subsidiary, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by such Guaranteeing Subsidiary for the purpose of this Guarantee.
(g) To the extent that any Guaranteeing Subsidiary makes a payment under its Guarantee, such Guaranteeing Subsidiary shall be entitled upon payment in full of all guaranteed obligations under the Indenture to a contribution from each other Guarantor in an amount equal to such other Guarantors pro rata portion of such payment based on the respective net assets of all the Guarantors at the time of such payment determined in accordance with GAAP.
(h) Pursuant to Section 10.02 of the Indenture, after giving effect to all other contingent and fixed liabilities that are relevant under any applicable Bankruptcy Law or fraudulent conveyance laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under Article 10 of the Indenture, this new Guarantee shall be limited to the maximum amount permissible such that the obligations of such Guaranteeing Subsidiary under this Guarantee will not constitute a fraudulent transfer or conveyance.
(i) This Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Issuer for liquidation, reorganization, should the Issuer become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Issuers assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Notes are, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Notes and Guarantee, whether as a voidable preference , fraudulent transfer or otherwise, all as though such payment or performance had not been made. In the event that any payment or any part thereof, is rescinded, reduced, restored or returned, the Note shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.
(j) In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
(k) This Guarantee shall be a general unsecured senior obligation of such Guaranteeing Subsidiary.
(l) Each payment to be made by any Guaranteeing Subsidiary in respect of this Guarantee shall be made without set-off, counterclaim, reduction or diminution of any kind or nature.
(3) Execution and Delivery . Each Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
(4) Merger, Consolidation or Sale of All or Substantially All Assets .
(a) Except as otherwise provided in Section 5.01(b) of the Indenture, no Guaranteeing Subsidiary may consolidate or merge with or into or wind up into (whether or not the Issuer or Guaranteeing Subsidiary is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to any Person unless:
(i) (A) such Guaranteeing Subsidiary is the surviving corporation or the Person formed by or surviving any such consolidation or
merger (if other than such Guaranteeing Subsidiary) or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made is a corporation organized or existing under the laws of the jurisdiction of organization of such Guaranteeing Subsidiary, as the case may be, or the laws of the United States, any state thereof, the District of Columbia, or any territory thereof (such Guaranteeing Subsidiary or such Person, as the case may be, being herein called the Successor Person );
(B) the Successor Person, if other than such Guaranteeing Subsidiary, expressly assumes all the obligations of such Guaranteeing Subsidiary under the Indenture and such Guaranteeing Subsidiarys related Guarantee pursuant to supplemental indentures or other documents or instruments in form reasonably satisfactory to the Trustee;
(C) immediately after such transaction, no Default exists; and
(D) the Issuer shall have delivered to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indentures, if any, comply with the Indenture, and, with respect to the Opinion of Counsel, such supplemental indentures (or other documents setting forth the assumption of the obligations of the applicable Guarantor) constitute a legal, valid and binding obligation of the Successor Person, enforceable against such Successor Person in accordance with its terms; or
(ii) the transaction is not prohibited by the Indenture;
(b) Subject to certain limitations described in the Indenture, the Successor Person will succeed to, and be substituted for, such Guaranteeing Subsidiary under the Indenture and the Guaranteeing Subsidiarys Guarantee. Notwithstanding the foregoing, the Guaranteeing Subsidiary may merge into or transfer all or part of its properties and assets to another Guarantor or the Issuer.
(5) Releases . The Guarantee of a Guaranteeing Subsidiary shall be automatically and unconditionally released and discharged, and no further action by such Guaranteeing Subsidiary, the Issuer or the Trustee is required for the release of such Guaranteeing Subsidiarys Guarantee, upon:
(a) (i) any direct or indirect sale, exchange or transfer (by merger or otherwise) of (i) the Capital Stock of such Guaranteeing Subsidiary (including any sale, exchange or transfer), after which such Guaranteeing Subsidiary is no longer a Restricted Subsidiary or (ii) all or substantially all the assets of such Guaranteeing Subsidiary which sale, exchange or transfer is not prohibited by the applicable provisions of the Indenture;
(ii) the release or discharge of such Guaranteeing Subsidiary from the guarantee of Indebtedness that resulted in the obligation of such
Guaranteeing Subsidiary to guarantee the Notes (including the Senior Credit Facilities), except a discharge or release by or as a result of payment under such guarantee;
(iii) the proper designation of such Guaranteeing Subsidiary as an Unrestricted Subsidiary; or
(iv) the Issuer exercising its Legal Defeasance option or Covenant Defeasance option in accordance with Article 8 of the Indenture or the Issuers obligations under the Indenture being discharged in accordance with the terms of the Indenture; and
(b) the Issuer delivering to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for in the Indenture relating to such transaction have been complied with.
(6) No Recourse Against Others . No director, officer, employee, incorporator or stockholder of any Guaranteeing Subsidiary shall have any liability for any obligations of the Issuer or the Guarantors (including such Guaranteeing Subsidiary) under the Notes, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
(7) Governing Law . THIS SUPPLEMENTAL INDENTURE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(8) Counterparts . The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmission shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture and signature pages for all purposes.
(9) Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.
(10) The Trustee . The Trustee accepts the amendments of the Indenture effected by this Supplemental Indenture, but on the terms and conditions set forth in the Indenture, including the terms and provisions defining and limiting the liabilities and responsibilities of the Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by each Guaranteeing Subsidiary.
(11) Subrogation . Each Guaranteeing Subsidiary shall be subrogated to all rights of Holders of Notes against the Issuer in respect of any amounts paid by such
Guaranteeing Subsidiary pursuant to the provisions of Section 2 hereof and Section 10.01 of the Indenture; provided that no Guaranteeing Subsidiary shall be entitled to enforce or receive any payments arising out of, or based upon, such right of subrogation until all obligations of the Issuer under the Indenture and the Notes shall have been paid in full.
(12) Benefits Acknowledged . Each Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
(13) Successors . All agreements of each Guaranteeing Subsidiary in this Supplemental Indenture shall bind its Successors, except as otherwise provided in Section 2(j) hereof or elsewhere in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
(14) Representation and Warranty . Each Guaranteeing Subsidiary hereby represents and warrants that this Supplemental Indenture is its legal, valid and binding obligation, enforceable against it in accordance with its terms.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
HALYARD HEALTH, INC., as Issuer | ||||
By: |
/s/ Steven Voskuil |
|||
Name: | Steven Voskuil | |||
Title: | Senior Vice President and Chief Financial Officer | |||
AVENT, INC. | ||||
By: |
/s/ John W. Wesley |
|||
Name: | John W. Wesley | |||
Title: | Senior Vice President, General Counsel and Secretary | |||
HALYARD HEALTHCARE, INC. | ||||
By: |
/s/ John W. Wesley |
|||
Name: | John W. Wesley | |||
Title: | Senior Vice President, General Counsel and Secretary | |||
HALYARD SALES, LLC | ||||
By: |
/s/ John W. Wesley |
|||
Name: | John W. Wesley | |||
Title: | Senior Vice President, General Counsel and Secretary | |||
HALYARD NORTH CAROLINA, INC. | ||||
By: |
/s/ John W. Wesley |
|||
Name: | John W. Wesley | |||
Title: | Senior Vice President, General Counsel and Secretary |
DEUTSCHE BANK TRUST COMPANY AMERICAS, as Trustee | ||
By: | Deutsche Bank National Trust Company | |
By: |
/s/ Linda Reale |
|
Name: | Linda Reale | |
Title: | Vice President | |
By: |
/s/ Rodney Gaughan |
|
Name: | Rodney Gaughan | |
Title: | Vice President |
[Signature Page to Supplemental Indenture]
Exhibit No. (5)
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309-3424
404-881-7000
Fax: 404-881-7777
www.alston.com
July 22, 2015
Halyard Health, Inc.
and the guarantors listed on Annex A
5405 Windward Parkway
Suite 100 South
Alpharetta, Georgia 30004
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to Halyard Health, Inc., a Delaware corporation (the Issuer ), and the guarantors listed on Annex A (the Guarantors , and together with the Issuer, the Registrants ) in connection with the filing of the above-referenced Registration Statement (the Registration Statement ) with the Securities and Exchange Commission (the Commission ) to register under the Securities Act of 1933, as amended (the Securities Act ), (a) $250,000,000 aggregate principal amount of the Issuers 6.25% Senior Notes due 2022 (the New Notes ) and (b) the related guarantees of the New Notes by the Guarantors (the New Guarantees , and together with the New Notes, the Securities ) to be issued under an Indenture, dated as of October 17, 2014, by and between the Issuer and Deutsche Bank Trust Company Americas, as Trustee (the Trustee ), as supplemented by a Supplemental Indenture, dated as of October 31, 2014, among the Issuer, the Guarantors and the Trustee (together, the Indenture ). Following the effectiveness of the Registration Statement, the Registrants intend to issue the Securities to the holders of $250,000,000 aggregate principal amount of the Issuers outstanding 6.25% Senior Notes due 2022 (the Old Notes ) in exchange for the Old Notes and the related guarantees of the Old Notes by the Guarantors (the Old Guarantees , and together with the Old Notes, the Old Securities ).
This opinion letter is rendered pursuant to Item 21 of Form S-4 and Item 601 of the Commissions Regulation S-K.
We have examined (i) the Articles of Incorporation, Articles of Organization, or Certificate of Incorporation, as applicable, of each of the Registrants, (ii) the Bylaws or Operating Agreement, as applicable, of each of the Registrants, (iii) records of proceedings of the board of directors or board of managers, as applicable, of each of the Registrants, (iv) the Old Securities, (v) the proposed form of the Securities, (vi) the Indenture, (viii) the Registration Rights Agreement, dated as of October 17, 2014, by and
Atlanta Brussels Charlotte Dallas Los Angeles New York Research Triangle Silicon Valley Washington, D.C.
Halyard Health, Inc.
July 22, 2015
Page 2
between the Issuer and Morgan Stanley & Co. LLC and (ix) the Registration Statement. We also have made such further legal and factual examinations and investigations as we deemed necessary for purposes of expressing the opinion set forth herein.
As to certain factual matters relevant to this opinion letter, we have relied conclusively upon originals or copies, certified or otherwise identified to our satisfaction, of such other records, agreements, documents and instruments, including certificates or comparable documents of officers of the Registrants and of public officials, as we have deemed appropriate as a basis for the opinion hereinafter set forth.
In rendering our opinion set forth below, we have assumed, without any independent verification, (i) the legal capacity of all natural persons, (ii) the genuineness of all signatures, (iii) the authenticity of all documents submitted to us as originals, (iv) the conformity to the original documents of all documents submitted to us as conformed, facsimile, photostatic or electronic copies, (v) that the form of the Securities will conform to that included in the Indenture, (vi) the due authorization, execution and delivery of the Indenture by the Trustee under the laws of its jurisdiction of incorporation or organization, (vii) that all parties (other than the Registrants) to the documents examined by us have full power and authority under the laws of their respective jurisdictions of incorporation or organization to execute, deliver and perform their obligations under such documents and under the other documents required or permitted to be delivered and performed thereunder and (viii) that the Indenture has been duly qualified under the Trust Indenture Act of 1939.
Our opinion set forth below is limited to the laws of the State of New York, the General Corporation Law of the State of Delaware, the North Carolina Business Corporation Act and the North Carolina Limited Liability Company Act, and we do not express any opinion herein concerning any other laws.
The only opinion rendered by us consists of those matters set forth in the eighth paragraph hereof, and no opinion may be implied or inferred beyond the opinion expressly stated.
Based on and subject to the foregoing, it is our opinion that, upon due execution of the Securities by the Registrants, due authentication thereof by the Trustee in accordance with the Indenture and issuance and delivery thereof in exchange for the Old Securities as contemplated by the Registration Statement, the Securities will be validly issued and will constitute legally binding obligations of the Registrants, entitled to the benefits of the Indenture and enforceable against the Registrants in accordance with their terms, subject to (i) bankruptcy, fraudulent conveyance or fraudulent transfer, insolvency, reorganization, moratorium, liquidation, conservatorship, and similar laws, and limitations imposed under judicial decisions related to or affecting creditors rights and remedies generally; (ii) general equitable principles, regardless of whether the issue of enforceability is considered in a proceeding in equity or at law, and principles limiting
Halyard Health, Inc.
July 22, 2015
Page 3
the availability of the remedy of specific performance; and (iii) concepts of good faith, fair dealing and reasonableness.
We consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the use of our name under the heading Legal Matters in the prospectus constituting a part thereof. In giving such consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission thereunder.
Alston & Bird LLP |
||
By: |
/s/ Sarah E. Ernst |
|
Sarah E. Ernst | ||
A Partner |
Annex A
Avent, Inc. |
Halyard Sales, LLC |
Halyard Healthcare, Inc. |
Halyard North Carolina, Inc. |
Exhibit No. (12)
HALYARD HEALTH, INC.
Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in millions)
Three
Months Ended March 31, 2015 |
Year Ended December 31, |
|||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
Income before income taxes |
$ | 32.7 | $ | 91.2 | $ | 227.8 | $ | 229.8 | $ | 214.6 | $ | 159.9 | ||||||||||||
Interest expense |
8.3 | 6.0 | 0.1 | 0.8 | 0.2 | 0.8 | ||||||||||||||||||
Capitalized interest |
0.2 | 0.6 | 0.4 | 0.1 | 0.4 | 0.1 | ||||||||||||||||||
Interest factor in rent expense (a) |
1.2 | 6.0 | 5.6 | 4.5 | 4.2 | 4.9 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Fixed Charges |
9.7 | 12.6 | 6.1 | 5.4 | 4.8 | 5.8 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before income taxes plus fixed charges |
$ | 42.4 | $ | 103.8 | $ | 233.9 | $ | 235.2 | $ | 219.4 | $ | 165.7 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ratio of Earnings to Fixed Charges |
4.4 | 8.2 | 38.3 | 43.6 | 45.7 | 28.6 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(a) Interest portion of rent expense is assumed to be 33%.
Exhibit No. (21)
Halyard Health, Inc.
Subsidiaries
Company | Jurisdiction of Incorporation or Organization | |
Arabian Medical Products Manufacturing Company |
Saudi Arabia | |
Avent Honduras, S.A. de C.V. |
Honduras | |
Avent Holdings, LLC |
Delaware | |
Avent, Inc. |
Delaware | |
Avent S. de. R.L. de C.V. |
Mexico | |
Halyard Australia Pty Limited |
Australia | |
Halyard Belgium BVBA |
Belgium | |
Halyard Brasilia, LLC |
Delaware | |
Halyard China Co., Ltd. |
China | |
Halyard Deutschland GmbH |
Germany | |
Halyard France SAS |
France | |
Halyard Health Canada Inc. |
Canada | |
Halyard Health India Private Limited |
India | |
Halyard Health South Africa (Pty) Ltd. |
South Africa | |
Halyard Health UK Limited |
United Kingdom | |
Halyard Healthcare, Inc. |
Delaware | |
Halyard International, Inc. |
Delaware | |
Halyard Nederland B.V. |
Netherlands | |
Halyard North Carolina, Inc. |
North Carolina | |
Halyard Sales, LLC |
North Carolina | |
Halyard Sao Paulo, LLC |
Delaware | |
Halyard Singapore Pte. Ltd. |
Singapore | |
Halyard South Africa (Pty) Ltd. |
South Africa | |
I-Flow Holdings, LLC |
Delaware | |
La Ada de Acuna, S. de R.L. de C.V. |
Mexico | |
microcuff GmbH |
Germany | |
Safeskin (B.V.I.) Limited |
British Virgin Islands | |
Safeskin Corporation (Thailand) Ltd. |
Thailand | |
Safeskin Medical & Scientific (Thailand) Ltd. |
Thailand |
Exhibit No. (23)a
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Registration Statement on Form S-4 of our report dated March 13, 2015 (except for Note 19, as to which the date is July 22, 2015) relating to the consolidated and combined financial statements of Halyard Health, Inc. and subsidiaries (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the inclusion of certain allocated expenses from Kimberly-Clark Corporation, as discussed in Note 1 to the financial statements) appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading Experts in such Prospectus.
DELOITTE & TOUCHE LLP
Atlanta, GA
July 22, 2015
Exhibit No. (24)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute and appoint John W. Wesley, S. Ross Mansbach and Shivani Prabhakar Kaul, (with full power to act alone), his true and lawful attorney-in-fact, with full power of substitution and resubstitution, for his, and in his name, place and stead, in any and all capacities, to sign Halyard Health, Inc.s Registration Statement on Form S-4 (the Registration Statement) with respect to Halyard Health, Inc.s offer to exchange $250,000,000 aggregate principal amount of 6.25% Senior Notes due 2022, which have been registered under the Securities Act of 1933, as amended (the Securities Act), for all $250,000,000 aggregate principal amount of outstanding unregistered 6.25% Senior Notes due 2022, and any and all amendments (including post-effective amendments) to the Registration Statement, and any other registration statement for the same offering pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand effective this 14th day of July, 2015.
/s/ John P. Byrnes |
John P. Byrnes |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute and appoint John W. Wesley, S. Ross Mansbach and Shivani Prabhakar Kaul, (with full power to act alone), her true and lawful attorney-in-fact, with full power of substitution and resubstitution, for her, and in her name, place and stead, in any and all capacities, to sign Halyard Health, Inc.s Registration Statement on Form S-4 (the Registration Statement) with respect to Halyard Health, Inc.s offer to exchange $250,000,000 aggregate principal amount of 6.25% Senior Notes due 2022, which have been registered under the Securities Act of 1933, as amended (the Securities Act), for all $250,000,000 aggregate principal amount of outstanding unregistered 6.25% Senior Notes due 2022, and any and all amendments (including post-effective amendments) to the Registration Statement, and any other registration statement for the same offering pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, in and about the premises, as full to all intents and purposes as she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand effective this 16th day of July, 2015.
/s/ Dr. Julie Shimer |
Dr. Julie Shimer |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute and appoint John W. Wesley, S. Ross Mansbach and Shivani Prabhakar Kaul, (with full power to act alone), his true and lawful attorney-in-fact, with full power of substitution and resubstitution, for his, and in his name, place and stead, in any and all capacities, to sign Halyard Health, Inc.s Registration Statement on Form S-4 (the Registration Statement) with respect to Halyard Health, Inc.s offer to exchange $250,000,000 aggregate principal amount of 6.25% Senior Notes due 2022, which have been registered under the Securities Act of 1933, as amended (the Securities Act), for all $250,000,000 aggregate principal amount of outstanding unregistered 6.25% Senior Notes due 2022, and any and all amendments (including post-effective amendments) to the Registration Statement, and any other registration statement for the same offering pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand effective this 13th day of July, 2015.
/s/ Ronald W. Dollens |
Ronald W. Dollens |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute and appoint John W. Wesley, S. Ross Mansbach and Shivani Prabhakar Kaul, (with full power to act alone), her true and lawful attorney-in-fact, with full power of substitution and resubstitution, for her, and in her name, place and stead, in any and all capacities, to sign Halyard Health, Inc.s Registration Statement on Form S-4 (the Registration Statement) with respect to Halyard Health, Inc.s offer to exchange $250,000,000 aggregate principal amount of 6.25% Senior Notes due 2022, which have been registered under the Securities Act of 1933, as amended (the Securities Act), for all $250,000,000 aggregate principal amount of outstanding unregistered 6.25% Senior Notes due 2022, and any and all amendments (including post-effective amendments) to the Registration Statement, and any other registration statement for the same offering pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, in and about the premises, as full to all intents and purposes as she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand effective this 17th day of July, 2015.
/s/ Heidi K. Fields |
Heidi K. Fields |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute and appoint John W. Wesley, S. Ross Mansbach and Shivani Prabhakar Kaul, (with full power to act alone), his true and lawful attorney-in-fact, with full power of substitution and resubstitution, for his, and in his name, place and stead, in any and all capacities, to sign Halyard Health, Inc.s Registration Statement on Form S-4 (the Registration Statement) with respect to Halyard Health, Inc.s offer to exchange $250,000,000 aggregate principal amount of 6.25% Senior Notes due 2022, which have been registered under the Securities Act of 1933, as amended (the Securities Act), for all $250,000,000 aggregate principal amount of outstanding unregistered 6.25% Senior Notes due 2022, and any and all amendments (including post-effective amendments) to the Registration Statement, and any other registration statement for the same offering pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand effective this 13th day of July, 2015.
/s/ Patrick J. OLeary |
Patrick J. OLeary |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute and appoint John W. Wesley, S. Ross Mansbach and Shivani Prabhakar Kaul, (with full power to act alone), her true and lawful attorney-in-fact, with full power of substitution and resubstitution, for her, and in her name, place and stead, in any and all capacities, to sign Halyard Health, Inc.s Registration Statement on Form S-4 (the Registration Statement) with respect to Halyard Health, Inc.s offer to exchange $250,000,000 aggregate principal amount of 6.25% Senior Notes due 2022, which have been registered under the Securities Act of 1933, as amended (the Securities Act), for all $250,000,000 aggregate principal amount of outstanding unregistered 6.25% Senior Notes due 2022, and any and all amendments (including post-effective amendments) to the Registration Statement, and any other registration statement for the same offering pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, in and about the premises, as full to all intents and purposes as she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand effective this 13th day of July, 2015.
/s/ Maria Sainz |
Maria Sainz |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute and appoint John W. Wesley, S. Ross Mansbach and Shivani Prabhakar Kaul, (with full power to act alone), his true and lawful attorney-in-fact, with full power of substitution and resubstitution, for his, and in his name, place and stead, in any and all capacities, to sign Halyard Health, Inc.s Registration Statement on Form S-4 (the Registration Statement) with respect to Halyard Health, Inc.s offer to exchange $250,000,000 aggregate principal amount of 6.25% Senior Notes due 2022, which have been registered under the Securities Act of 1933, as amended (the Securities Act), for all $250,000,000 aggregate principal amount of outstanding unregistered 6.25% Senior Notes due 2022, and any and all amendments (including post-effective amendments) to the Registration Statement, and any other registration statement for the same offering pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand effective this 13th day of July, 2015.
/s/ Gary D. Blackford |
Gary D. Blackford |
Exhibit No. (25)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
¨ | CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |
DEUTSCHE BANK TRUST COMPANY AMERICAS
(formerly BANKERS TRUST COMPANY)
(Exact name of trustee as specified in its charter)
NEW YORK | 13-4941247 | |
(Jurisdiction of Incorporation or organization if not a U.S. national bank) |
(I.R.S. Employer Identification no.) |
60 WALL STREET NEW YORK, NEW YORK |
10005 | |
(Address of principal executive offices) | (Zip Code) |
Deutsche Bank Trust Company Americas
Attention: Catherine Wang
Legal Department
60 Wall Street, 36th Floor
New York, New York 10005
(212) 250 7544
(Name, address and telephone number of agent for service)
Halyard Health, Inc.
(Exact name of obligor as specified in its charter)
See Table of Additional Registrants
Delaware | 46-4987888 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Table of Additional Registrants
The following subsidiaries of Halyard Health, Inc. will guarantee the 6.25% Senior Notes due 2022 and are co-registrants:
|
||||
Exact name of registrant as specified in its charter |
State or other jurisdiction
of incorporation or organization |
IRS Employer
Identification Number |
||
Avent, Inc. |
Delaware | 11-2162477 | ||
Halyard Healthcare, Inc. |
Delaware | 58-2032163 | ||
Halyard North Carolina, Inc. |
North Carolina | 47-1246132 | ||
Halyard Sales, LLC |
North Carolina | 36-4787311 | ||
|
||||
|
5405 Windward Parkway Suite 100 South Alpharetta, Georgia |
30004 | |
(Address of principal executive offices) | (Zip code) |
6.25% Senior Notes due 2022
(Title of the Indenture securities)
Item 1. General Information.
Furnish the following information as to the trustee.
(a) | Name and address of each examining or supervising authority to which it is subject. |
Name |
Address |
|
Federal Reserve Bank (2nd District) | New York, NY | |
Federal Deposit Insurance Corporation | Washington, D.C. | |
New York State Banking Department | Albany, NY |
(b) | Whether it is authorized to exercise corporate trust powers. |
Yes.
Item 2. Affiliations with Obligor.
If the obligor is an affiliate of the Trustee, describe each such affiliation.
None.
Item 3. -15. | Not Applicable |
Item 16. | List of Exhibits. |
Exhibit 1 - | Restated Organization Certificate of Bankers Trust Company dated August 6, 1998, Certificate of Amendment of the Organization Certificate of Bankers Trust Company dated September 16, 1998, Certificate of Amendment of the Organization Certificate of Bankers Trust Company dated December 16, 1998, Certificate of Amendment of the Organization Certificate of Bankers Trust Company dated September 3, 1999, and Certificate of Amendment of the Organization Certificate of Bankers Trust Company dated February 27, 2002, incorporated herein by reference to Exhibit 1 filed with Form T-1 Statement, Registration No. 333-201810. | |
Exhibit 2 - | Certificate of Authority to commence business, incorporated herein by reference to Exhibit 2 filed with Form T-1 Statement, Registration No. 333-201810. | |
Exhibit 3 - | Authorization of the Trustee to exercise corporate trust powers, incorporated herein by reference to Exhibit 3 filed with Form T-1 Statement, Registration No. 333-201810. | |
Exhibit 4 - | Existing By-Laws of Deutsche Bank Trust Company Americas, as amended on July 24, 2014, incorporated herein by reference to Exhibit 4 filed with Form T-1 Statement, Registration No. 333-201810. | |
Exhibit 5 - | Not applicable. | |
Exhibit 6 - | Consent of Bankers Trust Company required by Section 321(b) of the Act, incorporated herein by reference to Exhibit 6 filed with Form T-1 Statement, Registration No. 333-201810. | |
Exhibit 7 - | A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. | |
Exhibit 8 - | Not Applicable. | |
Exhibit 9 - | Not Applicable. |
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Deutsche Bank Trust Company Americas, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on this 14th day of July, 2015.
DEUTSCHE BANK TRUST COMPANY AMERICAS | ||||||
By: |
/s/ Carol Ng |
|||||
Name: | Carol Ng | |||||
Title: | Vice President |
DEUTSCHE BANK TRUST COMPANY AMERICAS
|
FFIEC 031 Page 16 of 84 RC-1 |
|||||
Legal Title of Bank | ||||||
NEW YORK
|
||||||
City | ||||||
NY
|
10005
|
|||||
State |
Zip Code |
|||||
FDIC Certificate Number: 00623 |
Consolidated Report of Condition for Insured Banks
and Savings Associations for March 31, 2015
All schedules are to be reported in thousands of dollars. Unless otherwise indicated,
report the amount outstanding as of the last business day of the quarter.
Schedule RCBalance Sheet
(1) | Includes cash items in process of collection and unposted debits. |
(2) | Includes time certificates of deposit not held for trading. |
(3) | Includes all securities resale agreements in domestic and foreign offices, regardless of maturity. |
DEUTSCHE BANK TRUST COMPANY AMERICAS
|
FFIEC 031 | |||
Legal Title of Bank | Page 16a of 84 | |||
FDIC Certificate Number: 00623 | RC-1a |
Schedule RCContinued
Dollar Amounts in Thousands |
RCON | Tril | Bil | Mil | Thou | ||||||||||||||||||||
Liabilities |
|
|||||||||||||||||||||
13. |
Deposits: |
|
||||||||||||||||||||
a. |
In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) |
2200 | 41,933,000 | 13.a | ||||||||||||||||||
(1) Noninterest-bearing (4) |
6631 | 24,928,000 | 13.a.1 | |||||||||||||||||||
(2) Interest-bearing |
6636 | 17,005,000 | 13.a.2 | |||||||||||||||||||
b. |
In foreign offices, Edge and Agreement subsidiaries, and IBFs |
RCFN | ||||||||||||||||||||
(from Schedule RC-E, part II) |
2200 | 0 | 13.b | |||||||||||||||||||
(1) Noninterest-bearing |
6631 | 0 | 13.b.1 | |||||||||||||||||||
(2) Interest-bearing |
6636 | 0 | 13.b.2 | |||||||||||||||||||
14. |
Federal funds purchased and securities sold under agreements to repurchase: |
RCON | ||||||||||||||||||||
a. |
Federal funds purchased in domestic offices (5) |
B993 | 1,287,000 | 14.a | ||||||||||||||||||
RCFD | ||||||||||||||||||||||
b. |
Securities sold under agreements to repurchase (6) |
|
B995 | 0 | 14.b | |||||||||||||||||
15. |
Trading liabilities (from Schedule RC-D) |
|
3548 | 34,000 | 15 | |||||||||||||||||
16. |
Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases) (from Schedule RC-M) |
3190 | 59,000 | 16 | ||||||||||||||||||
17. |
and 18. Not applicable |
|
(4) | Includes noninterest-bearing demand, time, and savings deposits. |
(5) | Report overnight Federal Home Loan Bank advances in Schedule RC, item 16, Other borrowed money. |
(6) | Includes all securities repurchase agreements in domestic and foreign offices, regardless of maturity. |
DEUTSCHE BANK TRUST COMPANY AMERICAS
|
FFIEC 031 | |||
Legal Title of Bank | Page 17 of 84 | |||
FDIC Certificate Number: 00623 | RC-2 |
Schedule RCContinued
Memoranda
To be reported with the March Report of Condition.
1. | Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external auditors as of any date during 2014 |
RCFD
6724 |
Number
2 |
M.1 |
1 | = | Independent audit of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the bank | 4 | = | Directors examination of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority) | |||||||||||||
2 | = | Independent audit of the banks parent holding company conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the consolidated holding company (but not on the bank separately) | 5 | = | Directors examination of the bank performed by other external auditors (may be required by state chartering authority) | |||||||||||||
6 | = | Review of the banks financial statements by external auditors | ||||||||||||||||
3 | = |
Attestation on bank managements assertion on the effectiveness of the banks internal control over financial reporting by a certified public accounting firm. |
7 | = | Compilation of the banks financial statements by external auditors | |||||||||||||
8 | = | Other audit procedures (excluding tax preparation work) | ||||||||||||||||
9 | = | No external audit work |
To be reported with the March Report of Condition. | RCON | MMDD | ||||||||
2. |
Banks fiscal year-end date |
8678 | 1231 | M.2 |
(1) | Includes limited-life preferred stock and related surplus. |
(2) | Includes, but is not limited to, net unrealized holding gains (losses) on available-for-sale securities, accumulated net gains (losses) on cash flow hedges, cumulative foreign currency translation adjustments, and accumulated defined benefit pension and other postretirement plan adjustments. |
(3) | Includes treasury stock and unearned Employee Stock Ownership Plan shares. |
Exhibit No. (99)a
HALYARD HEALTH, INC.
LETTER OF TRANSMITTAL
To Tender for Exchange
Registered 6.25% Senior Notes due 2022
for Outstanding 6.25% Senior Notes due 2022
Pursuant to the Prospectus Dated , 2015
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2015, UNLESS EXTENDED (THE EXPIRATION DATE). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal should be completed, signed and submitted timely to Deutsche Bank Trust Company Americas (the Exchange Agent) as follows:
By Facsimile (Eligible Institutions Only): |
By Registered or Certified Mail/ Courier/Overnight Delivery: |
|
(615) 866-3889
Confirm by Telephone:
(877) 843-9767 |
DB Services Americas, Inc. 5022 Gate Parkway, Suite 200 MS JCK01-0218 Jacksonville, FL 32256 Attention: Reorg Department |
|
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
For any questions regarding this Letter of Transmittal or for any additional information, you may contact the Exchange Agent by telephone at (877) 843-9767 or by e-mail at DB.Reorg@db.com.
The Exchange Offer is not being mailed to, nor will tenders be accepted from or on behalf of, holders of outstanding 6.25% Senior Notes due 2022 in any jurisdiction in which the offer or acceptance of the Exchange Offer is not permitted.
Preliminary Instructions
The prospectus dated , 2015 (the Prospectus) of Halyard Health, Inc., a Delaware corporation (Halyard or the Company), and this Letter of Transmittal (this Letter of Transmittal) together constitute the Companys offer to exchange (the Exchange Offer) $250.0 million aggregate principal amount of newly issued 6.25% Senior Notes due 2022 (the New Notes), which have been registered under the Securities Act of 1933, as amended (the Securities Act), for any and all $250.0 million aggregate principal amount of outstanding unregistered 6.25% Senior Notes due 2022 (the Old Notes). Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus.
For each Old Note accepted for exchange, the holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. The form and terms of the New Notes will be substantially identical to the form and terms of the Old Notes, except that (i) the New Notes will bear a different CUSIP Number from the Old Notes, (ii) the New Notes have been registered under the Securities Act and therefore will not bear legends restricting their transfer and (iii) holders of the New Notes will not be entitled to certain rights under the Registration Rights Agreement, dated as of October 17, 2014 (the Registration Rights Agreement), by and between the Company and Morgan Stanley & Co. LLC. Holders of Old Notes that are accepted for exchange will not receive any accrued interest on the Old Notes. Interest will accrue on the New Notes from the date of original issuance of the Old Notes at the same rate and payable on the same dates as interest was payable on the Old Notes. See The Exchange OfferTerms of the Exchange Offer; Expiration Date of the Exchange Offer in the Prospectus.
This Letter of Transmittal is to be completed by a holder of Old Notes if certificates representing the Old Notes are to be forwarded with this Letter of Transmittal, or if a holder of Old Notes will make a book-entry transfer of the Old Notes pursuant to the procedures set forth in the Prospectus under The Exchange OfferExchange Offer Procedures without an accompanying agents message. Tenders by book-entry transfer also may be made by delivering an agents message in lieu of this Letter of Transmittal. The term agents message means a message transmitted by The Depository Trust Company (DTC) and received by the Exchange Agent, stating that DTC has received an express acknowledgment that the tendering holder has received and agrees to be bound by this Letter of Transmittal and that the Company may enforce this Letter of Transmittal against such holder. By transmitting an agents message, a holder is not required to deliver a Letter of Transmittal to the Exchange Agent.
Holders who desire to tender their Old Notes but who cannot, prior to 5:00 p.m., New York City time, on the Expiration Date (i) deliver their Old Notes, this Letter of Transmittal or any other required documents to the Exchange Agent or (ii) deliver a confirmation of the book-entry tender of their Old Notes into the Exchange Agents account at DTC (a Book-Entry Confirmation) and otherwise complete the procedures for book-entry transfer, may effect a tender of Old Notes by complying with the guaranteed delivery procedures set forth in Instruction 1 attached to this Letter of Transmittal.
Only a holder in whose name Old Notes are registered, or who is authorized to become a registered holder by endorsement or power of attorney, may execute and deliver this Letter of Transmittal and tender Old Notes in the Exchange Offer. Any beneficial owner of Old Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who desires to tender such Old Notes must (i) instruct such registered holder to tender such Old Notes on such beneficial owners behalf, (ii) properly complete and duly execute the form of Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner accompanying this Letter of Transmittal, and (iii) timely deliver such form to the registered holder. The Company, the Exchange Agent and the transfer agent and registrar for the Old Notes shall be entitled to rely upon all representations, warranties, covenants and instructions given or made by such registered holder and/or such beneficial owner.
The method of delivery of Old Notes, this Letter of Transmittal and all other required documents to the Exchange Agent is at the holders election and risk. If such delivery is by mail, the use of registered mail,
- 2 -
properly insured, with return receipt requested, is recommended. In all cases, sufficient time should be allowed to assure receipt by the Exchange Agent at or prior to the expiration of the Exchange Offer. Delivery of documents to DTC or Halyard does not constitute delivery to the Exchange Agent.
TO VALIDLY TENDER OLD NOTES FOR EXCHANGE, A PROPERLY COMPLETED AND EXECUTED LETTER OF TRANSMITTAL OR AN AGENTS MESSAGE IN LIEU OF THIS LETTER OF TRANSMITTAL (TOGETHER WITH CERTIFICATE(S) FOR OLD NOTES, IF ANY, OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- 3 -
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to Halyard the Old Notes described in Box I (Description of Tendered Notes) (the Tendered Notes). The undersigned is the registered owner of all of the Tendered Notes, and the undersigned represents that it has received from each beneficial owner described in Box II (Beneficial Owner(s)) of the Tendered Notes (each, a Beneficial Owner) a duly completed and executed form of Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner accompanying this Letter of Transmittal, instructing the undersigned to take the action described in this Letter of Transmittal. Subject to, and effective upon, the acceptance for exchange of the Tendered Notes, the undersigned hereby sells, assigns and transfers to, or upon the order of, Halyard all right, title and interest in and to the Tendered Notes. The undersigned hereby acknowledges receipt of the Prospectus.
The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the undersigneds agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company) with respect to the Tendered Notes, with full power of substitution, to (i) deliver any certificates for the Tendered Notes to the Company and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Company, (ii) present the Tendered Notes for transfer on the books of the Company and (iii) receive for the account of the Company all benefits and otherwise exercise all rights of beneficial ownership of the Tendered Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be an irrevocable power coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has full power and authority to surrender, tender, sell, assign and transfer the Tendered Notes and that the Company will acquire good and unencumbered title thereto, free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sale agreements or other obligations relating to their sale and transfer and not subject to any adverse claim when the same are accepted by the Company. The undersigned further represents and warrants that (i) the information set forth in Box II (Beneficial Owner(s)) is correct, (ii) any New Notes to be received in exchange for the Tendered Notes will be acquired in the ordinary course of business of the person receiving such New Notes, whether or not such person is the undersigned, (iii) neither the undersigned nor any other person receiving such New Notes has an arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the New Notes, (iv) neither the undersigned nor any Beneficial Owner is an affiliate (within the meaning of Rule 405 under the Securities Act) of the Company, (v) if the undersigned or any Beneficial Owner is not a broker-dealer, the undersigned or such Beneficial Owner will not engage in, and does not intend to engage in, the distribution of the New Notes, and (vi) if the undersigned or any Beneficial Owner is a broker-dealer, the undersigned or such Beneficial Owner is participating in the Exchange Offer for its own account in exchange for Old Notes that were acquired as a result of market-making or other trading activities, and the undersigned or such Beneficial Owner will deliver a prospectus in connection with any resale of the New Notes. The undersigned further represents and warrants that the undersigned is not acting on behalf of any person who, to the undersigneds knowledge, could not truthfully make the above representations.
The undersigned also acknowledges that the Exchange Offer is being made in reliance on existing interpretations of the Securities Act by the staff of the Securities and Exchange Commission (the Commission) set forth in several no-action letters issued to third parties and, based on such interpretations, the Company believes that the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by the holders thereof without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holders business and such holders have no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of such New Notes. Any holder that cannot make any of the above representations (i) will not be able to rely on the interpretations by the staff of the Commission set forth in the above-mentioned no action letters, (ii) will not be able to tender its Old Notes in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer unless such sale or transfer is made pursuant to an
- 4 -
exemption from such requirements. Failure to comply with such requirements may result in such holder incurring liability under the Securities Act for which the Company will not indemnify the holder. The undersigned further acknowledges that the Company has not sought or received its own no-action letter with respect to the Exchange Offer and the related transactions, and that there can be no assurance that the staff of the Commission will make a determination in the case of the Exchange Offer and such transactions that is similar to its determinations in the above-mentioned no action letters.
If the undersigned or any Beneficial Owner is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making or other trading activities, the undersigned acknowledges that it and each such Beneficial Owner will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. However, by so acknowledging and so delivering a prospectus, neither the undersigned nor any such Beneficial Owner will be deemed to admit that it is an underwriter within the meaning of the Securities Act. The above-referenced prospectus may be the Prospectus (as it may be amended or supplemented from time to time) only if it contains a plan of distribution and selling security holder information with respect to such resale transactions (but need not name the undersigned or disclose the amount of New Notes held by the undersigned or any such Beneficial Owner).
The undersigned further acknowledges that the Company may rely upon each of the foregoing representations and covenants for purposes of the Exchange Offer.
The undersigned agrees that acceptance of any Tendered Notes by the Company and the issuance of New Notes in exchange therefor will constitute performance in full by Halyard of its obligations under the Registration Rights Agreement and that the Company will have no further obligations or liabilities thereunder (except as expressly provided therein).
The undersigned and each Beneficial Owner will, upon request, execute and deliver any additional documents deemed by the Company or the Exchange Agent to be necessary or desirable to complete the sale, assignment and transfer of the Tendered Notes. All authority conferred or agreed to be conferred in this Letter of Transmittal and every obligation of the undersigned and each Beneficial Owner hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and such Beneficial Owner, and shall not be affected by, and shall survive the death or incapacity of, the undersigned and such Beneficial Owner.
For purposes of the Exchange Offer, the Company shall be deemed to have accepted validly tendered Tendered Notes if and when the Company has given oral (confirmed in writing) or written notice to the Exchange Agent.
The undersigned understands that tenders of the Tendered Notes pursuant to the procedures described in the Prospectus under The Exchange OfferExchange Offer Procedures and in the Instructions to this Letter of Transmittal will constitute a binding agreement between the undersigned and the Company in accordance with the terms and subject to the conditions set forth herein and in the Prospectus.
The undersigned acknowledges that (i) under certain circumstances set forth in the Prospectus under The Exchange OfferConditions to the Exchange Offer, the Company will not be required to accept the Tendered Notes for exchange and (ii) the undersigned may withdraw its tender of Tendered Notes only as set forth in the Prospectus under The Exchange OfferWithdrawal Rights. Tendered Notes not accepted for exchange or that have been withdrawn will be returned, without expense, to the undersigned promptly after the expiration or termination of the Exchange Offer, in the manner set forth in the following paragraph.
Unless otherwise indicated in Box V (Special Issuance Instructions), please issue the New Notes (and, if applicable, any Old Notes not exchanged) in the name of the undersigned. Similarly, unless otherwise indicated in Box VI (Special Delivery Instructions), please send the New Notes (and, if applicable, any Old Notes not exchanged), to the undersigned at the address indicated in Box I (Description of Tendered Notes), or in the case of a book-entry transfer of Old Notes, credit the New Notes (and, if applicable, Old Notes not exchanged) to the account at DTC indicated in Box III (Method of Delivery).
- 5 -
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX BELOW.
BOX I
DESCRIPTION OF TENDERED NOTES*
Name(s) and Address(es) of Registered Note Holder(s), exactly as
|
Certificate
Number(s) of Old Notes** |
Aggregate
Principal Amount Represented by Certificate(s) |
Aggregate
Principal Amount Tendered*** |
|||
|
|
|
||||
Total: |
||||||
|
|
|
* | List the Old Notes to which this Letter of Transmittal relates. If the space provided is inadequate, the Certificate numbers and principal amount of Old Notes should be listed on a separate signed schedule attached hereto. |
** | Need not be completed by persons tendering by book-entry transfer. |
*** | Tenders of Old Notes must be in a minimum principal amount of $2,000 or an integral multiple of $1,000 in excess thereof. Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Old Notes represented by the Certificate(s) set forth above. See Instruction 2. |
BOX II
BENEFICIAL OWNER(S)
State of Principal Residence of Each Beneficial Owner of
|
Principal Amount of
Tendered Notes Held for Account of Beneficial Owner |
|
- 6 -
BOX III
METHOD OF DELIVERY
(See Instruction 1)
¨ | CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT AT DTC AND COMPLETE THE FOLLOWING: |
Name of Tendering Institution |
|
Account Number |
|
Transaction Code Number |
|
¨ | CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED WITH THIS LETTER OF TRANSMITTAL. |
¨ | CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: |
Name(s) of Registered Holder(s) |
|
Window Ticket Number (if any) |
|
Date of Execution of Notice of Guaranteed Delivery |
|
Name of Institution which Guaranteed Delivery |
|
If Delivered by Book-Entry Transfer, Complete the Following: |
Name of Tendering Institution |
|
Account Number and Transaction Code Number |
|
BOX IV
ATTENTION BROKER-DEALERS
¨ | CHECK HERE IF THE UNDERSIGNED OR ANY BENEFICIAL OWNER OF TENDERED NOTES IS A BROKER-DEALER AND DESIRES TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO: |
Name |
|
|
Address |
|
- 7 -
BOX V
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if New Notes and/or Old Notes not exchanged are to be issued in the name of someone other than the person(s) whose signature(s) appear(s) on this Letter of Transmittal in Box VII (Signature)
Issue New Notes and/or Old Notes not exchanged to:
Name(s) |
|
(Please Type or Print) |
|
(Please Type or Print) |
Address(es) |
|
|
|
(Zip Code) |
Taxpayer Identification Number or Social Security Number |
|
BOX VI
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if (i) New Notes and/or Old Notes not exchanged are to be sent to someone other than the person(s) whose signature(s) appear(s) on this Letter of Transmittal in Box VII (Signature) at the address(es) indicated in Box I (Description of Tendered Notes) or (ii) New Notes and/or Old Notes not exchanged are to be sent to an account maintained at DTC other than the account indicated in Box III (Method of Delivery)
Send New Notes and/or Old Notes not exchanged to: |
Name(s) |
|
(Please Type or Print) | ||
|
(Please Type or Print) |
Address(es) |
|
|
|
(Zip Code) |
Credit New Notes and/or Old Notes not exchanged to DTC account as follows: |
Name(s) |
|
(Please Type or Print) |
|
(Please Type or Print) | ||
Crediting Instructions |
|
|
Account Number(s) |
|
|
|
- 8 -
BOX VII
SIGNATURE: TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instructions 1 and 3)
In addition, Substitute Form W-9 on the following page must be completed and signed.
|
, 20 | |||||
|
, 20 | |||||
|
, 20 | |||||
Signature(s) by Tendering Holder(s) | Date |
Area Code(s) and Telephone Number(s) |
|
This Letter of Transmittal must be signed (i) by the registered holder(s) exactly as the name(s) appear(s) on the certificate(s) for the Tendered Notes, if any, or on a security position listing such holder(s) as the owner(s) of the Tendered Notes or (ii) by any person(s) authorized to become registered holder(s) by endorsement(s) on the Tendered Notes or bond power(s) submitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 3. | ||
Name(s) |
|
|
|
||
(Please Type or Print) |
Capacity |
|
|
Address(es) |
|
|
|
||
(Including Zip Code) |
Area Code and Telephone Number |
|
Tax Identification Number or Social Security Number |
|
SIGNATURE GUARANTEE
(if required by Instruction 3)
Signature(s) Guaranteed by an Eligible Institution |
|
|||
(Authorized Signature) | ||||
|
||||
(Print Name) | ||||
|
||||
(Title) | ||||
|
||||
(Name of FirmMust be an Eligible Institution, as defined in Instruction 3) |
||||
|
||||
(Address) | ||||
|
||||
(Area Code and Telephone Number) |
- 9 -
HALYARD HEALTH, INC.
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Tendered Notes; Guaranteed Delivery. This Letter of Transmittal is to be completed by holders of Old Notes if (i) certificates are to be forwarded with this Letter of Transmittal or (ii) a tender of Old Notes is to be made by book-entry transfer pursuant to the book-entry transfer procedures set forth in the Prospectus under The Exchange OfferExchange Offer Procedures without an accompanying agents message. Certificates for all physically tendered Old Notes, or a Book-Entry Confirmation, and a properly completed and duly executed Letter of Transmittal (or manually signed facsimile hereof or an agents message in lieu hereof) and all other documents required by this Letter of Transmittal, must be received by the Exchange Agent at the address set forth on the front cover and back cover of this Letter of Transmittal prior to 5:00 p.m., New York City time, on the Expiration Date, or the tendering holder must comply with the guaranteed delivery procedures set forth below.
Holders who desire to tender their Old Notes but who cannot, prior to 5:00 p.m., New York City time, on the Expiration Date (i) deliver their Old Notes, this Letter of Transmittal or any other documents required by this Letter of Transmittal to the Exchange Agent or (ii) deliver a Book-Entry Confirmation and otherwise complete the procedures for book-entry transfer, may effect a tender of Old Notes by complying with the guaranteed delivery procedures set forth in the instructions to the Notice of Guaranteed Delivery accompanying this Letter of Transmittal.
The method of delivery of this Letter of Transmittal, the Tendered Notes and all other required documents is at the election and risk of the tendering holder. Delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If such delivery is by mail, the use of registered mail, properly insured, with return receipt requested, is recommended. In all cases, sufficient time should be allowed to assure receipt by the Exchange Agent at or prior to 5:00 p.m., New York City time, on the Expiration Date.
2. Partial Tenders. Tendered Notes must be in a minimum principal amount of $2,000 or an integral multiple of $1,000 in excess thereof. If less than the entire principal amount of the Old Notes evidenced by a submitted certificate are to be tendered, the tendering holder(s) should indicate the aggregate principal amount of Old Notes to be tendered in Box I (Description of Tendered Notes) under the caption Aggregate Principal Amount Tendered. The entire principal amount of Old Notes delivered to the Exchange Agent will be deemed to have been tendered if no amount is indicated under the caption Aggregate Principal Amount Tendered. If the entire principal amount of Old Notes held by the tendering holder is not tendered for exchange, then (i) unless otherwise indicated in Box V (Special Issuance Instructions), untendered Old Notes and New Notes issued pursuant to the Exchange Offer will be issued in the name of the person signing this Letter of Transmittal and (ii) unless otherwise indicated in Box VI (Special Delivery Instructions), untendered Old Notes and New Notes will be sent to the person signing this Letter of Transmittal at the address indicated in Box I (Description of Tendered Notes) or, in the case of a book-entry tender of Old Notes, credited to the account at DTC indicated in Box III (Method of Delivery).
3. Signatures on this Letter of Transmittal; Bond Powers and Endorsements; Guarantee of Signatures. If this Letter of Transmittal is signed by the registered holder(s) of the Tendered Notes, the signature(s) must correspond exactly with the name(s) as written on the face of the certificate(s) for the Tendered Notes or on a security position listing such holder(s) as the owner(s) of the Tendered Notes, without any change whatsoever. If any tendered Old Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any Tendered Notes are registered in different names on different certificates or security position listings, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal and accompanying documents as there are different registrations.
- 10 -
When this Letter of Transmittal is signed by the registered holder(s) of the Tendered Notes, no endorsements of certificates or separate bond powers are required. If, however, the New Notes are to be issued, or any untendered Old Notes are to be reissued, to a person other than the registered holder, then endorsements of any certificates transmitted hereby or separate bond powers are required. Signatures on such certificate(s) or bond powers must be guaranteed by an Eligible Institution (as defined below).
If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Tendered Notes, any certificate(s) for Tendered Notes must be endorsed or this Letter of Transmittal must be accompanied by appropriate bond powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on the certificate(s) for the Tendered Notes or on a security position listing such holder(s) as the owner(s) of the Tendered Notes, and signatures on each such endorsement or bond power must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with this Letter of Transmittal.
Endorsements on certificates for Tendered Notes or signatures on bond powers required by this Instruction 3 must be guaranteed by a firm that is a member of a registered national securities exchange or of the Financial Industry Regulatory Authority, or is a savings institution, commercial bank or trust company having an office or correspondent in the United States, or is otherwise an eligible guarantor institution within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, and which is, in each case, a member of a recognized signature guarantee program ( i.e. , Securities Transfer Agents Medallion Program, Stock Exchanges Medallion Program or New York Stock Exchange Medallion Signature Program) (each, an Eligible Institution).
Signatures on this Letter of Transmittal need not be guaranteed by an Eligible Institution if the Tendered Notes are tendered by: (i) the registered holder thereof who has not completed Box V (Special Issuance Instructions) or Box VI (Special Delivery Instructions) on this Letter of Transmittal or (ii) an Eligible Institution.
4. Special Issuance and Delivery Instructions. Tendering holders should indicate in the applicable boxes the name and address to which New Notes issued pursuant to the Exchange Offer and/or Old Notes not exchanged are to be issued or sent, if different from the holder signing this Letter of Transmittal. In the case of issuance in a different name, the taxpayer identification number or social security number of the person named must also be provided. If no such instructions are given, Old Notes not exchanged and New Notes issued pursuant to the Exchange Offer will be returned to the person signing this Letter of Transmittal at the address indicated in Box I (Description of Tendered Notes) or, in the case of a book-entry tender of Old Notes, credited to the account at DTC indicated in Box III (Method of Delivery).
5. Tax Identification Number. Federal income tax law generally requires that a tendering holder whose Tendered Notes are accepted for exchange must provide the Exchange Agent (as payor) with such holders correct Taxpayer Identification Number (TIN) on Substitute Form W-9, which in the case of a tendering holder who is an individual, is his or her social security number, and in the case of an entity, is typically the employer identification number. If the Exchange Agent is not provided with the current TIN or an adequate basis for an exemption, such tendering holder may be subject to a penalty imposed by the Internal Revenue Service. In addition, delivery to such tendering holder of New Notes may be subject to backup withholding in an amount equal to a portion of all reportable payments made after the exchange. If withholding results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Old Notes (such as corporations) are not subject to these backup withholding and reporting requirements. To prevent possible erroneous backup withholding, an exempt holder should write Exempt in Part 2 of Form W-9. See the W-9 General Instructions for additional instructions.
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To prevent backup withholding, each holder of Tendered Notes must provide his/her/its correct TIN by completing the Substitute Form W-9 below, certifying that the TIN provided is correct (or that such holder is awaiting a TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of a failure to report all interest or dividends, or (iii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the holder of Tendered Notes is a nonresident alien or foreign entity not subject to backup withholding, such holder must provide a completed Form W-8, Certificate of Foreign Status. This form may be obtained from the Exchange Agent.
If the Tendered Notes are in more than one name or are not in the name of the beneficial owner, the tendering holder should consult the W-9 Instructions for information on which TIN to report. If such holder does not have a TIN, such holder should consult the W-9 Instructions for instructions on applying for a TIN, check the box in Part 3 of the Substitute Form W-9 that the holder is Awaiting TIN and write applied for in lieu of its TIN in Part 1 of the Substitute Form W-9. Note: Checking this box and writing applied for on the form means that such holder has already applied for a TIN or that such holder intends to apply for one in the near future. If such holder does not provide its TIN to the Exchange Agent within 60 days, backup withholding will begin and continue until such holder furnishes its TIN to the Exchange Agent.
6. Transfer Taxes. Halyard will pay all transfer taxes, if any, applicable to the transfer of Tendered Notes to it pursuant to the Exchange Offer. If, however, New Notes and/or substitute Old Notes not exchanged are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Tendered Notes, or if the Tendered Notes are registered in the name of any person other than the person signing this Letter of Transmittal, or if a transfer tax is imposed for any reason other than the transfer of Tendered Notes to Halyard pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Tendered Notes.
7. Waiver of Conditions. Halyard reserves the absolute right to amend, waive or modify any or all conditions relating to the Exchange Offer set forth in the Prospectus.
8. No Conditional Tenders. No alternative, conditional, irregular or contingent tenders will be accepted. All holders of Tendered Notes, by execution of this Letter of Transmittal, waive any right to receive notice of the acceptance of their Tendered Notes for exchange.
9. Mutilated, Lost, Stolen or Destroyed Old Notes. Any holder whose certificate(s) for Old Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address set forth on the front cover and back cover of this Letter of Transmittal for further instructions.
10. Validity of Tenders. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of Tendered Notes will be determined by Halyard in its sole discretion, which determination will be final and binding. Halyard reserves the absolute right to reject any and all Tendered Notes not in proper form or not properly tendered. Halyard further reserves the absolute right to refuse to accept any Tendered Notes if, in Halyards judgment, acceptance of such Tendered Notes may be unlawful. Halyard also reserves the absolute right to waive any defects, irregularities or conditions of the Exchange Offer as to any Tendered Notes, either before or after the Expiration Date and whether or not waived in the case of other Tendered Notes. Halyards interpretation of the terms and conditions of the Exchange Offer as to any Tendered Notes (including the Instructions in this Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with Tendered Notes must be cured within such time as
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Halyard shall determine. Although Halyard intends to notify holders of defects or irregularities with respect to tenders of Tendered Notes, neither Halyard, the Exchange Agent nor any other person has any duty to notify holders of any defects or irregularities with respect to Tendered Notes and no one shall incur any liability for failure to give such notification. Tenders of Tendered Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Tendered Notes received by the Exchange Agent as to which defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in this Letter of Transmittal, promptly following the Expiration Date.
11. Acceptance of Tendered Notes and Issuance of Notes; Return of Notes. Subject to the terms and conditions of the Exchange Offer, Halyard will accept for exchange all validly tendered Old Notes promptly after the Expiration Date and will issue New Notes therefor promptly after acceptance of the Old Notes. For purposes of the Exchange Offer, Halyard shall be deemed to have accepted validly tendered Old Notes if and when it has given oral (confirmed in writing) or written notice thereof to the Exchange Agent. If any Tendered Notes are not exchanged pursuant to the Exchange Offer for any reason, such unexchanged Tendered Notes will be returned, without expense, to the person signing this Letter of Transmittal at the address indicated in Box I (Description of Tendered Notes), except as may otherwise be specified in Box V (Special Issuance Instructions) or Box VI (Special Delivery Instructions), promptly after the expiration or termination of the Exchange Offer.
12. Withdrawal. Tendered Notes may be withdrawn only pursuant to the procedures set forth in the Prospectus under The Exchange OfferWithdrawal Rights.
13. Requests for Assistance or Additional Copies. Questions relating to the procedures for tendering, as well as requests for additional copies of the Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery, may be directed to the Exchange Agent at the address and telephone number set forth on the front cover and back cover of this Letter of Transmittal.
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Substitute Form W-9 Request for Taxpayer Identification Number and Certification
Name as shown on account (if joint, list first and circle name of the person or entity whose number you enter below) | ||||||
Name: |
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Address: |
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City, State, and Zip Code:
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SUBSTITUTE
Form W-9
Department of the Treasury Internal Revenue Service
Payers Request
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TAXPAYER IDENTIFICATION NO. FOR ALL ACCOUNTS
Enter your taxpayer identification number to the right:
For most individuals, this is your social security number (SSN). If you do not have a number, see the enclosed Guidelines.
Note : If the account is in more than one name, see the chart in the enclosed Guidelines on which number to give the payer.
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Social Security Number (SSN) OR Employer Identification Number (EIN)
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Certification Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding, and
(3) I am a U.S. citizen or other U.S. person (including a U.S. resident alien)
Certification Instructions You must cross out Item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because you have failed to report all interest or dividends on your tax returns. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out Item (2). The certification requirement does not apply to real estate transactions, mortgage interest paid, the acquisition or abandonment of secured property, contributions to an individual retirement account, and payments other than interest and dividends. Also see Signing the Certification under Specific Instructions in the enclosed Guidelines.
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SIGNATURE
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FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer.
For this type of account: |
GIVE THE SOCIAL SECURITY NUMBER OF- |
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1. | Individual | The individual | ||
2. |
Two or more individuals (joint account) | The actual owner of the account or, if combined funds, the first individual on the account (1) | ||
3. |
Husband and wife (joint account) | The actual owner of the account or, if combined funds, the first individual on the account (1) | ||
4. |
Custodian account of a minor (Uniform Gift to Minors Act) | The minor (2) | ||
5. |
Adult and minor (joint account) | The adult or, if the minor is the only contributor, the minor (1) | ||
6. |
Account in the name of guardian or committee for a designated ward, minor or incompetent person | The ward, minor or incompetent person (3) | ||
7. |
a. The usual revocable savings trust account (grantor is also trustee) |
The grantor-trustee (1) | ||
b. So-called trust account that is not a legal or valid trust under state law |
The actual owner (1) | |||
8. | Sole proprietorship account or account of single member LLC | The owner (4) |
For this type of account: |
GIVE THE SOCIAL SECURITY NUMBER OF- |
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9. A valid trust, estate or pension trust |
The legal entity (do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title) . (5) | |
10. Corporate account or account of LLC electing corporate status on Form 8832 |
The corporation | |
11. Religious, charitable or educational tax-exempt organization |
The organization | |
12. Partnership account held in the name of the business or account of multi-member LLC (other than an LLC described in item 10) |
The partnership | |
13. Association, club or other tax-exempt organization |
The organization | |
14. A broker or registered nominee |
The broker or nominee | |
15. Account with the Department of Agriculture in the name of a public entity (such as a state or local government, school district or prison) that receives agricultural program payments |
The public entity | |
(1) | List first and circle the name of the person whose number you furnish. If only one person has a social security number, that persons number must be furnished. |
(2) | Circle the minors name and furnish the minors social security number. |
(3) | Circle the wards, minors, or incompetent persons name and furnish such persons social security number. |
(4) | Show the name of the owner. You must show your individual name, but you may also enter your business or doing business as name. You may use either your social security number or employer identification number (if you have one). |
(5) | List first and circle the name of the legal trust, estate or pension trust. |
NOTE: | If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. |
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9, Cont.
Obtaining a Number
If you dont have a TIN or you dont know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. Section references in these guidelines refer to sections under the Internal Revenue Code of 1986, as amended.
Payees Exempt From Backup Withholding
Even if the payee does not provide a TIN in the manner required, you are not required to backup withhold on any payments you make if the payee is:
1. | An organization exempt from tax under section 501(a), any individual retirement account (IRA), or a custodial account under section 403(b)(7) if the account satisfies the requirements of section 401(f)(2). |
2. | The United States or any of its agencies or instrumentalities. |
3. | A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. |
4. | A foreign government or any of its political subdivisions, agencies, or instrumentalities. |
5. | An international organization or any of its agencies or instrumentalities. |
Other payees that may be exempt from backup withholding include:
6. | A corporation. |
7. | A foreign central bank of issue. |
8. | A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States. |
9. | A futures commission merchant registered with the Commodity Futures Trading Commission. |
10. | A real estate investment trust. |
11. | An entity registered at all times during the tax year under the Investment Company Act of 1940. |
12. | A common trust fund operated by a bank under section 584(a). |
13. | A financial institution. |
14. | A middleman known in the investment community as a nominee or custodian. |
15. | A trust exempt from tax under section 664 or described in section 4947. |
Payments Exempt From Backup Withholding
Dividends and patronage dividends that generally are exempt from backup withholding include:
| Payments to nonresident aliens subject to withholding under section 1441. |
| Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident alien partner. |
| Payments of patronage dividends not paid in money. |
| Payments made by certain foreign organizations. |
| Section 404(k) distributions made by an ESOP. |
Interest payments that generally are exempt from backup withholding include:
| Payments of interest on obligations issued by individuals. However, if you pay $600 or more of interest in the course of your trade or business to a payee, you must report the payment. Backup withholding applies to the reportable payment if the payee has not provided a TIN or has provided an incorrect TIN. |
| Payments of tax-exempt interest (including exempt-interest dividends under section 852). |
| Payments described in section 6049(b)(5) to nonresident aliens. |
| Payments on tax-free covenant bonds under section 1451. |
| Payments made by certain foreign organizations. |
| Mortgage or student loan interest paid to you. |
Other types of payments that generally are exempt from backup withholding include:
| Wages. |
| Distributions from a pension, annuity, profit-sharing or stock bonus plan, any IRA, or an owner-employee plan. |
| Certain surrenders of life insurance contracts. |
| Gambling winnings if withholding is required under section 3402(q). However, if withholding is not required under section 3402(q), backup withholding applies if the payee fails to furnish a TIN. |
| Real estate transactions reportable under section 6045(e). |
| Cancelled debts reportable under section 6050P. |
| Distributions from a medical savings account and long-term care benefits. |
| Fish purchases for cash reportable under section 6050R. |
Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TIN, WRITE EXEMPT ON THE FACE OF THE FORM AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends and patronage dividends not subject to information reporting are also not subject to backup withholding. For details, see the regulations under Internal Revenue Code sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A and 6050N.
Privacy Act Notice. Section 6109 of the Internal Revenue Code requires you to give your correct TIN to persons who must file information returns with the IRS to report, among other things, interest, dividends, and certain other income paid to you. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. The IRS may also provide this information to the Department of Justice for civil and criminal litigation, and to cities, states and the District of Columbia to carry out their tax laws. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 28% of taxable interest, dividend and certain other payments to a payee who does not give a TIN to a payer. Certain penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish TIN. If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect.
(2) Civil Penalty for False Information With Respect to Withholding. If you make a false statement with no reasonable basis that results in no imposition of backup withholding, you are subject to a penalty of $500 .
(3) Civil and Criminal Penalties for False Information. Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment.
(4) Misuse of Taxpayer Identification Numbers. If the requester discloses or uses TINs in violation of federal law, the requester may be subject to civil and criminal penalties.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE.
The Exchange Agent for the Exchange Offer is:
DEUTSCHE BANK TRUST COMPANY AMERICAS
By Facsimile (Eligible Institutions Only): |
By Registered or Certified Mail/ Courier/Overnight Delivery: |
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(615) 866-3889
Confirm by Telephone:
(877) 843-9767 |
DB Services Americas, Inc. 5022 Gate Parkway, Suite 200 MS JCK01-0218 Jacksonville, FL 32256 Attention: Reorg Department |
Exhibit No. (99)b
HALYARD HEALTH, INC.
NOTICE OF GUARANTEED DELIVERY
With Respect to the Tender for Exchange of
Registered 6.25% Senior Notes due 2022
for Outstanding 6.25% Senior Notes due 2022
Pursuant to the Prospectus Dated , 2015
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2015, UNLESS EXTENDED (THE EXPIRATION DATE). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
As set forth in the Letter of Transmittal (the Letter of Transmittal) accompanying the Prospectus dated , 2015 (the Prospectus) of Halyard Health, Inc., a Delaware corporation (Halyard or the Company), this Notice of Guaranteed Delivery or a form substantially equivalent hereto must be used to accept the Companys offer to exchange the 6.25% Senior Notes due 2022, which have been registered under the Securities Act of 1933, as amended, for any and all of the outstanding unregistered 6.25% Senior Notes due 2022 (the Old Notes) if the tendering holder of Old Notes cannot, prior to 5:00 p.m., New York City time, on the Expiration Date (i) deliver the Old Notes, the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent (as defined below) or (ii) deliver a confirmation of the book-entry tender of its Old Notes into the Exchange Agents account at The Depository Trust Company (DTC) and otherwise complete the procedures for book-entry transfer. If required, this Notice of Guaranteed Delivery, properly completed and duly executed, must be delivered to Deutsche Bank Trust Company Americas (the Exchange Agent) as follows:
By Facsimile (Eligible Institutions Only): |
By Registered or Certified Mail/ Courier/Overnight Delivery: |
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(615) 866-3889 |
DB Services Americas, Inc. 5022 Gate Parkway, Suite 200 MS JCK01-0218 Jacksonville, FL 32256 Attention: Reorg Department |
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Confirm by Telephone:
(877) 843-9767 |
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
For any questions regarding this Notice of Guaranteed Delivery or for any additional information, please contact the Exchange Agent by telephone at (877) 843-9767 or by e-mail at DB.Reorg@db.com.
This form is not to be used to guarantee signatures. If a signature on the Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions to the Letter of Transmittal, such signature guarantee must appear in the applicable space provided in the Letter of Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to Halyard, upon the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount of Old Notes set forth below pursuant to the guaranteed delivery procedures.
All authority conferred or agreed to be conferred in this Notice of Guaranteed Delivery and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive the death or incapacity of, the undersigned.
PLEASE SIGN AND COMPLETE
Signatures of Registered Holder(s) or Authorized Signatory |
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Name(s) of Registered Holder(s) |
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Principal Amount of Old Notes Tendered |
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Date |
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Address |
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Area Code and Telephone Number |
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If Old Notes will be delivered by book-entry transfer, provide the account number at The Depository Trust Company below:
Depository Account No. |
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This Notice of Guaranteed Delivery must be signed (i) by the registered holder(s) of the Old Notes tendered hereby exactly as their name(s) appear on the certificate(s) for such Old Notes or on a security position listing such holder(s) as the owner(s) of such Old Notes, or (ii) by person(s) authorized to become registered holder(s) of such Old Notes by endorsement(s) or bond power(s) submitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person must provide the following information and, unless waived by the Company, submit with the Letter of Transmittal evidence satisfactory to the Company of such persons authority to so act. See Instruction 2 to this Notice of Guaranteed Delivery.
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm that is a member of a registered national securities exchange or of the Financial Industry Regulatory Authority, or is a savings institution, commercial bank or trust company having an office or correspondent in the United States, or is otherwise an eligible guarantor institution within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, and that is, in each case, a member of a recognized signature guarantee program ( i.e. , Securities Transfer Agents Medallion Program, Stock Exchanges Medallion Program or New York Stock Exchange Medallion Signature Program), guarantees deposit with the Exchange Agent of the Letter of Transmittal (or facsimile thereof), the Old Notes tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Old Notes into the Exchange Agents account at DTC as described in the Letter of Transmittal) and any other required documents, all by 5:00 p.m., New York City time, within three New York Stock Exchange trading days after the Expiration Date.
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Authorized Signature |
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DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at its address set forth on front cover and back cover of this Notice of Guaranteed Delivery prior to 5:00 p.m., New York City time, on the Expiration Date.
The method of delivery of this Notice of Guaranteed Delivery and all other required documents is at the election and risk of the tendering holders. Delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If such delivery is by mail, the use of registered mail, properly insured, with return receipt requested, is recommended. In all cases, sufficient time should be allowed to assure receipt by the Exchange Agent at or prior to 5:00 p.m., New York City time, on the Expiration Date.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of Guaranteed Delivery is signed by the registered holder(s) of the Old Notes referred to herein, the signature(s) must correspond exactly with the name(s) as written on the face of the certificate(s) for such Old Notes or on a security position listing such holder(s) as the owner(s) of the Old Notes, without any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than the registered holder(s) of the Old Notes, this Notice of Guaranteed Delivery must be accompanied by appropriate bond powers, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificate(s) for the Old Notes or on DTCs security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and unless waived by the Company, submit with the Letter of Transmittal evidence satisfactory to the Issuer of such persons authority to so act.
3. Requests for Assistance or Additional Copies. Questions relating to the procedures for tendering, as well as requests for additional copies of the Prospectus, the Letter of Transmittal and this Notice of Guaranteed Delivery, may be directed to the Exchange Agent at the address and telephone number set forth on the front cover and back cover of this Notice of Guaranteed Delivery.
The Exchange Agent for the Exchange Offer is:
Deutsche Bank Trust Company Americas
By Facsimile (Eligible Institutions Only): |
By Registered or Certified Mail/ Courier/Overnight Delivery: |
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(615) 866-3889 |
DB Services Americas, Inc. 5022 Gate Parkway, Suite 200 MS JCK01-0218 Jacksonville, FL 32256 Attention: Reorg Department |
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Confirm by Telephone:
(877) 843-9767 |
Exhibit No. (99)c
HALYARD HEALTH, INC.
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
With Respect to the Tender for Exchange of
Registered 6.25% Senior Notes due 2022
for Outstanding 6.25% Senior Notes due 2022
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2015, UNLESS EXTENDED (THE EXPIRATION DATE). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the prospectus dated , 2015 (the Prospectus) of Halyard Health, Inc., a Delaware corporation (the Company), and the accompanying Letter of Transmittal (the Letter of Transmittal), which together constitute the Companys offer to exchange (the Exchange Offer) the new 6.25% Senior Notes due 2022 (the New Notes), which have been registered under the Securities Act of 1933, as amended (the Securities Act), for any and all of the outstanding unregistered 6.25% Senior Notes due 2022 (the Old Notes). For each Old Note accepted for exchange, the holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note.
This will instruct you, the registered holder and/or participant in the book-entry transfer facility, which is The Depository Trust Company, as to the action to be taken by you relating to the Exchange Offer with respect to the Old Notes held by you for the account of the undersigned.
The aggregate face amount of the Old Notes held by you for the account of the undersigned is (insert amount): $ of the Companys 6.25% Senior Notes due 2022.
With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box):
¨ | TO TENDER the following Old Notes held by you for the account of the undersigned (insert principal amount of Old Notes to be tendered, if any, in a minimum principal amount of $2,000 and integral multiples of $1,000 in excess thereof): $ of the Old Notes. |
¨ | NOT TO TENDER any Old Notes held by you for the account of the undersigned. |
If the undersigned instructs you to tender the Old Notes held by you for the account of the undersigned, it is understood that you are authorized to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner of Old Notes, including the representations that (i) any New Notes to be received in exchange for the Tendered Notes will be acquired in the ordinary course of business of the person receiving such New Notes, whether or not such person is the undersigned, (ii) neither the undersigned nor any other person receiving such New Notes has an arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the New Notes, (iii) the undersigned is not an affiliate (within the meaning of Rule 405 under the Securities Act) of the Company, (iv) if the undersigned is not a broker-dealer, the undersigned will not engage in, and does not intend to engage in, the distribution of the New Notes, and (v) if the undersigned is a broker-dealer, the undersigned is participating in the Exchange Offer for its own account in exchange for Old Notes that were acquired as a result of market-making or other trading activities, and the undersigned will deliver a prospectus in connection with any resale of the New Notes.
If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making or other trading activities, the undersigned acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of
such New Notes. However, by so acknowledging and so delivering a prospectus, the undersigned will not be deemed to admit that it is an underwriter within the meaning of the Securities Act.
The undersigned acknowledges that the Exchange Offer is being made in reliance on existing interpretations of the Securities Act by the staff of the Securities and Exchange Commission (the Commission) set forth in several no-action letters issued to third parties and, based on such interpretations, the Company believes that the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by the holders thereof without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holders business and such holders have no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of such New Notes. Any holder that cannot make any of the representations and warranties contained in the Letter of Transmittal (i) will not be able to rely on the interpretations by the staff of the Commission set forth in the above-mentioned no-action letters, (ii) will not be able to tender its Old Notes in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer transaction unless such sale or transfer is made pursuant to an exemption from such requirements. Failure to comply with such requirements may result in such holder incurring liability under the Securities Act for which the Company will not indemnify the holder. The undersigned further acknowledges that the Company has not sought or received its own no-action letter with respect to the Exchange Offer and the related transactions, and that there can be no assurance that the staff of the Commission would make a determination in the case of the Exchange Offer and such transactions that is similar to its determinations in the above-mentioned no-action letters. The undersigned further acknowledges that the Company may rely upon each of the foregoing representations and covenants for purposes of the Exchange Offer.
SIGN HERE
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